The Ladders of Wealth Creation
Building wealth is a skill. Let’s talk about it.
Hey y’all. We’re diving into wealth creation, but keeping it practical and realistic. We’ve also got a few tips for saving on taxes, too.
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The Ladders of Wealth Creation
You wouldn’t attempt to run a marathon with 0 experience. Similarly, most people don’t progress to a $1M net worth overnight or become a real estate mogul before working a salaried role.
There’s something called the ladder of wealth creation, and it’s a framework you can use to manage expectations about wealth building. It’s also intended to teach people that building wealth is a skill.
Source: Nathan Barry, the founder of ConvertKit and a dude with a $100M net worth
Step 1 - Time for Money
Most people start with an hourly role. Once they’ve gained some experience, they might transition to a salaried role (which often comes with more responsibilities and better benefits).
You can see that this ladder is short. Reason being, you’re trading time for money. You only have so many hours in the day, and you can only have so many jobs within that.
Step 2 - Your Own Service Business
Operating your own business provides a bit more flexibility.
Let’s say you start by charging hourly. You charge a higher rate than your previous full-time hourly role, which gives you a boost in income. You have certain rates for certain projects — like $30 an hour for social media management but $45 an hour for writing social media copy.
You begin to outsource some of the work to a team, until you’ve realized you’re screwing yourself on pricing.
Step 3 - Productized Services
After getting some experience under your belt, projects that once took you several hours now take you just a few. You’re billing clients for less time, which means you're making less money, but you’re delivering them the same product.
So, you switch to a project-based model. You charge a flat fee per project, regardless of how long it takes you to finish the deliverable. Your hourly social media rate is now a flat-fee of $3,000 per month, and clients return month over month for services. Phew — your income is set.
…until you hit another ceiling. Your time is still limited here, and if you’re the main person closing each sale, you can only close so many in a day.
Step 4 - Selling Products
This is where the magic tends to happen and wealth can grow rapidly. Now, it should be noted that not everyone dreams of selling a product, and it’s okay to stop at Ladder 3 if that makes you happier.
That said, selling products allows you to remove the manual work from delivering the product. Each sale happens with little to no additional effort — think digital downloads that arrive to your customer automatically, print-on-demand items that are shipped by the fulfillment center, or even a newsletter you send to 30,000 people each week.
You can scale these efforts to generate insane levels of revenue because you don’t have to manage each customer relationship 1-on-1. You create the digital download once, then thousands of people can buy it. You write one newsletter each week, thousands of people receive it, and you cash in on ad revenue.
This is a ladder. It will take time to get from the bottom to the top. And it should take time. Attempting to jump from the bottom rung to the top could leave you with a sh*tty product, less credibility (which means less trust with your customer), a product that no one wants.
Take time to consider where you’re at on the ladder now and where you want to be in a few years. What action steps can you take before the year ends to get yourself up a rung or two?
Here’s a few resources to get you from one rung to the next, depending on where you’re at now:
Negotiating a Change from an Hourly to Salaried Role → Read this blog.
(For Business Owners) Raising Your Rates → Use this script.
Outsourcing Work/Building a Team → Read this blog.
To Learn More About How to Price Retainers/Recurring Services → Watch this video.
Selling Digital Products → Learn from Abigail Peugh.
Ask the Sidepiece Team
A: There are a few recommendations that come to mind (This isn’t personal tax advice! Consult a pro!)
Track your expenses meticulously. If you don’t keep a record of expenses — down to phone usage, miles you drive for work purposes, business meals — you should. Back in 2021, I did InstaCart as a side hustle and drove over 2,000 miles for work. At the time, each mile was eligible for a 56 cent deduction, allowing me to take a $1,120 deduction for mileage expenses.
Max out retirement accounts. Some investment accounts, like Traditional IRA and 401(k), allow you to take a deduction for your contributions. This lowers your taxable income, which in turn lowers how much you’ll owe in taxes.
Switch to an S-Corp. This option is a bit more complex and only makes sense for certain business owners. However, it can save you tens of thousands in taxes depending on how much you profit.
If you want us to dive into the topic of S-Corps and how they can benefit your business, hit reply on this email and send us a quick “yes.”
See ya next week.