How to 10x Your Income - The 4 Ladders of Wealth

Hello friends, welcome back to the channel, so what does it take to be financially free? Well, in this video we're going to learn how you can convert

your

income

from this to this and then maybe even to this and answer this question. We're going to use a framework called

ladders

of

wealth

creation. This is a concept my friend Nathan Barry came up with in his 2019 blog post that went absolutely mega viral on the internet and really changed the way I look at

wealth

too. build make money financial freedom all that fun stuff now here is what the four

ladders

of wealth creation look like ladder one is where you make the least money ladder 4 is where you make the most money and you can go as high as you want anyone of these ladders, but some of these ladders are ultimately much higher than the others, so when trying to build wealth, many people try to jump from ladder one, where they exchange their time for money, directly to ladder 4, where they are building. and sell products, but this can often be a mistake because the skills you need to climb ladder one are a fraction of what you need to climb ladder four and what I love about Nathan's article here is that he shows you all the skills you need. to develop on each rung of the ladder to eventually reach ladder number four ladder number one time to make money, this is Sarah Blakeley now Sarah started her first business in 1990, when she was fresh out of high school, she charged $8 for taking care of kids for a few hours at a local Hilton hotel while their moms and dads got a quick tan until 2021 and Sarah's company Spanx, which is a clothing company that makes underwear and leggings, was valued at $1.2 billion and what I What I love about this story along with literally thousands of others is that most people who become financially free started on ladder number one with some type of hourly job, now the bottom rung of ladder number one is working hourly to someone and this is where you think in terms of how much money you are making per hour, also known as salary.

I was on this rung when I was 14 and started working at a math and English study center called Kumon. I was paid $5 an hour to work 4 hours a week teaching kids math and English and helping them with their similar courses and that kind of thing now in general. The Next Step Up ladder is some form of salaried work and this is where you work for a company and they tell you what

your

annual salary is. This is, for example, what I was between 24 and 26 years old when I was working as a junior doctor in the UK National Health Service, my annual salary was around £36,000 GBP, I worked an average of 48 hours a week and I had About 28 days off a year in terms of like paid annual leave, you may have noticed something a little depressing: ladder one is the shortest when it comes to wealth creation, but ladder one is the way in which most people make a living and ladder one is the shortest because it's really really really hard to be financially free by trading your time for money.

Yes, there are a handful of professions where you can be financially free if you trade your time for money. If, for example, you are a highly paid software engineer or a highly paid doctor in the US or if you work in finance and like hedge funds or private equity or investment banking, then yes, sure he's still trading his time for money but his salary is in the millions and so if you save a large proportion of your salary and then put it away in Investments and think about things like the 4% Rule and blah blah , blah, blah, blah, blah, this is basically the method that most people who follow the fire of Community Financial Independence retire. early, this is what they are doing, they are trying to make a lot of money in their 20s and 30s so they can retire at 35 and that to them is financial freedom, but unfortunately, if you are not in one of those high paying jobs It is very difficult to become financially free and even if you are in some of these high-paying jobs, you may find that, like the compensation of working at an investment bank for 15 years, from age 21 to 36, the amount of damage What that does to your life, your health and your relationships, from what I hear from people who are in that position, it's not even worth it when you get to be 36 and suddenly you can retire, but anyway when you're in stairs. one and you're trading time for money, your

income

growth will look like this: You start working for a company and if you stay with the company long enough and do relatively well, you'll get a raise and maybe at some point you'll get a promotion and then you will get another raise and these small increases create these kind of small changes in your income graph, for example if I continued in my medical career this is what my income graph would have looked like in my founding year 1 I would be earning around of $40,000 in founding year 2, maybe around 48,000 then during basic training, maybe I earn like 54k and then I become a registrar, maybe I earn like 58-60k and then once I become As a consultant, I'm like 35 or older, so I make around 100,000 to 150,000 depending on how I play my cards, that's the annual salary I'm basically going to have for the rest of my life unless I decide, for example, to do private practice, which could mean working for a private healthcare company or starting my own business, but that would take us to a different scale now, interestingly enough in the UK, if you want to be in the top 1% of earners, i.e. an annual salary of £60,000 P, which is about $200,000, so if I continued working in medicine, I would have been on that salary, I would have joined the 1% maybe when I was 40 or 50, but for However much money you make at a job, there is inevitably some sort of limit to how much you can earn when you trade your time for money, which begs the question of why most people stay on ladder one, depending on their circumstances.

You may not be able to physically climb stairs 2, 3, or 4. and, honestly, I think that for most people who are privileged enough, with all caveats aside, who are privileged enough to have the option to move to different ladders but who seem to stay on ladder one, I think a big part of it is that I just don't consider that you can really ascend to these different scales. I went to medical school as if it hadn't even remotely occurred to me when I was applying to medicine that there were other ways to make money than just getting a job and earning a salary. and what I had to do was read Tim Ferris's incredible book, The 4-Hour Workweek, at the age of 18 to feel, oh my God, like my whole world was open to the fact that, in fact, you can make money using a vehicle other than salaried work and there's that funny story by David Foster Wallace that I think really captures this.

