Hello Wealth Builders!

I've been wondering what's the most common way of building wealth these days? That an average Joe/Jane can do. Not in theory but that people actually accomplished it.

My guess would be buying a home and living in it (real estate). I've looked at Forbes top list and noticed that most of their source of income is real estate.

What are your thoughts?

the simple answer is not spending it.

theres all kinds of things that have a decent return. real estate, etfs...it doesnt really matter much. the act of not spending is far more important than where its invested.

I use an analogy that if you are fat you need to spend 8 hours on a treadmill to lose a pound. but if you dont eat 1 day, you will lose 1 pound. so the answer there is dont eat as much or your going to be hitting the treadmill mucho gusto.

and the answer to gaining wealth is to not spend it. I bought a 420 dollar pair of jeans in 2010.I didnt even like them but I had a hot date. So I also got control of my pension that year. my pesion has averaged 25% since I took it over, and snp is like 19 so either way any money saved is pretty good. my jeans I threw out

Yeah ignore that last guy. Until you earn at least a hundred dollars an hour your entire goal is to figure out how to make a hundred dollars an hour. It's insanely easy to 'build wealth' when your earning power is great. It's insanely difficult to build wealth by financial 'dieting'.

One of the most common ways to save money is to exchange your time for saving trivial sums of money. An example would be cleaning your own house, mowing your own lawn, etc. These activities should be worth significantly less $/hour to the market than your time is.

If your time isn't valuable you need to fix that, not get hung up on your spending habits.

All of the above being said, it is possible to have a spending problem. Some people will always spend more than they make no matter how much they make... and if you're like that you have to fix yourself before anything will work. But for 90%+ of people I firmly believe a little bit of financial education and a good paying job will do the trick. Focus on the good paying job part before anything else.

Good paying job list:
1. Can you sell?
2. Can you code?
3. Are you mechanically minded at all?
4. ok so what are you good at?

This is the advice to listen to op.

1. Don't lose money
2. Don't forget the first rule

It really is that simple. Unfortunately most people botch step 1, which is why the average joe is broke.

I agree with BS's sentiment but not 100/hr line. A lot of people in the world will never get that high, not without suffering unnecessary misery.

By 50 an hour, with a steady job, you're already looking at 90k+ annual income (with time off built in). That's enough to start building a nest egg even in NYC (if you're willing to commute).

By 50-100/hr, your time is valuable and you just have to think about how to monetize the time. If you have any skills at all, you can almost certainly sell your time doing something for more than 70/hr no matter where you are in the country to supplement your already middle class 90k (50*1800 hours... that's basically 40 hr/week with 6-8 weeks off a year). This means you need to think of BS people sell as money saving measures like cooking at home, cleaning the house yourself, and even building the deck on your own as waste of time or, leisure (which is fine, but you gotta know you're paying for it).

On the margins you can save SOME money doing some of those things during hours you really just don't have any way to sell your time but for the most part you really should be thinking about how to utilize your spare time better.

People on the Forbes list didn't get rich by buying a house.

Marry well.

ok just spend whatever you want because your plan is to make more down the road. good plan. ignore my advice to spend what you can afford today. great. sounds like spew from a posterboy of an entitled generation. i was assuming someone isnt working at dennys and doesnt have an education

I’d guess buying a home/retirement savings for most ‘regular’ middle class people.

I have a 403(b) separate from my teacher’s retirement I’ve been funding for 11 or 12 years and have always paid $100 extra towards my mortgage principle.

are there better ways to build wealth? I’m sure there are. but even feeling “broke” week to week, over time those two assets have gotten to be 6 figures. I may or may not live in this house forever, and as long as strs in ohio doesn’t go bankrupt in the next 40-50 years, the 403(b) is just an extra vacation per year in retirement, but it’s been completely painless to accumulate.

If I remember reading during the 1% phenomenon, the best chance you have of reaching the 1% is starting your own business.

Is OP looking to be a 1%''? His post states "That an average Joe/Jane can do. Not in theory but that people actually accomplished it."

I would say the most common wealth building tool that people actually use is tax deferred investing with payroll withholding. Think 401k or IRA. "The Millionaire next door" concept.
Second most used is real estate. People buy houses and rent them out.

I agree with the poster who said controlling your spending is an important step.

I think we need to define "can do."

