I’m not going to dress this up. Let’s cut right to the biggest misconceptions most young adults make about money early on.
Your income is a function of the value you create and can capture. And wealth is a function of how much of that captured value you keep.
If you want to make money, you’ve got to learn how to be valuable and how to capture that value.
The faster and more effectively you can do those two things, the quicker you’ll be able to accumulate wealth.
Lesson Number 1: Learn how to be valuable to other people.
That means figuring out the perfect combination of:
1. Something other people want
2. That you can provide
3. At a reasonable price
That might mean starting at the bottom as an employee, focusing on honing your skills, and climbing the ranks.
Just remember – income isn’t a function of your job title. It’s a function of value you create.
Working at a fast-growing company for a few years right at the start of your career can be an incredible way to level up your skills quickly. But keep in mind, as an employee, it’s very difficult to capture value at the same rate you create it. Even as you level up your skills.
Lesson Number 2: Learn how to capture the value you create.
If you want to build wealth (and fast), creating value isn’t enough. You’ve also got to learn how to capture it.
As an employee, if you want to scale your income proportionate to the value you create, then you’ve got to figure out how to measure that value. This is why people in sales earn more (it’s easy to measure how much money they bring in for the business).
It’s not impossible if you’re not in sales. But it’s more difficult. Keep that in mind.
Other ways to capture value could include starting your own thing. Like starting a freelance business, or your own company. It’s much easier to quantify how much value you create in a business of one. Which means you also get to determine how much money you take home (after the business expenses, of course).
Lesson Number 3: Conserve the value you capture.
Spendthrifts struggle to build wealth.
It’s very difficult to accumulate wealth if every dollar you bring in goes right back out the door. Even if you’re earning a pile of money.
You’ve also got to put a good foundation in place for saving and putting those dollars to work.
One of the biggest levers for building wealth as a young adult is your ability (and willingness) to manage your cost of living.
If you can avoid bad debt and keep your living expenses low, while focusing on leveling up your skills, you can build wealth much faster.
For example, pretend you start your career making $40,000 per year. If you can live on $25,000 per year after expenses, that means you can save $15k per year.
But if you can level up your skills and boost your income from $40,000 to $60,000 in year two, and still keep your cost of living at $25,000, in year two you can save $35,000.
That’s how you can build wealth as a young adult – FAST.
It doesn’t take a ton of specialized knowledge. Or credentials. Or starting capital.
You can build wealth fast by investing in your own ability to create value, managing your living expenses, and as you create more value, learning how to capture it.
If you want to build wealth fast as a young adult, that’s one prescription for it that anybody can put into practice.