The 7 Steps To Start BUILDING WEALTH! (Richest Man In Babylon) | Lewis Howes

The most important thing here is to be realistic about your current situation, where you are right now with your money. And you don't have to be ashamed about where you're at. And one of the first steps to building long lasting wealth, this video is brought to you by Wealthfront and you'll hear more about them in just a bit. I think you got to have a dream. The School of Greatness. Really? Yeah. Please welcome Lewis Howes. Hey guys, Lewis Howes here and today I want to talk about building wealth. And this is really the 7 secrets to building long term wealth. and there are some principles that I read about when I was broke living on my sister's couch that over the years really found them to be true. And so I want to talk about some of these principles that I learned, some that worked, some that didn't work, and how I've learned from some incredible mentors over the years to help me build wealth as well. And these principles today come from one of the most influential books on wealth ever written, and that book is called the Richest Man and Babylon. I'm not sure if you've read it or not, but since I launched the School of Greatness almost nine years ago, I've done over a thousand episodes. And this book is one that keeps coming up when people talk about wealth, money, and investing. And everyone from billionaires to millionaires to casual investors have used its principles as a guiding light to building long-term wealth for themselves and their families. And again, if you haven't seen the book yet, the Richest Man in Babylon make sure you go check it out. Now, money is a language that can take a lifetime to learn, but one that's so important to know. And I remember when it used to be terrifying for me to think about money, to talk about it. It was just a scary concept. And I used to be just really terrified about it all the time because I didn't have any. But after surrounding myself with those that did have it, that were learning how to make it, those had been successful as investors and building businesses, and by getting familiar with it, by learning from books like this one, the Richest Man in Babylon, I was able to eventually understand it and feel more comfortable about it. And I'm still learning and I have a long way to go, but I've come a long way as well. And I know you can as well. Wherever you're at in your money situation, you can always learn more and improve from where you're at. Now, I want you to get out a piece of paper and a pencil and really take some notes during this entire episode because I think it's going to support you in your money and wealth generating process. So there's seven key lessons to this process that are talked about in the book. I'm going to paraphrase some of these lessons and I'm going to make them more modern because this book is over a hundred years old or it's almost a hundred years old and it's a parable. So they use some language that's a little bit different. So I'm going to kind of modify some of these principles that I've learned from some of these key billionaires and millionaires and successful investors that I've interviewed on the School of Greatness and apply them to these seven lessons. So lesson number one is to pay yourself first. Now, you've heard this when you get on an airplane. The first things they tell you during the safety demonstration is to put your own mask on first. You don't put it on someone else and then go unconscious, you put it on yourself, right? And this seems so simple. We've heard this over and over again in different parts of our life. We've heard this analogy a billion times, but it's so important and it's, extremely important when it comes to finances, but most people don't think that way. And a lot of us want to pay others first or give that gift to our partner or buy that new pair of shoes for a friend or whatever it might be. And I'm not saying you have to give that up completely, but what I am saying is you want to make sure that your cup is filled before pouring anything into someone else's. And you need to be setting aside some percentage of every dollar you make into your savings or investments to really set yourself up for the future. And that's why what we say pay yourself first, what that means here. So you really want to pay yourself first. And you always have to be prepared for an emergency situation. Anything can happen. You know, for example, your business might get shut down unexpectedly. You may need to cover an expensive medical bill and the list goes on and on. And that's why savings is such a critical first step in building long term wealth. How much money should you be putting away? Well, a financial expert and friend of mine and 10-time New York Times bestselling author David Bach, he makes it pretty simple in his explanation. He says, First, we need to make a promise to ourselves to become financially selfish. This is what he calls it. And focus on our own financial goals before anyone else's. The calculation David uses for setting aside savings is one hour of whatever it is we earn per day. So if you earn $100 over the course of a 10 hour workday, you would set aside $10. And others have different ways of approaching savings. Shark Tank investor and serial entrepreneur Kevin O'Leary says we should set aside 10% of every single penny we make, no questions asked. Now, my personal advice here is the same advice I give to people who tell me they're trying to build a business or achieve a big time goal. is you can go as slow as you want, but just don't stop. Do whatever you can when it comes to savings, but make a commitment to stick to it. So if you need to start small, that's fine. Just do slow, slow, slow, but just don't stop. Don't give a little here and then stop doing it for years. Just keep going. Another mentor, Tony Robbins says, to think of your savings like a tax that we have no control over being charged for. So think of money like it's gone forever. this type of money that you're gonna save, it's locked