There are a lot of professions that have relatively low barriers to entry (read accessible to someone with median American IQ) where you can get to 1% just by grinding out 20 30 years.*

Here is the thing, MOST PEOPLE hit a point (typically around the mid-100k, higher around 200k for NYC/SF type of cities, just in my unscientific observations) where they are just like "this is enough. I rather spend more time on leisure than on making money I don't need."

*Because some people will ask, here goes some off top of my head:
CPA is very much in this category. If you stick around for 15 years at a respectable accounting firm, you will make at least director making ~300k and your job never really changes.

Pharmacist is another job where your actual job never changes substantially but your pay keeps rising. The hardest part is just getting the degree where someone with median IQ would have to study a lot. Attrition rates of pharmacy programs (typically just above 10%) however suggest getting the degree is relatively easy.

Straight up hiding that income from yourself is a killer app for a lot of people.

One of the biggest mistakes people make is increasing their spending as their incomes rise instead of increasing their savings to a more reasonable level (say 20%, at least*)

That's why so many people find withholding extra (to get bigger refund, but basically giving int free loan to US gov't) so useful for incresaing their own savings rate. Same idea with buying annuities/term life insurance that are objectively suboptimal for a PURELY RATIONAL actor that doesn't need mental tricks to enforce a saving habit.

Instead of doing the dumb withholding, siphoning money (direct depositing) 20% of income right into Vanguard or even savings account at a different bank (so they don't see the money when they log into their own primary bank) will earn a bit higher return and do just fine, for most people.

*why 20% you ask? If you want to retire on same level of income you're earning now, assuming no income growth and 7~9% capital growth or so, you need 20% savings rate to retire in 20~25 years, which is what people seem to want to do.

Some in this thread say don't spend, some say earn more. Obviously the answer is do both. If you read "The Millionaire Next Door", they call the former "defense" and the latter "offense". You want your team to be good at both. You don't want to be like the lottery winner or pro athlete who spends themselves broke, and you don't want to be like the guy working a fast food job who saves 90% of his income by living in mom's basement.

At least in America, this seems quite intuitive

leverage

You literally have no idea who you're talking to. Don't make comments like that just because he said "yeah ignore that guy"

You just said to not eat for a day is better than being on a treadmill for 8 hours. If you're doing either of those things, then you have a mental disorder. His response to that was basically neither of those things are healthy. Get healthy, then move forward. You can't live life if you live unhealthy. You'll just die and never enjoy the wealth you have or accumulate while you tried...

The average person just needs to earn more than they spend, and be disciplined about it. Buying a home and the Forbes list where it's basically all people who inherited or own lots of **** is a major disconnect. The average person isn't on Forbes and won't ever be.

Define your wealth goal first, then work from there.

Buying a home (non-income producing) is a terrible way to build wealth. Money has to make money, otherwise you're just stuck exchanging your time for money and there are only 168 hours in a week. Income ceiling is very low when you exchange time for money.

Imo the biggest wealth killer are taxes, don't hesitate to pay professionals like accoutant who specialize in whatever field you are into to save every penny (mine is real estate). I didn't do that a first, now I'm biting my nails at all the money I left on the table to taxes, doing a massive revision this year to make up for it but still much more expensive than just doing it right the first time.

In general, owning income producing real estate is a good way, starting your own business is the best way. Both are damn hard and the average person (like me) has to work a lot on their mindset.

Homeownership and the obsession with homeownership are basically enforced savings plans. At this point in history so far, the most successful savings plan.

It's not quite true homes don't generate money either. At a minimum, you got rent saved and tax breaks associated with owning your home.

I'm speaking as someone who has no interest in owning a home.

Earn an income that is a multiple of your expenses, exploit tax advantaged accounts (Mad Fientist is a great resource for this), invest the rest in index/target date funds, and you're good to go.

An entrepreneur with an idea. Same as ever.

Thanks everyone for sharing your thoughts...so far I've summed up to:

1. Earn more
2. Spend less
3. Pay off debts (I think no one mentions this)
4. Marry well
5. Buy a home and rent out a room (roommate)
6. Invest IRA/401k
7. Invest in business and/or index/target date funds (will study more on this)

@grizy, I lean an agreement toward grizy's post on homeownership.

@CBorders, thanks for the link on tax advantaged accounts!

Federal Reserve puts out what is called a Wealth Study every few years that tell us the answer. IIRC, there are 3 components that basically account for 95%+ of people who have 1M+. They are 1) real estate, mostly primary residences, 2) professional careers like doctors/lawyers, 3) self employed. That is basically it. And it is the way it has been for many decades, there is nothing new that changes this formula.