The Seven Stage Wealth Building Pyramid

Published: 09th March 2007
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The Pyramids of Egypt have stood for around 5,000 years. The reason why they have lasted so long is the basic structure of each layer being built on the strong foundation of a broader, solid layer beneath. That is exactly the way to build your wealth so it too will stand the test of time.

Your wealth pyramid has seven layers. And just like a real pyramid they must be added in the right order. Imagine if you tried to build a pyramid upside down, with the small layer at the bottom and each layer above getting progressively bigger. How long would that pyramid stand? It is just as disastrous if you try building you wealth pyramid in the wrong order.

Let's look at the layers, starting from the strong foundation layer and working our way up to the pinnacle.

Wealth Layer 1: A Wealth Success Mindset

This is the most important layer because it is the foundation for your wealth. If you don't get your head right then anything else you build will topple over.

The wealth success mindset consists of your beliefs, your habitual thoughts and your habitual actions. It is important that these three attributes are inline with the achieving and maintaining wealth.

Wealth Layer 2: Appropriate Skills and Knowledge

Luck plays very little role in the creation of wealth. You may have some good or bad luck from time to time but over the long term you accumulate exactly what you deserve based on your mindset and your application of knowledge and skills.

If you don't have the knowledge or skills to create wealth then the first investment you should be making is in your own wealth education. If you think getting knowledge is expensive then try investing without it and you will soon find out just how expensive ignorance can be.

Wealth Layer 3: A Sound Action Plan

There are so many ways to make (or lose) money. There is the stock market and its derivatives, the property market; residential, commercial and development and then there are many different forms of business. There is the trading approach and the investing approach and there are many different approaches within these two main categories.

In short there is a huge variety of approaches to wealth creation and each has its advantages and disadvantages. In order to find your way through this maze and reach your goal you need a well thought out action plan. Your plan should include which opportunities you will focus on and how you intent to capitalize on them.

Wealth Layer 4: Good Risk Management

The first responsibility of any investor or business person is to not lose money. That is why risk management is on the layer before profit.

There is a lot of difference between risk management and risk avoidance. Every investment and every business contains an element of risk. If you practice risk avoidance then you will do nothing. Risk management is the skill of identifying potential risk and then taking actions to minimize the potential for loss.

Wealth Layer 5: Positive Cash Flow

The reason that cash flow comes before equity is that it reduces your risk of going broke. Equity increases your net worth but you need cash flow to live on. So many people build property portfolios of high equity growth, low yield property and then find that they can't sustain the loan payments.

If you have cash flow producing investments first then they can subsidize your high equity growth, negative cash flow investment.

Wealth Layer 6: Increasing Equity

Cash flow gives you money to live on today but equity gives you long term security and money to live on tomorrow. If you keep your equity growth investments and positive cash flow investment in the right balance then you can have the best of both worlds.

Wealth Layer 7: The ability to live the lifestyle you want without the need to work

The most sensible objective of any wealth building plan is to eventually provide you with your desired lifestyle whether or not you choose to continue working. Most wealthy people do keep working because they enjoy it but they always have the choice to stop if and when they ever want to. If you have built your wealth pyramid correctly then you will arrive at this point.

Conclusion

Compare your wealth building activity to this pyramid approach and you will be able to assess whether you are building a sound, solid portfolio or whether you are teetering on the edge of financial disaster or whether you are simply going nowhere fast.




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