away, it's gone forever, it's a tax, it's gotta go out every single month like a tax would. And whatever it takes, just make sure to make a plan and stick with it. Try to automate some of these things if you can. And remember that if you don't pay yourself first, it'll be almost impossible to show up for other people the way you want to. So make sure you're paying yourself first and that's lesson number one. Lesson number two is to control your expenses. And this is a big one. Living within your means is something that is so important but often overlooked today. And you could blame the Instagram lifestyle or society's obsession with material things or whatever else. But the truth is it's always been a problem overspending and not really managing your expenses. And people who aren't used to having money will oftentimes spend way too much the second they get in their hands. and you see a lot of this with pro athletes and celebrities, but it happens all the time with a lot of people as well. And who can really blame them? You know, when you get a lot of money coming in, you're just like, oh, this is cool. I want to spend it. You know, this is something that is exciting. But this stuff wasn't taught to us in school and we aren't giving the tools. We need to know how to prepare for taxes, how to avoid credit card debt, how to properly invest our money. So it's no wonder it's such a big challenge and issue. And if I was given a lump sum of money at an earlier age when I didn't understand these principles, then I would struggle with this as well. So living within your means means to set up a budget and to stick with it. Whether you make $30,000 a year or $3 million, learning to manage your expenses and know exactly how much you're able to spend and where you can spend, it is a cornerstone of building long-term wealth. And billionaire and legendary investor Ray Dalio, we had him on the show. He talked about this when we had him on and he said that the first step to controlling your expenses and budgeting is to figure out how much you currently have saved and how long those savings could last if you lost all of your sources of income. Then figure out how much you want to grow that amount by. So let's say if you have three months worth up of money saved up and you want two years worth of it, then you just calculate how much you need to set aside per paycheck or per month to reach that goal. Make this easy on yourself. Budgeting doesn't have to be this overly complex thing, but you just got to be aware of where your money's at. We're so lucky today to have these incredible tools out there, our apps that can make budgeting even simpler for us. And there are services that can help you automatically set aside certain portions of your paycheck to go into savings or other accounts. This is easier than ever today, guys. They can also help you figure out exactly where you're spending your money and most are pretty cheap too or if not free apps. And if you're able to have stuff working for you in the background or automatically without you having to see it, then that's one of the easiest ways to make this change. So the quicker you can automate these things, the better. And the next thing is this and I touched on it earlier, but it's worth repeating here. Surround yourself with people or a mentor who can really help you start learning the language, the conversation of money. and you'll need to pick up on their mindset, how they approach investing, wealth building and more. For 99% of us or more, money is going to be something we have to deal with for as long as we live. It's a lifelong journey. So it's a skill worth mastering and the sooner you learn it, the easier it is. And mentors have played a huge role in my growth and they continue to do so every single day. I'm constantly meeting with people or getting on phone calls and and talking with people who have achieved massive financial success to learn their strategies from them and reflect on what I need to do to change and improve in my life. And even if you don't have access to a mentor in the real world where you can call or meet in person, you can obviously start following people online who can start teaching you what they know about building wealth. There's books, there's courses, there's YouTube videos, podcasts, blogs, you know, all these different channels on the topic membership sites so there's no excuse for you to be uninformed if you have the initiative to educate yourself. You've just got to be willing to put yourself out there to do the research, to study, to learn and find the right people that resonate with you. The most important thing here is to be realistic about your current situation, where you are right now with your money. You don't have to be ashamed about where you're at. I remember feeling like when I had nothing and I didn't have the knowledge, it was a stressful situation, but we all are at different seasons of life. So there's no reason to be ashamed about where you're at, but you do want to take inventory and start investing and learning these habits and these skills. And you can always make more money later, and I hope you do, but you'll only be hurting yourself if your spending habits are not in line with how much you currently are making and how much you currently have. Before we continue, I want to tell you about a product that can help you on your investing journey. That's Wealthfront. No matter your current situation, our sponsor Wealthfront can make investing easy, affordable, and accessible. They are pioneers in the automated investing movement, otherwise known as robo-advising. It just takes a few minutes to sign up with Wealthfront to be on your way to a diversified portfolio that is tailored just for you. Once you open up and fund your account, Wealthfront software will manage it for you and employ expert strategies right away. They'll take charge of rebalancing to keep you at your desired risk threshold, as well as look for opportunities daily to lower your tax bill through their tax loss harvesting service. This