Welcome to the seventh issue of Metrix that Matter, a weekly newsletter from WEALTHMETRIX that helps you focus on what matters most for building and sustaining wealth. Every Saturday, we share an educational essay with actionable takeaways to guide you on your journey to financial independence.
What you’ll learn in this issue:
- The question you should be asking yourself about building wealth
- The four pillars of wealth
- Understanding the tradeoffs of each
- How to choose the wealth-building path that’s right for you
“What’s the best way to build wealth?”
Ask 10 people this question and you will get 10 different answers.
Max out your retirement accounts. Invest in real estate. Start or buy a business.
Most people’s answer to this question is heavily influenced by how they built wealth and what worked for them.
But what worked for one person may not work at all for you, as you likely have very different life circumstances and opportunities.
Because of that, the better question is to ask yourself: "What's the best way for ME to build wealth?"
While many love to debate stocks vs. real estate vs. starting a business, the real answer depends on something much more personal: your skills, your interests, your time availability, and your unique life circumstances.
The teacher who values simplicity and doesn't want to deal with tenants will build wealth differently than the business owner who enjoys hands-on real estate projects. The busy executive with limited time will choose a different path than the entrepreneur who wants to build something from scratch.
No approach is inherently better than the other on paper. All of them can work when they align with the person choosing them.
But they all require commitment, discipline, and a long-term outlook.
Ultimately, there are four primary places your wealth can live. Understanding these four pillars, and the unique advantages and tradeoffs of each, is the key to building a wealth strategy that works for your life, not someone else's.
The four pillars of wealth
When you strip away all the complexity and financial jargon, your wealth can only live in four places:
Liquid Accounts
Cash accounts and after-tax investment accounts that you can access at any time without penalty. This includes checking and savings accounts, brokerage accounts, and any investments outside of retirement plans.
Retirement Accounts
Tax-advantaged accounts designed for long-term savings. This includes Traditional or Roth IRA, 401(k), 403(b), 457(b), and other qualified retirement plans that offer tax benefits in exchange for restrictions on when you can access the money.
Real Estate
Property you own, whether it's your primary residence, rental properties, or commercial real estate. This represents the equity you've built after subtracting any mortgages or loans.
Business
Any ownership stake in a business, whether it's a company you started, a partnership you are part of, or equity in someone else's venture.
That's it. Every dollar of wealth you build will fall into one of these four categories.
But knowing where your money can go is only the first step. The next step is understanding the potential benefits and tradeoffs of each one.
Understanding the tradeoffs
There is no perfect pillar of wealth. Each one gives you something valuable while requiring you to give up something else. Understanding these tradeoffs is crucial for making informed decisions about where to focus your wealth-building efforts.
Liquid Accounts
What you gain: Complete flexibility. You can access your money anytime, for any reason, without penalties or restrictions. This pillar provides the ultimate safety net and gives you options when opportunities or emergencies arise.
What you give up: Tax advantages and potentially higher returns. You'll pay taxes on any interest, dividends, or capital gains each year, and the growth potential could be less than other pillars.
Retirement Accounts
What you gain: Powerful tax benefits and forced discipline. Whether it's an upfront deduction with Traditional accounts or tax-free growth with Roth accounts, the IRS provides some substantial tax benefits. The withdrawal restrictions also protect you from the temptation to use those funds pre-retirement.
What you give up: Access and flexibility. While you can technically access this money at any time, early withdrawals typically come with penalties and taxes that can significantly erode your wealth.
Real Estate
What you gain: Potential for both income and appreciation, plus the ability to use leverage to amplify returns. Real estate can provide monthly cash flow while building long-term wealth, and you have direct control over the asset.
What you give up: Simplicity and liquidity. Residential or commercial real estate requires active management, ongoing maintenance, and dealing with tenants. Converting your equity back to cash takes time and often involves transaction costs. Plus, you may have an idea of what your property is worth, but you won’t know for sure until it’s time to sell.
Business
What you gain: The highest growth potential and complete control over your wealth-building vehicle. Successful businesses can create wealth faster than any other pillar, and you're building something that could potentially generate income for decades.
What you give up: Predictability and often your time. Businesses carry the highest risk of loss, require significant ongoing attention, and success is never guaranteed. While you control the business, the value of it can become tied to factors often outside your direct control. Similar to real estate, you may have a general sense of what the business is worth, but you won’t get an actual number until you find a buyer, which can sometimes take years.
