How to Get Rich in 2022

In this video, I'm going to share with you what I've learned from studying how to build wealth, as well as the practical lessons from my own wealth building journey. This advice and knowledge has helped me build a net worth of over $300,000, having just turned 24 years old. Think of the rest of this video as a blueprint of sorts that you can apply to your own life to help you find ways to build wealth quicker and more effectively.

Make sure to like this video because I'm not trying to sell you some overpriced course; I just genuinely want to help people learn about how they themselves can become wealthy, stop living paycheck to paycheck, and not have to constantly stress about money. Without further ado, let's get into the video.

I don't know if you caught it because it was super subtle, but did you notice how in the introduction of the video, I refer to it as building wealth and not getting rich? I know they are considered the same thing to most people, but to me, there is a distinct difference. To me, being rich is having nice things—maybe a very fancy car, expensive clothes, a huge house, and other things like that. On the other hand, my idea of being wealthy means owning assets like stocks, real estate, and small businesses that produce enough income so you don't have to work unless you want to.

Yes, being rich and having all those luxuries can be nice, and there isn't necessarily anything wrong with that. However, I think your first goal should be to build true wealth—let your income from your investments cover your fancy lifestyle. There are way too many rich-looking people in the world who are actually broke, and you don't need to be one of them.

So now that we have that clear distinction, let's get into the details. The equation to building wealth is simple, and the math can probably be done by a six or seven-year-old. Take your income, otherwise known as all the money you make, and subtract out your expenses such as housing, food, clothes, travel, etc. The amount that is left over is what you can use to build your wealth.

Now, most financial advice focuses on the expenses side of the equation, such as how you can reduce your living expenses—things such as cutting out that Starbucks coffee. However, I want to flip this conventional wisdom on its head. I want to spend the majority of this video talking about how you can maximize your income because I believe that is actually far more effective than cutting out your five-dollar coffee. It is by maximizing income that you can quickly build wealth while still enjoying the finer things in life.

The reason why maximizing income is more effective is because, based upon my experience, it is much more scalable than reducing expenses. When I say scalable, what I mean is that it is much easier and more enjoyable to double your income than it is to cut your expenses in half. As I see it, there are two categories of income.

The first is called active income, or what you may think of as your labor income. This is the income you make from actively doing something, whether it is working a nine-to-five job or directly working in the daily operations of a business that you own. I have identified five categories of labor income, starting with the lowest income potential but most income certainty at the top and the highest income potential but lowest income certainty at the bottom.

The first category is the simplest and where the overwhelming majority of people fall into: it is a job. This is where you trade your time for money. You don't get meaningful amounts of stock in the company, and your pay isn't necessarily tied to the performance of your job. You work a certain number of hours a week, and you know exactly what your pay will be. This category generally takes the longest to build wealth.

The next category is what I refer to as a performance-related job. While you don't hold meaningful stock in the company here, your compensation is much more tied to how you perform at the job. As you perform better on the job, you make more money. A perfect example of this would be salespeople that work in sales; if they are good, they can scale up their earnings to one hundred thousand dollars, two hundred thousand dollars, or even three hundred thousand dollars, depending on the industry they work in.

I personally have a performance-related day job working as an investment analyst at a large investment fund. I get paid an annual salary plus an annual bonus based upon my performance. The next category is working at a startup. This is similar to a performance-related job, but because the company is in its early stages, a large meaningful part of your compensation as an employee comes in the form of stock in the company. If the company is successful, that stock can be worth millions of dollars.

The fourth category is where, in addition to having one of the above categories of labor income, you also own a business that you do on the side. This can be super powerful when it comes to wealth building. This is because if your job covers all your living expenses and provides you with insurance and other benefits, 100% of your income from your side business can be put towards building wealth.

And the highest potential income but lowest income certainty is entrepreneurship. This is where you own the company you work for and you are the boss. In theory, your income in this category is limitless; however, it is entirely based upon your own performance and that of the business.

Now that we've talked about the five different categories of labor income, I just want to say it's super important to understand that everyone has their own unique skill set and different tolerance for variability in their life. However, I think that most people should strive to move away from the job category and move towards the other categories of labor income. This is because in the other categories, your income is much more scalable in a shorter period of time.

For me personally, I have a performance-related job where my income can scale up based upon my performance. Additionally, I also operate a business on the side. My labor income helps me grow my investment income. Let me explain what I mean: the savings from my labor income is able to be invested into assets that produce income for me.

In order to truly build wealth, you have to own investments. It's pretty much impossible to truly build wealth without investing and instead keeping your money in a savings account. Even if you're lucky and can get a one percent annual return on your money sitting in a savings account, if inflation is higher than that one percent return, your money is losing value just sitting in the savings account due to inflation.

In my opinion, you're what I call financially independent when the income from your investments covers your living expenses. This means you could stop producing income from your labor and still be able to live your life normally and not really have to worry about money—a great goal to strive for, if you ask me.

Now, there are a ton of different investments, but in this video, I just want to focus on three broad categories because I think they are the most attainable and the most relevant to the average person. I am focusing on building my own personal wealth in all three of these categories. As we move down the categories, note that your potential returns will increase, but so will the amount of work and time involved.

