Build Wealth | Part 1

Build Wealth!

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I walked by a property recently that looked like the one in this picture.  We are lucky to live in a nice town, but our house and yard are slightly more humble.  As I passed, I thought the owners must really know how to build wealth. 


I always enjoyed reading about and studying wealthy people.  In my younger years, I wondered what they knew that I did not.  How did they build their wealth?  Is it multigenerational wealth?  What are their secrets?  Are they happy?


Like most personal finance bloggers, I loved the book The Millionaire Next Door.  Furthermore, I read it cover to cover more than once in 1998.  And it explained to me what most millionaires are really like.  As a result, I learned how they became millionaires.

At that time, I had great aspirations to become a millionaire myself.  However, 1998 was 20 years ago.  And, I have been wondering what has changed.  Are there more millionaires today?  In addition, do they build wealth in the same way as they did 20 plus years ago?

Looking back over my life now, how do the principles in The Millionaire Next Door compare to my current beliefs and experiences.


To do this lets look at a couple areas to kick things off:

  • review some past and recent statistics on wealth in America
  • discuss some wealth-building techniques according to Tom here at Dividends Diversify

Related: The 4 pillars of wealth creation


First of all, let’s set a definition for wealth.  To keep it consistent, we will use the metric from The Millionaire Next Door.  That being, net worth.  Net worth is defined as the current value of one’s assets less liabilities.


Back in 1998, the book defined wealthy as having a net worth of $1 million or more.  Based on this definition, the book goes on to say that only 3.5% of the 100 million households in America were considered wealthy at that time.

I know. I know.  You say that $1 million is not what it used to be.  It is not a good indicator of wealth.  However, I want to use that level for purposes of comparison and consistency.  Give me a break, I’m an accountant, we like comparability and consistency.

Related: 24 ways to attract money, wealth & good fortune


So, I took a virtual stroll over to DQYDJ.  That stands for Don’t Quit Your Day Job.  It’s an informative website with a lot of good economic data.  By the way, I quit my day job in 2013 so I don’t always follow the advice I read.

According to DQYDJ, in 2016 there were 126 million households in America.  Furthermore, almost 12% of those households had attained millionaire status.  So, 20 years later there are more than four times as many millionaire households in America.  Note that other studies have the number at about 10%.  No one knows for sure.

Based on the DQYDJ data, in 2016, $3 million must be the new $1 million.  Because a little more than 3.5% of American households had attained a $3 million net worth by 2016.


Recently, I have been doing some research on what it takes to become wealthy.  I’m interested if the rules of the game have changed much since the 1990s.  In fact, this article is the first of a multi-part series on building wealth and the new millionaires.

For right now, I’m going to use my past experience to present the Dividends Diversify personal finance wealth-building rules.  I have an entire blog category of posts here at Dividends Diversify called Building Wealth.  Therefore, I must know something about it.  Or, at least I pretend to.


Why do you want to be wealthy?

Those are just a few suggestions.  There is no wrong answer.  It is all up to you.  After all, it is your life.  Just remember, if you can visualize and want it bad enough, you can achieve it.

For me, I wanted freedom.  As I hit my early 40’s, career stress and work fatigue started to settle in.  I felt like I was leaving part of life “on the table”.  And, I wanted my life back.  I wanted the freedom to do what I wanted when I wanted to.

Build wealth rule number 1:  Determine why being wealthy is important to you.


It’s so important to maximize your earnings potential.  Your earnings power is the raw material to build wealth.  Your job, your career, your business.  Whatever it is, put a laser focus on it.  Be balanced, but don’t get distracted.

Develop and invest in yourself.  Become an indispensable contributor, a rainmaker.  Differentiate your skills.  Put in the hard work and long hours.  Once you do this, make sure you are being compensated at the high end of the market value.  If your employer doesn’t recognize your value, find another one that will.

Don’t get complacent.  I stayed 10 years at my second employer.  It was too long.  I learned a lot there, but I wasn’t being compensated at the market rate.

I left in my early 30’s and went to a smaller company that was being prepared for sale.  Other candidates for the job didn’t want to take the risk.

It paid off well based on equity compensation from the sale.  In addition, it was a stepping stone to a higher paying job at another company.  I didn’t see the situation as risky.  I knew my skills had value in the market whatever happened.  Value my previous employer wasn’t willing to pay for.

So remember, work hard, be disciplined, invest in your skills, and network in your industry.  And, make sure you get paid well. This an important formula for wealth.