You may have heard it before as the two fish swim happily and encounter a larger fish swimming in the opposite direction. The older fish nods and says. Good morning guys, how is the water? And then the two young fish swim around a little and then look at each other and say what the hell is the water. And for most of us, the water we swim in when it comes to making money is Ladder. one of the ladders of wealth creation, the idea of ​​trading our time for money, by the way, if you're wondering about the absolutely sick background music we've been using in this video and indeed all the other videos on my channel since 2017, who are from Epidemia Sound, who very kindly sponsor this video, Epidemia Sound, by the way, is a cross between a kind of marketplace and a software as a service of a SAS product that we will talk about in ladder 4 of wealth creation, but sound design is an incredibly important part of making great videos and we literally get all of our tracks and sound effects from Epidemic.

They have a huge library of over 40,000 songs and 990,000 unrestricted sound effects so you can use them in virtually any way you want. want in your videos and it really makes it very easy to create the perfect sound design for your content, for example you can search for inspiring and fast-paced piano music and then you can find things and then you can click on search similar and that will make it easier to find things that sound similar that's how I personally find a lot of the music I use in my videos. Their music is also professionally produced and is all original music and they also own 100% of it so there is never a chance that your videos will receive a claim or takedown in the future.

Epidemic Sound gives you a lot of freedom as a creator and helps me avoid claims against my content and everything remains licensed even after you end your subscription and like I said, I've been using it for literally the last 7 years so yeah Want to bring your videos and stories to life with sound, click the link in the video description and you'll get a completely free 7-day trial where you can start creating amazing soundtracks. for its content, many thanks to Epidemia Sound for sponsoring this video. Now we come to ladder number two, which is a traditional service business.

When I was around 12 years old, I discovered something absolutely magical: I had the ability to make money online by offering services to people online and through that I learned how to create websites. I learned the basics of the internet, like coding skills and stuff, and I advertised my services on freelance platforms where I was charging like $10 an hour to make websites for people and that was like a big unlock because now I had gone from trading time for money to make more a service business and this is ladder two of the wealth creation ladders, which is some form of independent service business and it is very It is possible to make money like this, there are platforms like Fiverr and upwork and people per hour where anyone in the world can advertise as a freelancer with a particular skill and then anyone in the world can hire you to do that particular skill.

It's pretty magical now. In the case of the guy, the main skill you need if you want a salaried job or salaried job is essentially being reliable, performing well and presenting yourself consistently. Yes of course there are more specialized skills like if you are a doctor then obviously you need the medical skills. and if you are a banker, you need the banking skills and stuff, but when you jump to ladder 2, then you need to learn a new set of skills. Now, at the bottom of ladder 2, you are most likely charging for some type of hourly work.

So, for example, you could be charging $20 an hour as a freelance writer or $50 an hour as a video editor, but you at least need the ability to find clients who will actually buy your service and secondly, potentially create proposals for those clients and present proposals for them. job and thirdly, probably know how to price whatever your service is and then you graduate to doing project based work so instead of me saying hello I'll design you a website for $10 a hour and it will take me 10 hours, so I go. charging you $100 is more like, hey, I'll charge you $200 to build your website and then actually the incentive is for me to take as little time as possible to provide that service because now I'm not getting paid. hour and then if you decide to move up a rung on that particular ladder, then you're not necessarily the one actually delivering the work, maybe you're selling the work, but you're hiring other people to do the work for you and that's the way it is. which is a service agency, for example, if you hire a web design agency, it is very unlikely that the person you talk to on the phone who sells you the web design project is actually the one who writes the code and creates possibilities for the website.

Have they hired other people, either as freelancers or as employees, to do the service for them so that they can deliver the results and things can scale much better? If you get to that point where you're managing a team to do this type. of service work, then you'll probably need to learn the skills to set up a business, understand things like accounting and finance and the business side of everything, and apply for jobs to hire employees to support you and what you need. generally different skills than you have when you trade time for money because when you trade time for money you are usually a component of a larger system and therefore you are unlikely to learn those skills, but you learn them as you go.

