How to use the Wealth Triangle
In today’s article, I want to introduce you to a model known as the Wealth Triangle. I often refer to it when I talk about entrepreneurship, income streams and blueprints for wealth creation.
The Wealth Triangle, made popular by “guru” and FU Money author Dan Lok, comprises three independent but related components:
- High-Income Skills
- A Scalable Business
- High returns Investments
1) Fist component: a high-income skill
It is the base of the wealth triangle. Under this first strategy:
- You can be either employed or self-employed.
- You identify and develop a high-income skill to deliver value to the marketplace.
- You are your primary income stream: you trade your time, skill and expertise for money.
- You rely only on your work.
- You test and develop your entrepreneurial mindset.
- You keep investing in yourself; you upgrade your skills to remain competitive in the market-place to secure a stable income stream. You do what you are good at.
Notes on the first component:
Such high-income skills provide you with a reliable set of skills and good income to build a safety net and the means to live a fulfilling life. However, there will be a moment when you reach an earning cap. If you need to overcome it and provide more to your family and community, it could be time to start a business. If that is the case, ensure a consistent income and safety net before starting a business venture.
2) Second component: a Scalable Business
The second strategy of the Wealth Triangle requires the development of a scalable business:
- It is a business you can grow with limited overheads and infrastructure.
- It provides you with leverage; It is built upon extra resources and systems: you make use of other people’s skills, other people’s money, and other people’s time.
- Your business system works for you.
- You need a fully developed entrepreneurial mindset.
Notes on the second component:
Starting a business depends on your true aspirations and personality. It is not the first strategy in the wealth triangle for good reasons: you shouldn’t start a business if you are inexperienced and lack the resources to develop it. That would be too risky. If you already have a clear entrepreneurial mindset, be sure first to possess and develop high-income skills (strategy 1).
A business takes a tremendous amount of effort. It is also a career with high chances of business failure: according to the US Bureau of Labour and Statistics (BLS), half of all new businesses fail within five years, and 65% fail within ten years. Besides the statistics, being an entrepreneur is not for everyone. If you are not ready to drastically change your mindset, take risks to develop your business and deal with the hassle of managing it, don’t do it. It is advisable to focus on your high-income skills (strategy 1) and subsequently look at the Wealth Triangle’s third strategy.
3) Third component: a high-return Investing
This third strategy of the Wealth Triangle is defined by:
- high-return investments: investments that will grow and generate compound interest year after year
- the purpose of investing is to build financial assets and create long-lasting wealth
- investments of savings from your income or your business
- further diversification of income streams
- this is the only category when your money works for you
Notes on the third component:
Together with high-income skills, Investing is a non-negotiable component of the wealth triangle. Once you can create a stream of income with your skills and time (strategy 1), you can invest (strategy 3) every year and achieve your financial goals.
While the Wealth Triangle model strongly resembles the Cash-Flow Quadrant of Robert Kyosaki, it still provides an intuitive propedeutic model to assess these complementary income strategies.
Ultimately, make sure to invest in yourself first, build your skills toolbox, and…Sweat Your Assets.