““Wealth unused might as well not exist.”” – Aesop, The Miser and His GoldIn a recent issue of Strategic Opportunities, James Dale Davidson had this to say about building wealth: “Contrary to the misleading advice in The Millionaire Next Door and other best-selling volumes, the key to becoming really rich is not pinching pennies but . . . through ownership.”Jim makes an important point, although he misinterprets the 1996 best seller to do so. Dr. Thomas J. Stanley’s Millionaire Next Door was a study of millionaires, not multi-millionaires.

The Miser’s Guide To Wealth Building

For this bottom tier of the American rich, working hard, living frugally, and saving money have been the three ingredients in acquiring a seven-figure net worth. And if your main goal in life is to retire comfortably, following this formula is absolutely the best and surest way to accomplish your mission.

But is that the way you want to live your life? Pinching pennies? What’’s the point in making money if you don’’t have fun with it. Don’’t get me wrong. I believe in saving. But since you want to live well AND have a comfortable retirement, you have to do more.

So what can you do?

First, you must increase your income. Bump yourself up to another income level and you and your family can enjoy a better life. But consider this before you do: There are basically only four lifestyle levels in America.

The Four Basic Living Standards

If you have a family income of less than $50,000, you are poor. Life sucks.If you earn between $50,000 and $150,000, you are just getting by. Your bills are paid and you can afford some small luxuries, but you have to be careful. McDonald’s is your favorite restaurant. You keep promising yourself you’’ll start saving but your bank account reads “nada.”

When your family income exceeds $150,000, you are comfortably middle-class. You don’’t worry about paying bills. You can save for college and retirement. You can go out to dinner and the movies. And you can take vacations.

Here’’s the interesting thing: This lifestyle doesn’’t change in any meaningful way when your income passes $200,000, $300,000 or $400,000. In fact, it doesn’’t really change until you are making more than a million dollars.

There are differences. If you are making, say, $750,000 a year, your house is nicer than that of the guy who makes $150,000 – but both houses are nice. Same is true of your cars and your furniture. And if you apply the ETR rules of Living Rich, you can have a better lifestyle earning $150,000 than does the garish jerk who’s making five times as much as you.

Keep in mind that the more you make, the less, percentage-wise, you keep. Make $150,000 a year and you’ll have more than $100,000 to spend. Make $750,000, and you’’ll have about $350,000. When you start making more than a million bucks a year, there is a big change. Unless you are completely out of control, you will be able to save most if not all of your after-tax income that exceeds the million. In other words, if you make $2 million you should save almost $500,000 a year. That can add up pretty fast.

So if you can get your income above a million, you can get rich by saving. But if you can’t make more than a million bucks a year, you have to find another way to acquire wealth.

The Other Way To Build Substantial Wealth

How do you acquire the $4 million-plus liquid net worth that will allow you to retire with a post-tax income of, say, $250,000? For that, you need to own something. Forbes magazine put it this way: The very wealthy “typically own significant stakes in successful businesses in industries that are leading the economy forward. Great wealth, in other words, almost always springs from ownership, not income.”

I remember making this point to PH. Following some basic ETR principles, he had elevated his income from about $25,000 to more than $200,000. He was very happy but also interested in making more. I told him my theory about the four levels and suggested he start his own business. He did, and that business today is worth more than a million dollars.

LD, a colleague of mine, and I took a business trip to Argentina last year. After dinner one evening, we lit up a few robustos and talked about money. “I don’’t know where it goes,” he told me, laughing. “Even when I make a million bucks a year, it just disappears. My friends think I’’m rich, but I’’m not. I just make a lot of money.”

Luckily for LD he had a business –a good one. He had started it 10 years earlier on a shoestring and worked day and night to make it grow. “You may be rich one day,” I told him. “When you sell your business.”

“If and when,” he said, smiling.

Just last month, I got a call from LD. He was very excited. He had just sold his interest in his company for ten million bucks. “NOW, I’’m rich,” he said.

Here’s ETR’s 5-Step Wealth-Building Program:

1. Get your income up to at least $150,000 so you will be able to enjoy life and save a measly million for retirement.

2. Live rich.

3. Get yourself equity in a business –something that will be worth at least $3 million by the time you retire.

4. Gradually build a real-estate portfolio that can, itself, be worth a million bucks some day.

5. Invest the rest safely.

That’s the plan. Stay with ETR and you will absolutely, without any doubt, make it.

[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]

Mark Morgan Ford

Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Wealth Builders Club. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.