I often receive questions regarding whether it is better for your personal wealth over time to have a healthy savings account or a larger net income per year. While these things may play a part in accruing wealth, they can also be detrimental to your ability to maintain wealth over time and to live wealthily. Let’s aim for a larger goal: Limitless Wealth.

There is a world of difference between being wealthy and living wealthily. The difference is whether or not you slave away your days and trade your time for money. People who sacrifice their entire lives for money may be wealthy in the end, but they will not have lived wealthily.

Living wealthily is a combination of living with purpose, intention, and enjoyment. Oftentimes, those who have accrued great riches use those riches to ensure that they will never have to work another day, that is, to do something they don’t want to do, again in their lifetimes.

This is where we can begin to break down the definition of living wealthily. In his book, The Four-Hour Workweek, Tim Ferriss describes the phenomenon of what he calls “lifestyle design.” The basis of lifestyle design is focusing your attention on joining what he calls the “new rich” that is, the people who automate and scale business so that they can work less, and make more money.

The end goal of lifestyle design is your ability to do anything that interests and fulfills you at the moment, without worrying about burdens and financial repercussions.

This is what it means to truly live wealthily – to pursue happiness in the moment without the constraints of time and/or money for which you sacrifice your time.

Today I hope to share with you the largest key factors in collecting, and maintaining, amazing amounts of wealth and fortune. The key here is to make your money work for you, as opposed to you working for it. This way, your money will accrue despite your constant interference or involvement, and you can begin to live life wealthily.

Higher Income? Or Larger Savings?

Income and saving is chump-change compared to the power of proper investment vehicles to amass wealth.
Income and saving is chump-change compared to the power of proper investment vehicles to amass wealth.

The answer to this dichotomic question of painstaking and ineffective methods for increasing wealth is a truthful and strict “neither.”.

I’d much rather have good INVESTMENTS as opposed to good savings. this is for a few reasons. There is a common saying in the finance industry, “Saving money is losing money.” And it’s true!

If your saved money isn’t being returned at an average of 2% per year, you are losing money due to inflation. That is, you won’t lose dollar amount per se, but you WILL lose dollar value (how much that dollar can buy you). The result of inflation on your savings is not that you will have less money, the amount of money you have WILL stay the same. But, your money won’t be able to stretch as far as it once could.

For example, a dollar today could buy you a candy bar. Fair enough. But, a dollar in 1970 was worth the purchasing power of $6.67 today. For a dollar in 1970, you could buy almost 7 candy bars. This is the power of inflation to lessen your money’s purchasing power.

The reason that saving money is losing money is because your money becomes worth much less, year after year. That is, unless you make that money work for you and compound interest.

Compound Interest – The Secret to Amassing Wealth

Compound interest occurs (usefully) when the interest you gain for allowing a financial institution to use your money is rewarded more than the rate of inflation. That way your money can grow or outgrow the effects inflation has on the purchasing power of your capital.

Over time, as the interest you gain gets you more money, so do you also get more interest. This is because interest is building upon the money that subsequent annual interest has leveraged. Therefore, amassing wealth becomes an exponential process. It will begin slowly but reach a tipping point at which wealth takes a steep climb!

The Issue With Income

Most people don’t want to wait. most people also don’t recognize the sheer value that is to be had with a little more patience.

Here is why I denied both parts of that question (income and savings): No amount of income matters if it isn’t being managed (we’ll get to more on this later) well. I’ve seen lottery winners lose EVERYTHING in a matter of days, they usually become far more miserable than they were before they won.

Most people just want to make a few more bucks here and there, but the fact that they mismanage money means they could be costing themselves millions in interest alone in the future, and for hardly any of the benefits that are befitting a person who lives truly wealthily.

All that money should be is a medium through which you have the FREEDOM to pursue your happiness. After all, what good is having lots of money if you can’t spend it? And studies have shown that incomes over roughly $75,000 per year have diminishing returns in terms of life-satisfaction levels.

What this means is, at that threshold of income, we start to witness the tipping point between people who work for wealth, and people who recognize the importance of living wealthily instead.

So, more income or larger savings? Neither. Instead, let’s now discover the three key factors to building great wealth, and scaling it so that you no longer have to work for your cash!

Overview

The reason saving money is nonsensical is because saving money is really losing money. Investing is the way to go!

The key to a wealthy life is to automate income (make it passive, BEYOND your expenses. That way, you will never have to work another day in your life. You can do so by making wise investments.

The 3 Keys of Wealth – Both Now and in the Future

The keys to amass limitless wealth.

There are 3 key points you need to consider to make yourself rich beyond your wildest dreams. Remember, the goal of these riches is to free up your time and enjoy life for what it can be NOW, not what it could be LATER.