Build wealth rule number 2:  Put a laser focus on your career or business to maximize your earnings.


Some people call it being frugal.  Others, living below their means.  There are many ways to save money.  Whatever you want to call it, just do it!

Here is a simple cash management formula I have used for years:

  • Cash coming in from earnings
  • Minus cash going out for living expenses
  • Equals free cash flow

I have tracked and budgeted using this formula for my own needs every month for the last 30 years.  Make your free cash flow as large as possible by earning more and spending less.  It’s part of a solid foundation for building your wealth.

Build wealth rule number 3:  Manage your spending.  Track and maximize your free cash flow each month.


Next, have a plan for every dollar of free cash flow you create.  Here are the primary options:

  • Build your cash emergency fund
  • Pay off debt
  • Invest in the financial markets, real estate or other areas
  • Invest in yourself

Be careful about investing in higher education.  It is very expensive.  If you spend money, make sure you can get a return on your investment by increasing your earnings power.  Remember, that is rule number 1.

In addition, investing in yourself can be free.  For example, volunteer for a project at work that will provide on the job learning experience and increase your skills.

In my 20’s and 30’s, many of my co-workers were getting their MBAs part time at night and weekends.  I considered it, but opted to spend my time and energy at work building my professional skills.  And, I have no regrets.

Furthermore, I went back and got my masters degree in accounting in my late 40’s as a stepping stone into my current role as a part time university teacher.

Free cash flow is like the blood running through your veins.  Put it to work in ways that will reduce your financial risk, provide a return on investment or both.

Build wealth rule number 4:  Have a plan for every dollar of free cash flow you generate


Okay.  You now have some free cash flow.  And, some cash set aside for emergencies.  Your debt is under control or getting there.  And, you’re working your tail off on your career or business.

Things are starting to look up.  You have some extra free cash flow to invest.  We will keep the investing principles to a minimum here.  The most important one is to start early.  It takes time to build wealth.

The sooner you start investing the better off you will be.  If you haven’t started yet, start now.  It will never be earlier than today.  You should know I like investing in dividend stocks. There are plenty of millionaire dividend investors out there.

Build wealth rule number 5:  Invest early and often.


I doubt the rules of wealth-building have changed very much. At least not in my lifetime

So, in summary form, here are the Dividends Diversify top 5 rules for building wealth:

  1. Determine why you want to build wealth
  2. Maximize your earnings
  3. Manage your spending & track your free cash flow
  4. Have a plan for every dollar of free cash flow you create
  5. Start investing as early as possible

Follow these rules. Turn them into your affirmations of wealth.

And you will be creating your own financial independence, rags to riches, and early retirement story.  Looking at this list reminds me of how my parents built their wealth and me in their footsteps.

So readers, what do you think?  Have I missed anything?  Do you have some secret sauce to build wealth that you can share and contribute to the conversation?  Leave a comment and let us know!

Most importantly, don’t forget to check out the rest of the series:

You can do it.  Build Wealth!

48 thoughts on “Build Wealth | Part 1”

  1. Hey Tom,

    Great rules! I’m still working on 4 (“have a plan for every dollar of free cash flow you generate”). I’m getting stingier with my spending over time, but don’t really do precise accounting besides tracking my account balances.

    Better accounting is one of those things I keep putting off, but shouldn’t.

    Happy Tax Day,

    • Hi Miguel, I can teach you accounting if you teach me law! Tax day, ouch. Filed a couple weeks ago and forgot all about it. Tom

  2. Nice Tom.

    Couldnt agree more. Its so true, it really is easy once you get the rhythm or habit of good financial habits.
    1 mil is nothing these days like you said. Crazy how that number tripled in 20 years. Guess ill need 9 mil for my retirement! Haha

    Cheers Tom

  3. Hey Tom, great post as usual. I like the “have a plan for every dollar” concept. I feel it is important to give your money a purpose and have a plan for it. After all, money is just a tool to get us where we want to go in life.

