Photo by 401(K) 2013 Photo by 401(K) 2013
By Anthony McDougle, May 2, 2014

Before the re-launch, I wrote a blog post called “Creating and Acquiring Software Assets,” where I defined my overall strategy for accumulating wealth. There was a lot of information packed into it that I felt I can expand on – especially given the new direction of the blog. So, I’m splitting it up into a mini-series of posts – this one, where I define the goal, and then a “Getting Rich Through….” series where I detail the steps and business/investment vehicles I plan to use to achieve it.

So you want to be rich, right? I think most people do. Some are even doing something to work towards that goal. But if you actually want to make it there, you have to define a true goal, right?

So how would you define “rich”? At what point can you proclaim “I’m rich!” and decide that you’re wealthy enough that working for a living and making money is no longer a major concern? Unfortunately, most people don’t have an answer to that. They have a vague sense of “I need to amass a huge fortune” in order to feel financially secure. Some think they need to strike it big by winning the lottery or selling a business like WhatsApp or Summly for millions or billions of dollars. While I’m sure that would accomplish the task, there’s got to be a better way – or at least a way that’s more consistently achievable.

I plan to be rich, but this isn’t about some get-rich-quick scheme. In fact, it’s quite the opposite. While I would love to have hundreds of millions of dollars, and something like a quick buyout would be nice, my goal is set much, much lower for the time being. As I will expand on throughout this article, when I say I’m going to be rich, I’m not focusing on amassing a huge amount of money (I’ll do that once I’m already rich), I’m focusing on freedom. Specifically, I’m basing the goal on the point at which I’ve determined I am free, financially secure and stable. The real strategy is to build wealth over time through my businesses and investments until I reach a clearly defined goal; I can then set a higher goal and work towards that if I want to (and I probably will). Getting to millions or billions of dollars might happen eventually, but I’ll focus on that goal when it’s more appropriate.

Defining Wealth

As I said, before you can work towards getting rich, you have to understand what “getting rich” really means. Again, you must ask yourself, “At what point would I consider myself rich?” It may or may not be a simple number. In fact, I think it makes more sense to base your wealth on how much income you receive in a given time period over how much you have in the bank.

Robert Kiyosaki, author of the Rich Dad book series, first defines wealth as the length of time one can live, considering the expenses necessary to maintain a given lifestyle, if they were to quit working immediately. An author over at the BiggerPockets blog, Karen Rittenhouse, actually took this one step further to define six levels of wealth using this concept (and applying it to real estate). Personally, I feel that this is the best definition with which to create a clear and concrete goal.

So How Do You Get Rich?

There are several ways to achieve this goal. You could sum up the total of how much money you think you’ll spend in your entire life and try to save that amount of money in the bank – although this might take a lot of effort and you might end up running out of money if you do your math wrong. Furthermore, with all of the government spending and QE, you’ll be trying to outrun inflation the whole way. You might need to hit the startup lottery as I mentioned above to accomplish something like this! Of course, there is an easier way – building and acquiring cashflowing assets.

Business and investment income, done right, can be mostly passive. You can set up an automated system that actually starts producing value on its own regardless of whether you show up at the office for 8 hours on a given day. You may have to go back to readjust the vision, update marketing processes, or prune your portfolio, but in general a well-structured big business can run mostly on its own with some oversight. This frees you up to expand your portfolio and accumulate more passive income (rather than working all day just to reach the same financial target you already hit yesterday, and the day before that…). Even when it’s not passive – i.e. the early stages – being able to not need to show up at a specific office at a set time and stay for a specific length of time each and every day gives you the freedom to consider yourself “rich.”

As such, the path to achieving the goal becomes building and acquiring systems (in the form of businesses and investments) that provide enough passive cashflow over a given time period (monthly, quarterly, yearly) to cover all of your expenses (as defined by your target step in the BiggerPockets article) over that same time period.

Thus, if you’re targeting the Financial Security step, you must first define how much money you spend each month on basic needs. I currently spend around $2k per month or $24k per year on basic needs (excluding expenses like student loan payments, which I plan to pay off as soon as possible anyways, and entertainment items like beer — these additions would run it up to between $2.5k and $3k, depending on the month’s purchases). I live pretty cheaply for now, so your numbers may vary. Now you simply need to build businesses and acquire cashflowing assets like dividend stocks and real estate rental properties until the net profit you make each month covers those basic needs. Achieve that step, and then target the next one! If you take it one at a time, you’ll find yourself living luxuriously, free from reliance on your job, in no time.

Personally, I’m hoping to achieve Financial Security this year, or by end of 2015 at the latest (The Benefit X-Change might take some work to automate, although we’re nearing launch date!) and my true current goal is Financial Vitality within the next five years, at which point I can truly be free from a “job” whether I decide to quit working or not. Steep goals, but I’d rather shoot high and miss than underachieve because I didn’t try hard enough.

Once you get there, you can decide to move on to the next level or just be happy where you are. After all, money is not the answer – it’s a resource that we use to enjoy our time in this world, and we should enjoy it to the fullest. Financial Freedom is the ultimate goal, but there’s no rush – baby steps!

Check out the following posts for a mini-series on my overall investing strategy, where I describe the various vehicles I will use to achieve the goals stated above and give (my) actionable steps on how to do it.

Part 1: Getting Rich Through… Software Products

Part 2: Getting Rich Through… Rental Properties

Part 3: Getting Rich Through… Dividend Stocks

Part 4: Getting Rich Through… Gold and Silver

Part 5: Getting Rich Through… Cash Reserves

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