is really cool. Investing in yourself and your future shouldn't feel like a full-time job. All you need is a few minutes and $500 to open an investment account and Wealthfront does the rest. The annual management fee is 0.25% of your assets and right now I'm partnering up with them to get you $5,000 managed for free forever. All you have to do is use my link invest.wealthfront.com/Lewis. Okay, now for the next lesson. Lesson number three, again, we're going over the key lessons from this book and we've modified them for the modern world. Lesson number three is to make your money multiply. Now, a friend of mine, mentor of mine, we've had on this show many times is Tony Robbins and he wrote this book, Money Master the Game, Seven Simple Steps to Financial Freedom. And some of these principles are talked about in this episode as well. And he says that the worst exchange in the world is trading time for money. Obviously, if you're training time for money and you're not maximizing that money, that's one of the worst things. You really want to maximize the money you're making and figure out how to multiply that money in different ways. I agree for even when I was doing something I loved, playing professional football, I wasn't making a lot of money. I was doing the thing I loved, but I wasn't optimizing the money I was making. I was trading my time to play professional football. I was trading my time for dollars and that was great, but I wasn't optimizing it to go to the next level. I wasn't using that money to multiply for me. So you got to find ways to multiply the money that you have. So no matter how much you're making or how little you're making, hourly wages will always have a ceiling on how much you can earn because you can only ever be in one place at one time. So even though I was playing football and I was getting paid for that, It was limited to what I could make. So even if you're the highest paid consultant in your industry, you might be making a lot of money currently, which is great, but if you want to build long-term wealth, then you need to make sure you're generating passive income with that money that you're making, or at least moving towards it. And that's the key. I want you moving toward this. And this is the kind of money that you can multiply while you sleep. And I know many of you might be thinking, but Lewis, I don't even have enough money right now to invest in real estate or buy a franchise or any other investments that might have an asset that we're typically thinking about when you hear the words passive income. And I hear you, I get it. I remember this feeling when I was barely making anything, so I understand. But there are other ways to make your money multiply even if you aren't in the position to invest in those higher ticket assets like real estate right now. And one is looking into stocks, bonds, IRAs, index funds, mutual funds, and even a 401k. Now, some people might agree with some of these things and others might disagree, but you can really double down into these once you have your savings situated. So the savings first is key. These don't require a huge amount of money upfront and they compound over time. And one of the things I got into early on was index funds. And Tony talks about that in his book as well. Tony often tells a story about how Warren Buffett who's famous for his long-term investments like Coca-Cola, Gillette, See's Candy, and more, when Warren was asked what made him wealthy, first he credited his genes that made him live longer than everyone else. And second, he credited compound interest. Meaning because he was patient and let his investments multiply over a long period of time instead of taking them out, When times were tough and the market were down, he was able to generate massive wealth. He lived a longer period of time and he has been able to compound his interest. The amount you put into these places can be $100 or $10,000 or whatever you can afford right now. And Ray Dalio, who we've had on and I mentioned earlier, he got his start in the stock market by investing the spare money he earned from caddying on a golf course when he was really young. He used that money and then he invested it in the stock market. So just like savings, the most important thing to remember when trying to make your money multiply is to be consistent. That's the key. And there are a ton of other ways to make passive income as well. And I'll end this section with an example from what I've done here at Greatness Media. So back when we first launched Greatness Media, if we wanted to make more money, it had to involve me in one way or another. I had to be working and making it happen. I had to be the one speaking at an event. I had to be the one reading an ad on the podcast. I had to be the one coaching a client and more. And don't get me wrong, we were doing well, but it was exhausting if it's always you doing the thing and I was doing this for myself and also paying other people. So it all fell on me. I had to be everywhere and have my hands on everything in the process. And it was intense. Then I shifted our focus as a company to start creating scalable products. that could make money without me being 100% involved every moment. And today we have membership programs like Greatness Academy and Greatest Coaching. We're investing more time into YouTube that makes more money on a recurring basis for us. We have dynamic advertising on the podcast so it doesn't rely on just me each time and evergreen content that continues to drive sales and leads. And these scalable products allow us to keep growing no matter if I'm asleep, if I'm awake, if I'm traveling, if I'm at the gym, or taking a day off. And it's one of the most important and best decisions we've made as a business so far. And you don't have to create five new revenue streams today, but look at your current situation and figure out what the next best revenue stream could be and start there. And I've learned to create new ones over time, but it doesn't all happen at once. So that's lesson number