    • Totally agree. Money is just a means to an end as the saying goes. Thanks for stopping by, as always, Mr. DS. Tom

  4. Great tear down on how to build wealth!
    Every PF tip is to increase income. You guys make it sound so easy!!! HOW IS IT SO EASY FOR YOU GUYS?!
    I’ve noticed increasing income seems to feel harder for my generation. Most of my friends and I get excited at any job that pays over $30k/yr haha. I make roughly $34k/yr, and I’m making more than half of my age group. The husband makes $50k/yr, and at our age group, he is in the 70%. Isn’t that crazy?!
    All this to say, I feel like maximizing earnings potential is no longer about hard work and skills. It seems like recent college grads have a lot harder time landing better jobs.
    But everything else you listed, you have 100% control over. 🙂

    • Very interesting point and comment Steph. A couple thoughts. I think those who came into the work force in the years after the great recession were negatively impacted from a career and earnings standpoint. It sounds like that is what you are feeling and expressing?

      That said, I felt similar in my 20’s and early 30’s. There were a couple recessions and the economy was so so. There was a huge group of older baby boomers consuming most the best jobs in America. I was frustrated that my earnings and career were not growing fast enough. But, I kept building skills through lateral moves, on job assignments and 60 hour work weeks.

      It seemed when I hit my mid to late 30’s my earnings potential jumped exponentially and I did everything I could to maximize it through my 40s. If I made it sound easy, my mistake. It was a 30 year and at times painful and discouraging process for me. Was it under my control? Yes. But, my career experience and quest to increase income was anything but instant gratification. The life sacrifice involved, in fact, made me want to achieve financial independence all the more.

      But, I stayed laser focused on career, kept my eyes open for the next opportunity and worked my tail off. Eventually it paid off. Easy? No way. Worth it? Pros and cons I guess. That is a personal question. Back to point 1, what’s your why? 🙂 Tom

      • Ooooo! Thanks for further clarifying. 🙂 maybe I need to switch the locus of control thoughts I have, then! I assume it’s not me, it’s the economy haha!
        it is hard to package up career progression in a little blog blurb, and expand on how difficult it was! I see a lot of bloggers in their 30/40s discuss growing their income, and I’m like 😒 WHAT.
        But they usually don’t explain the hard work and dedication that it takes. 🙂 good point!

        • You are welcome Steph. I loved your comment based on your generational perspective. It’s been a topic on my mind and have been trying to wrap my arms around it. Every little bit of feedback helps! Talk soon. Tom

  5. I plan out paydays before they come in my brain in where funds should go. I like thinking ahead in this sense. It doesn’t always work out, but it’s better to plan and adjust rather than not plan at all.

    All these steps are true to building. If you strike it big all of a sudden, you haven’t really “built” wealth I suppose.

    I look forward to part 2 of this series.

  6. I agree, invest as early as possible! If you make less money then it will help you close the gap later on.

    Increasing your earnings is a big one and it really depends where you work and what you do.

    My husband can’t get a real pay hike without going into Administration. A significant thing we did 3 years ago to increase income for him was find the district that paid the most. We saw an extra ~$300 a month just from a district move.

    As for me, Accounting really has endless opportunities. You can go public, private, a little bit of both. The salary you make is really in your control in this industry.

    • Hi HP, Congrats to your husband on the raise. And, I’m wondering if you will jump back into the accounting profession one of these days? I owe a lot to it and as you say the possibilities are great. Lot’s of hard work though. Tom

  7. Hi Tom,

    I think this is my favorite post of yours to date. Some very good advice and several of which I’ve followed, especially regarding staying laser focused on your career to increase earnings. One needs money to make more money.

    Oh, and you nailed it with this one:
    Free cash flow is like the blood running through your veins. Put it to work in ways that will reduce your financial risk, provide a return on investment or both.

    Love the post. Thanks!

    • Thanks Mr. ATM. I think you have read them all so to have this post be your favorite is a big deal! Appreciate it. Tom

  8. Hey Tom, looking forward to this series!
    Yes – don’t build a glass house, build an iron castle on a solid foundation!
    A tip for me was not just investing in yourself, but convincing your employer to invest in you too. Woulda saved me money! I had a coworker, of equal pay and position of mine, got her MBA paid for by the company. I was getting mine at the same time too….annnd kicking myself when I found out she was getting hers paid for because I just assumed investing in myself was on my own and – feared them saying no! Now – I ask for it, “ok – if you want me to be doing x, or ever want me to advance…you better provide any training or learning credits” which, my new place has done and I’ve been grateful for this opportunity. No harm in asking! Well. Maybe not in every situation that may not apply.
    Again – awesome post!! Looking forward to the next!

    • Thanks Mrs. DS. As the saying goes, always ask, the worst they can say is no. And of course when someone else is footing the bill the return on investment is infinite! Tom

  9. One million is a big number, but looking at it in the grand scheme of things, it really isn’t. One million won’t get you as far as it used to although it is a great figure to strive for when building wealth. Each million takes less and less time to achieve. So use these great guidelines to help position yourself to make that achievement. Then the groundwork and attitude is already there going forward to the next.

