The foundation layer is cash flow. Before someone can truly begin building wealth, he or she must consistently generate enough income to handle month-to-month expenses. It’s also a good idea to have enough savings set aside to cover at least two months, and if possible three to six months of living expenses, in case of a financial emergency.
Once the cash flow foundation is in place, you can begin to invest in assets — investments, such as real estate or stocks. To build wealth, the value of what you own (assets) needs to be more than the amount you owe to others (liabilities). Investing in assets that appreciate (go up in value) over time can allow you to retire with a comfortable lifestyle at some point in the future.
Moving up the pyramid, the next layer is your estate, the wealth you’ll pass on to your family. If you’re a business owner, this could include your business.
At the pinnacle of the pyramid are your legacy goals, or your philanthropic goals — the many positive ways you might share your wealth by giving back to your community.
Note: Remember that your wealth-building pyramid needs a solid foundation — a foundation you provide by being a good money manager, establishing credit, and managing your credit wisely.
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