If you progress up ladder number two, you can nowYou can absolutely climb further up ladder number two than ladder number one, especially if you hire a team to help you provide your services, but there is also a limit to how far you can go up ladder 2 because most Of the people who work independently offer agency based services to clients, most of these people start by customizing the service for each client and this is great for the client, but before you know it, you have several different clients with like a dozen different requests, each one maybe more. and you end up going back and forth and it's very difficult to scale a business that provides personalized services for every client that you work with and that's where we go up to ladder number three, which is the productized services on ladder number two. we have the mindset of selling a service but moving up to the next ladder instead of thinking we are selling a service we are thinking of selling our service as a product hence the phrase productized services so let's imagine you are a video editor. for example, even if you have no experience editing videos, you're watching this video on YouTube and you probably know something about the fact that these videos are edited, for example, so what would this look like if we thought of video editing as a productized service instead of just a normal service, so you could, for example, develop a package called YouTube Shorts Starter Kit and then you would define the scope of this YouTube Shorts Starter Kit.

You could say that this package this product involves one Zoom call per month for 1 hour with a client 10 hours of video editing work five full videos per month one review per video at most and all videos are 60 seconds or less, Then you put a price tag on it, for example, I don't know, $2,000 a month and this is your service product, it's essentially a systematic service that you can provide to multiple clients. and you're selling it as a complete package as a complete product and if some of your customers say oh, but can you do a long form instead or this or that or can you do more fun edits and stuff, you say no, I have a product? and I just do this repeatedly and I get very good at doing this, which means you can stop creating systems and processes around it, now you can start hiring people to help you do it and because all you're doing is sell. something that has a very defined scope with a very defined product price, means that it is much easier to scale a product.

High service, by the way, if you're interested in learning more about this, my friend Robin, we have an amazing book called Take Your Picture, which is basically about the process of going from ladder number two to ladder number three and you should check it out, By the way, it's fantastic. Production services are what another company of mine does called Hello friends. Hello friends, it's like a production service done for you. that helps people make YouTube but basically does everything for them besides filming the video itself. It is very expensive. You can visit the website if you want, but that's an example of a product-service, so I'll put a link below if you want. just wants to take a look at what it looks like to do product services as some kind of YouTube agency.

Now this change from ladder number two to ladder number three is one of the most important changes for wealth creation, so on ladder number two, there is a limit to how much income can actually be increased because We run the risk of scope expansion, projects increase, you get more clients and it starts to become too operationally complex, but ladder number three solves this problem because a high service product is simply a predefined packaged service that is offered for a a set price and scope, so you are being very clear to the customer about what they can expect and these clear expectations are what help you scale a predictable model and now the skills you need to create and sell.

A product or service is also a little more sophisticated, for example, you know how to write a sales copy that can generate a sale without necessarily having to talk to the customer. You need to learn how to design sales pages or learn how to hire experts who can design sales and landing pages for you. You need to know how to process payments online, assuming you're selling over the Internet, and you need to find some kind of standardized system so that systems can deliver repeatable quality with every service now. here, the way Nathan describes it is that the bottom rung of this ladder has a fixed scope for a fixed price, which is what we're talking about, then you could move up by selling recurring services provided by your employees and then on the final rung of this On ladder number three, you would have recurring products, high services and that is, for example, what you are now friends.

At this point your revenue curve starts to become linear instead of stepped like it was on ladder number one because essentially the more traffic or the more leads you have. you can generate for your product and the more sales you can get for your product, in theory there is no limit to the quantity of a product. High service that can sell and this nuance is here because if the product that service has to scale with people, then you start needing to hire more and more people and then obviously you have to require the skills to manage a large team and operations and complexity and personnel issues and human resource issues and everything that is associated with running a larger business.

It's kind of a limit in terms of the maximum capacity of people that you can deal with personally, but you can always get better at handling that capacity of people over time, but one of the problems is that you need to have traffic constantly and this actually is where having an audience becomes particularly useful, in fact, having an audience is a great trick for any of these different ladders and I've made a ton of videos that you can see on the channel on how to grow your YouTube channel, you know , all that kind. of things, but basically, if you have an audience of people who know that they like you and trust you, you are much more likely to be able to generate leads and drive traffic to your freelance business or your production service or even your product compared to with someone who doesn't.

We don't have an audience and then we get to ladder number four, which is selling products themselves. Now, the richest people on the planet generally don't get rich by selling services in any capacity, but rather they sell digital or physical products or software, or even better. owning the platform on which these different transactions are done now when it comes to L 3, in theory, if you go far enough, it sort of eliminates the need to talk to the customer to give them some sort of customized package, somehow L way 3 eliminates the work of talking to the customer and, in theory, guy 4 eliminates all the manual work of delivering the product because all the work is focused on creating that product in the first place, for example, if you sell an online course like I do on YouTuber Academy part-time, then there's a stupid amount of work that goes into writing, filming, and editing the course, but when someone buys the course, they usually don't need to do any extra work to teach that course.

It's the ladder that allows you to climb the highest, but it's also the ladder that requires the most skills, for example, customer service at scale and lead generation and meeting customers at scale and supply chain and operations and all that complexity. if it's a physical product and shipping, if it's a physical product, a lot of things that generally service companies don't have to deal with now. The bottom rung of this ladder is selling digital products like what I do, which is courses, ebooks, and black downloads and tripods for vloggers. Can? Leave me the light keyboard please, so for example, this is V1 of the light mode keyboard, which you can check out at light mode.com.

