Money on FIRE

The Three Pillars of Wealth Creation

The road map to Financial Independence

Ben Le Fort
Oct 8 · 6 min read
Photo by Katie Moum on Unsplash

The central premise behind the Financial Independence, Retire Early (FIRE) movement is to quickly build enough wealth that you no longer need to work to finance your lifestyle.

The idea of financial freedom is appealing to millions who have embraced the FIRE movement, but the question remains, how does one build wealth? To put it in the simplest terms possible, you must own assets which are expected to increase in value over time.

Specifically, there are three pillars of wealth creation and obtaining financial freedom.

1. Living frugally & investing in the stock market

2. Owning real estate

3. Owning a business

You do not need to peruse all three pillars to achieve Financial Independence, but you must peruse at least one of these pillars unless you plan on winning the lottery or receiving an inheritance.

Pillar 1: Living frugally & Investing Wisely

This is best represented by those in the FIRE movement. The math behind the FIRE focuses on one variable, your savings rate.

Your savings rate refers to how much of your take-home pay are you investing in assets that you expect to return at least 5% above inflation.

Once your passive income from these investments is greater than your projected living expenses, you are said to be Financially Independent and may choose to Retire Early.

The reason the FIRE movement has become so popular is that it is accessible to nearly everyone. If you are frugal enough, even someone with a modest income can work towards Financial Independence. For this reason alone, I am a huge fan of FIRE. I am for anything that gives people hope.

The investment of choice for FIRE seekers is investing in the stock market through low-cost Index ETF’s. This is considered the smartest way for ordinary people to invest in the stock market for two reasons.

1. Since these funds passively track an entire stock market index rather a specific sector or stock, they provide broad diversification.

2. They are lower cost than traditional mutual funds or picking individual stocks.

You can often buy units of an Index ETF’s for under $100 which is appealing to modest income earners who may only have a few bucks a month to put aside for investment. Odds are if you identify yourself as part of the FIRE movement, you are investing in Index ETF’s.

This is probably the slowest of the three paths to wealth creation, but it is the most passive. Which means it will require the least amount of energy.

Pillar 2: Owning Real Estate

I won’t get into the own vs rent debate here. In terms of Financial Independence when I say, “owning real estate” I’m not referring to owning the house you live in.

I am referring to owning the homes other people live in AKA rental properties.

In the United States, business owners & landlords have 5 times more wealth than the national average.

Real estate helps build wealth in three ways.

1. Monthly cash flow

2. Asset appreciation

3. Debt repayment

Monthly Cash Flow

The monthly cash flow is the difference in the rent you receive and the operating expenses of your rental property. A solid real estate investment should be producing positive monthly cash flow from day one. If it is not, you are not investing, you are speculating.

A savvy real estate investor does their homework before they buy a property. They will ask questions like;

  • How much annual rent is the property currently generating?

A handy rule of thumb to help determine if a property is likely to cash flow is the “1% rule”. Which states that monthly rent from a property must be at least 1% of the purchase price.

If you bought a property for $100,000 it would need to generate $1,000 per month in rent to achieve the 1% rule. While useful, you can’t simply rely on the 1% rule to determine if the property will provide positive cash flow. It’s important if you are thinking of investing in real estate to learn how to value a potential investment.

Part of why real estate has attractive cash flow is that it has numerous tax benefits including:

  • Deprecation on the property

All of these can be deducted against your rental income for tax purposes. That means you can put more of that rent directly into your pocket.

Asset Appreciation

The second-way real estate helps build wealth is through asset appreciation. If the value of the house goes up, you’ve become wealthier. There is no guarantee your property will increase in value but if it does it will help accelerate your wealth.

Debt repayment

Since most real estate investments are leveraged, meaning you use a loan to buy the property, real estate provides a third way to build wealth, paying down debt. Each month when you collect rent and make your mortgage payment your equity in the property and your wealth increases.

Let’s say you buy a rental property for $300,000 and have a mortgage of $200,000. On day one you have $100,000 in equity.

  • After 20 years you have used the monthly rent to pay off your mortgage, but the value has not changed, it’s still worth $300,000.

If someone else (your tenants) is paying your mortgage, you do not even need the property to increase in value to create wealth.

Add up the benefits of the monthly cash flow, potential asset appreciation, and debt repayment and you have a nice trifecta of wealth creation provided by real estate investing.

Pillar 3: Owning A Business

Owning a profitable business is how the richest people in the world built their wealth. As a business owner, you have access to a lot of preferential tax treatment, if you’re incorporated you can choose to pay yourself a salary or pay yourself with dividends when it suits your needs.

The greatest benefit of being a business owner is that you can pay other people to run the day to day operations of your business which allows you to sit back and collect passive income.

While successful business owners tend to build the most wealth of any other group in society, it is by no means a slam dunk. Don’t forget that two-thirds of all businesses fail.

The term “high-risk, high-reward” applies to owning a business. If everything works out, you can build a life-changing amount of wealth. If everything goes up in smoke, you could lose everything.

If you want to dip your toes into the waters of entrepreneurship without leaving the safety of your full-time job, start a side hustle. When I say a side hustle, I don’t mean driving for Uber. I mean starting a side business.

A side business like blogging or setting up an online store is something that you can do in your spare time. This allows you to keep the security and benefits of your full-time job while exploring other avenues to increase your income.

If you can increase your income while maintaining your current living expenses, you could have plenty of disposable income that you can invest and begin to grow your wealth.

Starting a side business has three primary benefits.

1. It helps you understand if you are cut out to be a business owner

2. It provides unlimited upside to your income and ability to generate wealth

3. If you are successful (and lucky) it could turn into a full time “real business”

So, there you have it, the three pillars of wealth creation; frugality, owning real estate and owning a business.


I am interested in what you have to say.

  • Do you own a business?

Let me know in the comments!


Don’t forget you can sign up for my FREE personal finance course here.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.

Making of a Millionaire

Stories about money, personal finance and the path to financial independence.

Ben Le Fort

Written by

Sharing the lessons I’ve learned on my journey from debt to Financial Independence. Email me for freelance inquiries: makinfofamillionairepublishing@gmail.com

Making of a Millionaire

Stories about money, personal finance and the path to financial independence.

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