    • I think you make a good point Daze. It’s not whether a million is enough or not, it’s just something to strive for if a person wants to build wealth. On goal achieved can then just lead to another being set. Tom

  10. Great rules Tom. You nailed it with your top 5 . The Millionaire Next Door is one of my favorite books and I am looking forward to your next post “New Millionaires”

  11. Mr. ATM beat me to it pointing out that sentence but I’ll reiterate anyway — you nailed it with this: “.Free cash flow is like the blood running through your veins.”

    I, too, stayed with an employer for over 10 years. Had we still lived in NY I would have changed jobs at least 3 or 4 times. Even those who got promoted at the organization I worked for mostly received less than a $5,000 bump in salary. It was hardly worth the extra work and travel to them. Often, the longer you stay, the less employable you become.

    • Interesting point Mrs. G. I forgot about the employ-ability factor when staying too long at one employer. I was feeling it for sure as the years moved along at the employer I mention. Tom

  12. This is a great article Tom. I really enjoyed The Millionaire Next Door too. This post is a great continuation on the principles taught in that book. I look forward to reading the rest of the articles in this series. Thanks for sharing.

  13. Great post Tom! And while I agree staying with the same employer for a long time is not always the best move, it has worked out great for some of us! I have been with my employer for well over 10 years and I don’t think I would be where I am today if I didn’t .
    Also totally agree with sometimes, working extra instead of pursuing higher education. I didn’t get a chance to go back to school in the evenings because work was so demanding (and my kids!) but it all worked out at the end. Maybe I got lucky:)
    And along the way, don’t forget to have some fun:)

    • Hi Caroline, It’s great you have been with one employer for a long time. If you feel appropriately compensated and like it, no reason to leave. My case was different, I was underpaid and didn’t see a reasonable path to improving the situation. As for luck, it plays a part. Right place, right time kind of thing. But for most of us we make our own luck. Tom

  14. I think the most common ways to build wealth have changed. Back then, it was “climb the corporate ladder and save your income”. Today it’s mostly “start a business or side hustle and grow your income”. Starting a business wasn’t that common back then.

    • What I found Troy is that “today’s” millionaires in their 40s and 50s that built their wealth post 1995 have done it mostly by climbing the corporate ladder. The millionaires from the Millionaire Next Door that built their wealth pre 1995 were mostly business owners. My research isn’t statistically valid so it could be disputed, but that’s what I found in my research. Tom

  15. Great post as always! But (there’s usually a but, right?) – I think one question needs to be addressed first. How is happiness defined? Having the freedom to choose your life regardless of the net worth is key in my book. Net worth is but a measurement towards to the goal and (as you point out) the goal posts aren’t static for all.

    I would also add a rule: 3a – Minimize your tax liability. Every dollar saved is a dollar earned. 🙂

    • Agree on taxes SR. It is a big spend item. That one’s easy.
      I’ve been contemplating your first point and don’t have a “sound bite” response. It’s a little more difficult for me. Some how it’s wrapped up in point #1 – what’s your why? But not exactly. I will have to sleep on that and come back to it. There’s something you are getting at that I can’t wrap my head around right now. Tom

      • I went back and re-read “What Do You Want To Do With Your Life” in which you summed with “Your goals will likely evolve just like mine did.”. True, but until the ultimate goal is identified (happiness?) it’s difficult to ensure the path you’re on gets to the right destination – although it will probably be close following your steps. In your case when you identified your passion, you had overshot the minimum wealth requirements – which was fortuitous.

        • I see you are digging deep again SR. I’m struggling to keep up (no offense intended). I just do not want to reduce such a meaningful conversation to a sound bite for fear of minimizing the conversation.

          First, I want to thank you for rooting around the blog and trying to get inside my head and thoughts. Not many would do so. It’s a head full of thoughts I’m not sure I fully understand.

          Can I say this (sound bite time)? Perhaps wealth is just a means to some end. Just a tool, so to speak.

          One can be happy with wealth. And one can be miserable with wealth too. Perhaps there are choices we all make about happiness that have nothing to do with money. I’m sure there are many happy people that are not wealthy in terms of money.

          What do you think? Am I getting at your point now, or am I missing it?