Principle 1: High-Income Skills

High-income skills are the things that you specialize in, most often that compliment your strengths, that other people or organizations find extremely valuable.

I know I just mentioned that a higher-income should not be your focus, and I stand by it. That is because, without the other two keys of wealth, you will NEVER be able to convert the active income you employ by this skill into PASSIVE income. This is important. No high-income skill will make you rich unless you have the other two keys to accompany it. These high-income skills should only come in handy when you are in desperate need of capital.

These skills are things other people would pay lots of money to either learn or implement in their lives or businesses. My personal high-income skill is organizational change management. It is a difficult and abstract concept that most business leaders pay lots of money for.

This skill is designed to give you a consistent stream of active income until you can manage passive income in principle number two. Active income is like trading your time for money. Going to a 9-5, for example, is active income.

Passive income is income that you will not have to work for, ever again (except for potential maintenance, etc.). It is income that accrues as a result of you doing something once, and reaping the benefits thereafter.

The books I write are passive income. That is because I write them once, and never have to write them again. Yet they still sell and produce income for me after the fact.

Musician royalties, author royalties, product royalties, actor and actress royalties are all results of passive income. You don’t need to actively work to maintain these things.

The reason this point is important is because a high-income skill is only as good as your ability to manage the income that does accrue. You likely don’t want to be stuck performing this skill forever without exploring the other facets of life!

Principle 2: High-Return Investments

High Return investments are usually those characterized by averaging MORE than 10% yield on investment annually.

Considering 10% is the average stock market growth rate, any more than that, and you’re beating the odds and doing quite well. I manage roughly 15%, Warren Buffett, a billionaire investor averages over roughly 20% annual return.

Remember when I was talking about the issue of saving money earlier? And how saving money and losing money are one and the same? Well, the good news is that as you gain income and find higher-interest mediums to invest in, your money can keep you ahead of inflation and compound itself at the same time.

This means that investing money wisely is not only saving the money that would be lost due to inflation but also generates more money with which your interest can compound over time!

If you invest a million dollars (income generated by your high-income skill) at a 15% rate of return, guess what? That million dollars just generated you $150,000 a year for NOT DOING ANYTHING (other than choosing/managing the investment medium).

This is why the rich get richer. They make their money work for them instead of having to work for it. That way, if they do both (invest and generate capital), they can continually feed capital into investments which, in turn, make them MORE money.

The goal is to use your high-income skill to generate capital which will compound itself over time through investments, thereby, making your money work for you instead of you working for it. Only when you reach a point at which you can cease the work you do and live the life you want will you be living wealthily.

Principle 3: Scale-able Business

Scaleable business aren't without risk. But it is that risk that will ultimately allow you to live a dream life.
Scaleable business aren’t without risk. But it is that risk that will ultimately allow you to live a dream life.

Your high-income skill should be something that allows you to either create your own business or provide great value to an organization.

Scaling that business means leveraging your time and money to generate more income in an automated fashion. That is, you make more money but don’t work more hours.

This is why authors like Tim Ferriss (whom I mentioned earlier) can make $40,000 in a month while working only 4-hour workweeks. Scaling a business simply means you can prepare for large growth and put your organization into the hot-spot for success and demand.

Most High-income skills come about in the form of a business or side hustle. This is often because you can be paid much more by working for yourself (and, granted, dealing with risk) than you would be working for somebody else. This is why the importance of scale-able business comes into play. A scalable business is one that allows you to delegate and set up business processes to automate functions.

Essentially, what this means is, your business grows without a linear progression of work to accommodate that growth. You want to be able to make more money in LESS time. It makes no sense to be rich but become stuck in the process of working away the time you should be enjoying.

This is why considering the scale-ability of your business is valuable. Are you able to automate many business functions? Can you put people to work for you? Can you make a profit despite not doing anything?

The key here is NOT to become the CEO of your own company, rather, the key is to become the OWNER of a profitable organization that needs no direct oversight from you to operate. That is the goal of a scale-able business.

Conclusion

“Saving Money is losing Money”

Being wealthy and living wealthily are NOT the same.

The goal of money is to provide you the FREEDOM to pursue interests and live life.

Worry more about where your money GOES and less about saving it for the sake of saving it.

3 Keys to limitless wealth:
1. High-Income Skills
2. High-Return Investments
3. Scale-Able Business

-Austin Denison is a change management consultant from Southern California and founder/CEO of Denison Success Systems LLC. He is the author of The Essential Change Management Guidebook: Master The Art of Organizational Change as well as The Potential Dichotomy: The Philosophy of a Fulfilling Life.