Every choice involves tradeoffs. The question isn't which pillar is "best", but rather which tradeoffs align with your circumstances, capabilities, and preferences.
How to choose what’s right for you
So how do you decide which pillars to focus on?
Your Circumstances
Start with the practical realities of your life. A 25-year-old just starting their career has different needs than a 50-year-old approaching retirement. Someone with stable W-2 income can take different risks than someone with variable self-employment earnings.
Consider your timeline, income stability, family situation, and existing financial foundation. If you have no emergency fund, building liquid assets should be your first priority, regardless of the potentially higher returns elsewhere. If you're 45 with minimal retirement savings, maximizing those tax-advantaged accounts could be crucial.
Your Capabilities
Be realistic about your skills, knowledge, and available time. Real estate can be a great investment, but are you willing to actively manage properties and deal with tenant issues? Starting a business offers incredible upside, but do you have the expertise and risk tolerance to build something from scratch?
Some people are natural entrepreneurs. Others excel at systematic, disciplined investing. Playing to your strengths is usually the path to better results.
Your Preferences
Finally, consider what you actually enjoy and what aligns with your values. If the thought of being a landlord makes you cringe, real estate probably isn't your path, even if the numbers look good on paper. If you want to "set it and forget it," complex business ventures likely aren't for you.
Some people want maximum control over their wealth-building journey. Others prefer simplicity and predictability. Neither approach is wrong, but they lead to very different strategies.
You don’t need to do everything
Most successful wealth builders don't try to excel at all four pillars. Instead, they pick two or three that align with their situation and go deep. Above all, you need to make intentional choices and commit to the path you choose.
WHAT TO FOCUS ON THIS WEEK
Calculate how much wealth you currently have in each of the four pillars:
Liquid Accounts: Add up all your cash accounts (checking, savings, CDs) and after-tax investment accounts (brokerage accounts, taxable investments).
Retirement Accounts: Total all your tax-advantaged retirement savings (Traditional or Roth IRA, 401(k), 403(b), 457(b), HSA, etc.).
Real Estate: Calculate your total real estate equity by taking the current value of all properties you own and subtracting any mortgages or loans against them.
Business: Estimate the value of any business ownership, partnerships, or equity stakes you hold.
Next, calculate your Term Scores for each pillar by dividing each total by your annual spending. These numbers tell you how many years that particular pillar could potentially support your current lifestyle.
For example, if you have $200,000 in liquid accounts and spend $100,000 per year, your Liquid Term score is 2.0, meaning your liquid assets could cover two years of expenses.
This simple calculation transforms abstract dollar amounts into something more meaningful: time. And time is ultimately what financial independence is all about.
Don't worry about whether your scores are "good" or "bad" right now. The goal is simply to understand where your wealth currently lives and whether that allocation happened by design or by accident.
Over the next four issues, I'll dive deep into each pillar individually. I’ll discuss what healthy Term Scores look like, strategies for improvement, and how to determine if you should focus more attention on building that particular type of wealth.
As always, you can calculate these scores manually, or use the Elements tool (link below) to see your complete financial scorecard and track your progress over time.
ELEMENTS INVITATION
Thank you for reading. Understanding the metrics that matter for your wealth requires more than tracking individual pieces. You need to see how everything works together. That’s what Elements is designed to help you do.
Elements is a financial planning tool that organizes all your financial information in one place, then calculates the 11 key metrics that truly matter for building wealth. You'll see not just where you stand today, but how each metric relates to the others and impacts your overall financial trajectory.
Most importantly, Elements empowers you to make better financial decisions. When you understand how all the pieces fit together, the path to financial independence becomes much clearer.
If you're ready to gain this level of clarity and control over your financial situation, click the link below to get started with Elements. You'll answer basic questions about your income, spending, debt, and account values. The whole process takes about 10 minutes.
Once complete, we'll review your personalized scorecard and send you an email to schedule a complimentary 30-minute call to discuss your situation, answer any questions, and explore whether there's a fit to work together.
GET YOUR FINANCIAL SCORECARD IN 10 MINUTES
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Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty. Roth IRA: converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax-free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
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