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Your Wheel of Wealth

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I read how are you building your net worth? at The Digerati Life a few days ago and I found it a very interesting article - one of the most interesting I've read in a long time. She breaks down her overall wealth accumulation into a 8 basic areas - Debt control, Business or Entrepreneurial Endeavors, Liquid Investments, Real Estate, Frugality, Jobs, Savings, Windfalls. This is pretty comprehensive list. Though I don't what category you'd put the people who worked at YouTube in. Those employees seem to fit Entrepreneurial Endeavors, Jobs, and Windfalls all of once. Actually now that they have Google stock they have Liquid Investments. While we are talking about Liquid Investments, I wonder if retirement accounts (401k, Roth IRA, etc.) would fit in here. They aren't typically "liquid" but they don't seem to fit into any other category. I'll assume that they fit in that Liquid Investments category for now.

It seems to me that most people are reliant on just their jobs and maybe Real Estate. Many people have a lot of consumer debt (no Debt Control), which leads to no Savings. While I find certain acts of frugality fun, most people want no part of it. More and more people have Liquid Investments investments through 401Ks and Roth IRAs, but I wonder if it's enough to support them in retirement. Of course you could hope for a Windfall, but, by definition, you can't plan for them.

Lastly, very few people seem to go after Business or Entrepreneurial Endeavors. I was president of that group when I started this website. In fact, it's the single reason behind the name, Lazy Man and Money. I don't have the drive necessary to do all the things it takes to start a successful business. And in a paradoxical way, the fact that I'm too Lazy to start a business has turned into my business.

The great thing about the The Digerati Life's wheel is that it is well balanced and diversified. I truly believe this is one of best paths to a high net worth. There will be some that suggest starting a business or real estate should comprise a large portion of the wheel. You take on a lot of risk if those areas get too big. Casey Serin found this out the hard way when he couldn't flip his properties of a big gain. Countless other business owners have also discovered the pain of losing their life savings.

What does your Wheel of Wealth look like?

Posted on July 24, 2007.

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Net Worth

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9 Responses to “Your Wheel of Wealth”

  1. Dave says:

    “While I find certain acts of frugality fun, most people want no part of it.”

    Sustainable living has to be a part of any wealth building. For me, using up resources w/o regard to the consequences is immoral and impractical.

    However, there are those people who were born rich and for them I’m speaking a foreign language!

  2. Moneymonk says:

    I agree that The Digerati Life wheel is well balanced. I rely on Entrepreneurial Opportunities as well as my job for wealth building. If I can mix that with avoiding debt, my road to success with be much smoother.

  3. Foobarista says:

    For us, the following:

    1. Work. I’ve worked in Silicon Valley for over 20 years and am now in my primary “earning phase” of life.

    2. Entrepreneurial income; my wife is self-employed. But I work too hard in my primary job to bother with web income or whatever, especially since it would be taxed at 45%.

    3. Compound interest; we invest in several private “hard money” funds that pay 10-13%. Given the tax issues, we’d rather use our money to make money than spend more of our time to make money.

    4. Windfalls; I work in startups, and always exercise my stock, no matter how bad things look for the startup. This strategy has worked twice in the past and my current startup is going well. Also, if you have the opportunity to do so, early exercise of stock options means the money from the “liquidity event” is taxed as a capital gain as opposed to income.

    5. We have no debt outside our mortgage, and while we’re fairly frugal and do all the usual stuff to save money, we aren’t annoying or self-righteous about it. One often overlooked aspect of frugality is it’s effectively untaxed savings – every penny saved is literally a penny earned, so as you make more money and get taxed at higher rates, the “relative rate of return” from frugality is actually higher.

    We also have a house but that’s it as far as direct exposure to real estate goes. The hard money funds have enough real estate exposure for me.

  4. Greg says:

    Most ( not all) people who are really concerned with being “frugal” seem to have no interest in building wealth. I believe in living below your means- that’s something everyone should do (obviously, I think) to save and accumulate. But being obsessed with frugality isn’t necessary. Frugality is required for those with low income, but is relative. Most would consider someone who only earns $16,000 and spends $15,000 as frugal. What about someone who makes $100,000 but lives on $80,000? Is that person more frugal? They live on a lower percentage of their income, but they are still probably buying “extras” and enjoying life.

    I find, especially from reading PF blogs, that a lot of “frugal” people use it as a crutch and excuse to underachieve and ultimately not care about being responsible for their lives ( while often having irrational dislike of those who ARE responsible). I speak out of experience as a “frugal” poor person. I find a lot of people waste energy trying to save 1 dollar, when the energy could probably be spent EARNING thousands more. Increasing income through one of the means ( job, business, investments,etc) is a much more productive use of life/time.

    Sometimes being frugal is expensive.

  5. Thanks for highlighting the “Wheel Of Wealth ™” ;) I have noticed that the older I got and the higher our net worth became, the wheel just naturally became more and more diversified. We started with the wheel overweighted towards Debt Management, Frugality, Savings and Jobs. Especially Jobs (or job income). As life chugged along, Investments grew to a larger share and Windfalls contributed to the bottom line. It was only recently that Real Estate and Business, have become a part of this wheel.

    If you think about it, each household could approach their wheel differently. Some people start off with purely Business as the basis of their net worth. Some do so with purely Real Estate (as several of my friends have). These people are very financially stable which shows that even with a concentrated wheel — and in fact, perhaps *because* of one — they have become wildly wealthy.

  6. Dave says:

    One of the things I realized is that it is easier to save $250 a month (frugality),than it is to earn $250 a month (investing). It tales about 80,000 dollars at 4% to earn what you could have made by simply watching your expenses.

    The job/career element means very little in a global economy. There are 4 times the number of Chinese college graduates as USA college graduates. That is why your need practical entrepreneurship – or what others are dubbing – alternative income streams.

    And a final point needs to be made. Frugality is also a response to our brothers/sisters in the human race. Most Africans live on a dollar a day and yet we Americans get upset when the power goes off during a storm.

  7. Lazy Man says:

    Excellent comment Dave… on the last point, I think it’s about expectations of the two types of civilizations. For Americans nearly everything we do is based on their being electricity – in a way it’s the lifeblood. To many Africans living on a dollar a day, the equivalent would be the river stopping flowing or the sun not rising. The bumble bee gets by on zero dollars a day, but that doesn’t mean I want to be one.

  8. Moneymonk says:

    “Most Africans live on a dollar a day and yet we Americans get upset when the power goes off during a storm.”

    We are spoiled. Once you pay attention to world news, you miss out on how fortunate you really are. Net worth does not seem to important anymore

  9. Foobarista says:

    I hate to be obnoxious, but the idea that one’s personal frugality has any effect whatsoever on people in Africa is silly. If you want to help people in Africa, the best way is to lobby Congress to get rid of agricultural subsidies and other restraints on trade with Africa. And then buy their products.

    Oh, and don’t bother with rockstar “feed the poor” promotions. Most of the money they raise ends up in the pockets of dictators and brigands. Trade is the best anti-poverty tool in the human toolbox, as China and India have shown.

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