The first and by far the most common category of investing is stocks. This is where you purchase small ownership stakes in businesses. Quick plug: if you want a free slice of stock of your choosing with a deposit of as little as five dollars, sign up for the free stock trading app Public with the link in my description. Stocks are by far the easiest investment to get started in because if you wanted to, you could simply invest in index funds that automatically spread your investment dollars out among hundreds of different companies.

The value of stocks and your return from investing in the stock market can fluctuate pretty significantly in any given year, month, or even week. However, there have been several studies that have come out and claimed that you can withdraw four percent from your stock portfolio without worrying about ever running out of money. So for example, if your stock portfolio is one million dollars, you can count on that portfolio being able to provide you with forty thousand dollars of income each and every year of your life.

The next category that I want to touch on is real estate. Besides stocks, this is the investment category that is easiest and most accessible to the average person. Depending on the amount of debt you use to purchase the property and in what city you are buying in, small investment properties can generate returns of eight to twelve percent a year, not factoring in appreciation and paydown of the mortgage used to purchase the property. Assuming you are using debt to purchase these properties, this means with one million dollars of your cash invested, you can expect rental properties to generate eighty thousand to one hundred and twenty thousand dollars a year of cash for you. I personally own rental properties in the city of Indianapolis, Indiana, that are generating these types of returns.

Of course, if you are investing in California or New York City, your returns will likely be lower as property is extremely expensive in those areas. However, if you own real estate in a lower cost of living city like Detroit, Michigan, or Cleveland, Ohio, you could expect your portfolio to likely generate more cash flow.

The next category requires the most work by far, but also has the potential for the highest returns for you. This is by buying a small business that you own but do not operate. This can range from a laundromat, a landscaping company, a small plumbing company, or even a more sizable business with millions of dollars in annual sales. I have heard from a lot of people in the past couple of years that have been successful in doing this. Obviously, this requires more work than stocks and even real estate, but it has the highest potential for returns. I have heard of people generating 25% to even upwards of 100% by purchasing small businesses, meaning that one million dollars would produce anywhere from 250,000 to an additional one million dollars every year for the owner.

So now that we've talked about the income side of the equation, I want to spend some time on how to effectively cut expenses without sacrificing your quality of life. There are two main categories of expenses that account for a significant portion of the average person's budget: they are housing, which is typically number one by far, followed by transportation.

So instead of cutting out that Netflix subscription, I think it is much more helpful and efficient to focus on these two categories as they have the biggest impact on your living expenses. The number one biggest expense item is housing. It is typical for some people to spend anywhere from 25% to 40% of their entire monthly budget on just this one item. If you're able to reduce this expense by hundreds of dollars a month by not living in a luxury apartment or a very hot neighborhood, it can help you build wealth much faster.

If you want to be a little more extreme, you can even have roommates. I have noticed that in many housing markets, a two-bedroom apartment is usually only a few hundred dollars more expensive than a one-bedroom. So instead of paying fifteen hundred dollars for a one-bedroom apartment, if you instead pay eighteen hundred dollars for a two-bedroom apartment but have a roommate, you can bring your rent expense down from fifteen hundred dollars a month to nine hundred dollars.

If you want to take this concept of reducing your housing expense to the absolute extreme, you can do what I did. In order to reduce my housing expense, I purchased a duplex or a house with two separate units. My entire housing payment is one hundred dollars a month, which includes my monthly mortgage payment, my property taxes, and my homeowners insurance. I rent out the upstairs unit for fifteen hundred dollars a month and rent out a room in my unit for seven hundred dollars a month. This means the two thousand two hundred dollars I receive a month in rent completely covers my housing payment.

Now, of course, I am still responsible for maintenance of this house, but doing this essentially allows me to live for free or even actually get paid to live in my house once you factor in me paying down my mortgage with every payment I make and the net worth I am building as my house appreciates in value. This is the way you should be approaching saving money: focus on things that really matter.

The next biggest spending category for most is their car. Now, I like cars as much as the next person, but constantly driving a new car is one of the things I commonly see that keeps people from building wealth. The average car payment for a new car in America is six hundred dollars and can even approach eight hundred dollars a month for a luxury vehicle. I'm not opposed to going into debt for something that appreciates in value over time, like real estate.

However, the reason why constantly driving a new car is so expensive is because that vehicle depreciates. If you buy a brand new nice car for fifty thousand dollars, each year that vehicle loses value, and before you know it, that vehicle is worth just a fraction of what you paid for it. The simple choice of driving a car that is, let's say, six to eight years old and is paid off instead of a brand new car and upgrading every two years will save the average person thousands of dollars a year that they can use to build wealth.

If you take one thing away from this part of the video, it is to focus on your expenses that really matter, such as housing and transportation expenses, and don't stress about buying the five-dollar cup of coffee.

So there you have it. I hope that these tips from this video were useful for you. Make sure to like this video and subscribe to the Investor Center because it is my goal to help make you wealthy. As always, it was great talking to you, and I'll see you again soon.