three. Moving into lesson number four, I hope you're getting a lot of value out of this. If you're over on YouTube, leave a comment below of what you're learning and how this is supporting you so far. And if you're listening over on the podcast, make sure to share this out with a friend who you think will be inspired by these money multiplying strategies. So lesson number four, protect your money from losses. Now this point comes down to reducing the level of risk in your investment. You've heard it a lot when people talk about the stock market in playing the long game versus the short game. Now, if you're an entrepreneur, this can be a tricky one. As entrepreneurs, you've got to be willing to take risks. When it comes to building long-term wealth, we need to approach money differently. And I had the opportunity to speak with a financial advisor and bestselling author, Ramit Sethi, a while back on the show. And he's master when it comes to the stock market and investing and Something he said really surprised me. He told me that he only signs in and checks his portfolio about once per month. He does this to avoid making short term reactive decisions based on where the market's at. Oh, the market's up, the market's down and reacting. And this goes back to avoiding buying something just because it's hot right now and focusing instead on more secure, stable long term investments. And since Ramit's accounts are all automated, he doesn't even have to think about where his money is going. he can sit back and let the long game work in his favor without lifting a finger, without having to check and react and obsess over these things. And this brings us to another important point when it comes to reducing risk, and that is diversifying your portfolio. And I know it can be fun to make daily trades and try to beat the system, and I get it, it can be fun, but the reality is some of the world's largest firms spend hundreds of millions of dollars on market research. So that's who you're up against. It's not a fair fight, I get it. So the best way to increase your chances of investments panning out is to diversify your portfolio instead of putting all your eggs in one basket. Now this doesn't mean you can't have some fun with Bitcoin and crypto and other less stable investments. You can try all this stuff if you want to. But Ramit and I were even talking about how we tried out angel investing for many years and neither of us have ever earned our money back from It was a lot of fun and we approached it as a gamble, not an investment or money we'd see in the future. And that's an important distinction to remember here. You don't want to spend money that you can't afford to lose. So, even though I have tried a lot of different things with money in terms of investments, some things have worked and continue to work, other things haven't yet like angel investing hasn't really paid off for me yet. For some people, that's where they generated a lot of their wealth. but that doesn't happen for everyone. So just like Bitcoin or crypto or NFTs have been massive for some people, it also means a lot of people have lost a lot of their money. And you just have to be willing to understand what you're investing in. You have to be willing to do the research. You have to be willing to know what you can and cannot afford to lose when you're investing your money because there is no guarantee on any investment you make. so just be aware of some of these things and really try to diversify your portfolio. Lesson number five, own your own home. Now, this is kind of an analogy we want to bring here. We've all heard the importance of owning your home or your condo or your apartment that you live in. It's a stable asset that usually increases in value over time. So it's a good idea to eventually own it. Dave Ramsey talks a lot about this, but the principle doesn't necessarily mean it has to apply to real estate. It can also apply to business investments as well. And there are some people that say, you know, you shouldn't own your home right away. You should take that big chunk of money and invest it in yourself first. And once you really have another level of savings and income, then you can own your home. So really just kind of you want to understand where you're at when it comes to real estate, owning your home. The analogy is you want to Own your home by investing in yourself. So whatever industry or career you're in, you should aim for some type of ownership. And this is your own skill set. This is a part of a company. This is building your own company on the side. And this goes back to the passive income point and making your money multiply. And if you're in a position at work to get a stake or some shares or some equity at the company at some point, then great. It could be effective way to do this. Or if you wanted to build something on your own on the side, that's a way to do this as well. and if you own a business, this can mean investing money back into the company to help it grow faster and further. Even if you aren't in one of those positions right now, we all have the opportunity to become partial owners of a company through the stock market. This is where a lot of people build their wealth. You may not be able to buy into the company you work at, you may not start your own company, but you can invest some of your money into the stock market. And David Bach says there are only two escalators to building long-term wealth, real estate and the stock market. So if you haven't already, start to empower yourself by getting involved in either one of those. And it doesn't have to be much. And you can start with as little money here and then build up to your portfolio and increase your investments over time. And this will allow you to accumulate wealth over the long term. That's what this is about. For me, some of my best investments have been putting money directly back into this business, into my own home. My home is this business for the sake of this example. And whether that's hiring new team members to join Greatness.