If you want an original keyboard that looks good and feels good to type on, we go up to rung number four, which is launching a subscription software with some kind of consulting service, so if, for example, you were doing a service of consulting that offered Facebook ads services to businesses, you know it's a service-based business, but if I then had my own software or licensed software that would help them. manage the ads, then you could charge a recurring fee for the software that's attached to the consulting service, then you move up the wrong place on the ladder and that's straight up software as a service where what people are buying from you is software and ideally they're paying some kind of recurring income for that, so for example, we're in beta right now of a product that I'm developing with my friend Pablo.

It's called Voice Pal. It's like an AI-enabled creative tool that helps you overcome writer's block. you just get on the phone and a first draft of your newsletter or your YouTube video or whatever you're trying to create is created. We have about 2000 beta users for it, it will be released publicly but you can join the waiting list with link below if you want to see it, it's on voicep pal. For me, that software that is software as a service, people have a free account or hopefully pay for a monthly recurring revenue subscription plan and still get value from the software.

This is great because it means that for us we will deliver the product to more customers. there is no additional capital expenditure that we have to do and the marginal cost of onboarding a new customer is basically zero and then the last rung of the ladder is marketplaces and social media, so for example Amazon is a marketplace , Facebook is a social network, Shopify. It is a kind of Marketplace Uber is a Marketplace, this is very difficult. I'm nowhere near building a Marketplace or platform product, but it's the last rung on the ladder. Now climbing ladder number four usually requires quite a bit of work because each creating a product requires a lot of work up front, but each individual sale and the fulfillment of that sale is done without much additional effort, hopefully, on the part of the business owner, but ladder 4 is really where you have the potential for unlimited advantages, especially in software, because you're not limited by things beyond server costs and team sizes and so on as you scale, but you also have the potential of exponential revenue growth because if the product is good, then in theory each sale of the product should facilitate the next sale because it has some type. of the effects of word of mouth and this is especially true when you get to the top rung of the ladder with marketplaces and social networks because the more people who join a Marketplace or a social network that creates a flyer, then the more people will want to join. social media market because the network becomes more valuable the more people there are on it, so those were the four ladders of wealth creation according to Nathan Barry's blog post, which I mostly agree with and think is a map really good of the good.

These are all the different ways I could make money and these are the different skills I potentially need to learn on Route and if some of these things seem completely strange or foreign to you, you can check out the blog post. I'll link them below. and over time, as you get more familiar with this business space, you'll start to appreciate all of these things and they'll start to seem a lot more like second nature, even if right now they may seem a little overwhelming, as it were. I didn't know that subscription software with consulting services was anything like what a service based on all this kind of stuff is.

The more you consume content and try these things, the more the language starts to make sense and then it becomes much easier to effectively make a plan for how you want to achieve financial freedom. Now it's absolutely fine to skip steps if you want, as you don't have to jump from ladder 1 to ladder 2 to ladder 3 to ladder 4, but it's worth recognizing that if you jump from, say, ladder 1 to ladder Number four, you're missing out on a lot of the skills you would have learned if you had instead created a service-based business or some type of product.

Service agency in advance that you would miss. the skills of talking to customers and being able to sell something directly and, in fact, mainly software, where the people who go directly to create software struggle with sales, struggle with distribution, struggle with talking to customers, they like to build the product and they don't like it. sell the product and that's why every second time the founder focuses on spending a lot of time talking to customers and on distribution, which would be the kind of skills you would acquire if you were trying to have aservice-based business backwards, of course. learning these skills is surrounding yourself with a community or even content of people teaching the skills like these days because of all the content out there on how to build a software startup, you know why Combinator is starting school and you know all the podcasts.

About every software company founder I know is so plugged into the content ecosystem around how to build software that even first-time founders increasingly know that it's really obvious that you should spend a lot of time talking to customers, but if you're If you're not connected to the content ecosystem around these things, you're going to make all the mistakes and I think one of the things in this whole journey to financial freedom is that it gets easier every year because the people who have done it are writing books, I mean. This is not a book about money, but yeah, I'm just holding it up because it's my book, you should check it out.

The people who have done it are literally writing books about it. They're recording a lot of podcasts about it. They're making YouTube videos. about it and now you have so much content that it would have been like a black box in the past where just with experience you would have known that a lot of these things exist, but now the map is out there, people have figured things out: you can absolutely lean on the shoulders of the Giants who preceded us. I actually made a U video which is honest advice for people who want financial freedom, which speaks volumes to this and that video will be linked here, that video will give you a significant boost if you're currently feeling a little lost in this space. on this journey to financial freedom, so check out that video there.

Thanks so much for looking. See you next time goodbye