The Wealth-Building Formula

by Jeff C. Johnson

By this time, the schools and college are all teeming and students are learning all sorts of things that are necessary to succeed, to move along, to move up to whatever is next.

Hopefully the students you know are learning the Wealth Building Formula. But I doubt it!

I doubt it because the chances are pretty good that no one has ever taught them the formula, and it’s possible you, the reader, don’t know what the Wealth Building Formula is, either. The reason I doubt it is because most people in America don’t know it (or, at least, don’t practice it).

In my book The Five Financial Foundations I tackle the problem right on, right away. Here is the Wealth Building Formula…


Yeah, that’s it. Spend less than you earn, and you will eventually build cash, build wealth, and reduce stress and financial worries. And you’ll be able to still buy some stuff that’s really valuable to you at the same time.

Here is an excerpt that briefly explains the five principles from Five Financial Foundations. Take a look. If they make sense to you, put them to work in your life. While you’re at it, teach a young person or student what you’ve learned. They’ll be better off and so will America.

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The Five Financial Foundations: An Overview

(an excerpt from The Five Financial Foundations: A Guide to Building a Better Future)

The Five Financial Foundations are simple, and that’s what makes this book and this approach to building your financial future especially useful. Anyone who really wants a bigger and better financial future can do it by using these five financial guidelines and just getting started.

The Five Financial Foundations

1. Save some amount of money every time you get paid.

An initial target savings rate is 10% of your earnings if you are able. If you are just getting started, a lesser percentage is OK. The most important thing to do is to begin, and to get used to, saving money.

2. Always have a cash reserve for emergencies and future larger consumer goods purchases (such as a car, furnishings, etc.) so you won’t have to borrow money and pay interest.

This amount can vary depending on a person’s situation, but an initial target is one to two months’ living expenses as a minimum; later in life, a full year’s living expenses should be held in reserve.

3. Take full advantage of tax-favored investment accounts, such as your employer’s retirement savings plan, an IRA, or a Roth IRA.

These long-term savings vehicles are where most regular people can build their largest pools of wealth.

4. If you decide to own a home, the purchase price should be no more than two to two-and-a-half times your household income.

Save and accumulate at least 20 percent of the purchase price for a down payment and finance the balance with a long-term fixed-rate mortgage.

5. No consumer (or “bad”) debt.

Bad debt is high-interest, nontax-deductible, and is used to pay for things of no value or declining value, such as clothing, entertainment, and vacations.

That’s it. Pretty simple, really … but not easy to implement. It takes discipline, and it will require denying yourself some material items that you think you want. You may have convinced yourself that you need these items, but in reality they are a temporary want and are something you will have to forgo.

The basis for all self-accumulation of money starts with this formula:


Spend less than you earn. Or, find a way to earn more than you spend.

This information is nothing new; it’s old and timeless wisdom. Paraphrasing Benjamin Franklin:

“There are two ways of being happy … diminish our wants or augment our means… and if you are wise you will do both at the same time…”

That leads us to the next chapter: learning to save something every time you get paid, the first of the Five Financial Foundations.