          Regardless. You make me think and I make you think and that’s a good thing regardless of money, happiness or whatever. Thank you for your contributions!


  16. Thanks for sharing your story Tom and your tips for success. A lot of people are interested in getting an MBA these days and I also contemplated getting one, but it was a lot of money (and energy).

    I’ve been at my same employer for a long time as well (over 10 years). I think millennials tend to get the stereotype that they job hop or can’t stay in a single job for more than 3 years. There can be a benefit for staying a while but also benefit for always keeping your ear out for better opportunities.

    • Your point is a good one job changing GYM. There is certainly a balance to be found. That balance point is likely a little different for each individual. Tom

  17. Great post Tom!

    I can tell you have been working a lot on your writing style, great job. All wise tips.

    In your opinion do you think our society relies on spending to much money and time on degrees? I understand the importance of education but I see a lot of talented people staying in education vs. plunging into a business. I know it is more risky to go a non traditional route but I think that there is a bigger potential payoff in the long term.

    #5 is the big one for me. My goal has been to plow as much as possible into investment accounts by the time I am 30. This way I know worst case scenario I can give that pile of cash 30 years to grow and when I am 60 I will not be in trouble. Everything else is up to me from there.

    • DM, Thanks for the kind words on the writing. I’m probably just getting better with practice and time.

      I have a love/hate opinion on higher ed. Aside from some special entrepreneurs and people who can’t or don’t want to go to college, it’s a necessary evil for the rest of us in order to be competitive in the job market. I loved college. It was period of independence and personal growth. But it’s so expensive now versus when I went to school. And the decisions of where to go and what to study fall on 18 year olds who may not fully grasp the cost/benefit consequences of their decisions. Since I don’t have kids it may be easy for me to say 1)stay at home for the first 2 years and go to community college; 2)then transfer to a state college with a good program of the students choice. Keep the costs low and make a wise decision on an employable major and most kids would be well served without incurring tons of debt. Just my 2 cents.

      On number 5, stay focused and you will likely achieve your personal finance goals well before 60.

      Thanks for the thoughtful comments and questions DM. Talk soon. Tom

  18. Great post Tom, some seriously good content right there.

    This is the sort of stuff that needs to be taught to the next generation in their personal education. Alas thats not being done anywhere so it seems.

    Here in The Netherlands its definitely not part of any education.

    • Not in the US either Mr. Robot. Being a teacher now, I keep thinking their is an opportunity to be exploited relative to personal finance training. I’m just not sure I want to spend my time trying to go after it though. Tom

  19. Hey Tom. Sorry for the late comment. I just got my first email from your blog advising of recent posts, and I saw that I missed this one.

    I think this is post is terrific. You know that I share your belief that investing in yourself is paramount. This is especially true for folks (like me) who missed the “start early” boat. I am still playing “catch up“ but my higher earnings now are a direct result of hard work and investment in myself years ago.

    As to the $3 million number being “wealthy” in our modern culture, I guess that depends on your perspective. Assuming that money was all invested (i.e. does not include home equity), it could realistically generate a yearly income of roughly $90,000 to $120,000 per year. The DQYDJ site suggests that this income would put a person in roughly in the 75th percentile in the United States. In some lower cost of living areas, I’m sure this income would be in a much higher percentile.

    In any event, great post. Your blog is beginning to remind me of that old TV commercial “must see TV.“

    • No troubles FIREman. I’m just now starting to get active with my email subscribers. Just so many things to do to running a good and professional blog. And I’m just learning still.

      Regarding investments, sometimes it takes time for them (especially in yourself) to truly pay off. Seems like you have it rolling now.

      The numbers are just numbers. Just a reference point. Wealth means something different to everyone depending on where they live and what their goals and desires are as you are alluding.

      Have a great weekend,

  20. Great post! Building wealth takes time and a person has to know why they are doing it. My wife and I have gone without in the early years to help us continue to reach our goals.

    • Hello OPP. Thank you and good to hear from you. Goals, time and deferred gratification are truly a few of the key components to building wealth. Tom

  21. I’m late to the series, but I agree with the list and looking forward to completing the rest of the parts.

    I currently have a problem with numbers 3 and 4, I need to get my spending under control. Also, while I don’t have a plan for every dollar, I do have a plan for “most” of my dollars. In any case, I’m working on step 5, while I hope to improve 3 and 4.

    • Hi DP, Knowing where your opportunities to improve are is a great step towards making changes and seeing improvement. Good luck. Tom

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