In our last newsletter, we talked about the importance of having the right attitude when it comes to money.

Today, I want to talk about how to build wealth as a W2 employee.

Why focus on W2 employees?

Because 90% of America’s workforce (around 148 million people) works for someone else.

That leaves only 10% as self-employed or business owners.

If you scroll through social media, though, you might think it’s the opposite, that everyone is running their own business, flipping real estate, or making millions as influencers.

The truth is, most of us rely on a steady paycheck. And that’s okay! Wealth-building as an employee is absolutely achievable, but it requires a unique approach.

There are two critical steps to focus on:

  • Income Preservation
  • Income Replacement

Here’s the key: you cannot skip ahead to Step 2. Too often, people get caught up in investment hype—what Tesla or NVIDIA stock is doing—before they’ve even figured out how to save.

Let’s focus on building the foundation first.

Step 1: Income Preservation

What is it?

Income preservation is about ensuring that as much of your paycheck as possible is directed toward savings or investments.

Think of it as the art of making your money work harder for you by spending less and earning more.

Here’s why this step is critical:

Too many people want to skip ahead to the exciting stuff—investing, trading, or chasing passive income. But, without mastering income preservation, it’s like building a house of cards rather than brick and mortar.

How can you worry about stock prices when you haven’t even saved enough to invest appropriately in stocks?

When you’re in this phase, you only think about two things:

  • How can I make more money?
  • How can I save more of it?

That’s it. Don’t worry about Tesla’s quarterly earnings or your neighbor’s real estate empire. If you focus on income preservation, you’ll build the discipline and savings to make those decisions later—when it really matters.

Key Strategies for Income Preservation:

1. Live Below Your Means:

  • Choose a reasonable rent or mortgage.
  • Skip the unnecessary luxuries like daily coffee runs or new clothes you don’t need.

2. Maximize Your Income:

  • Pursue promotions, negotiate raises, or switch jobs for better pay.
  • Add a side hustle that aligns with your skills and interests.

3. Budget Smartly:

  • Know where your money is going. Use budgeting apps or spreadsheets to keep track of expenses.

4. Delay Gratification:

  • Focus on long-term goals rather than short-term wants.

Step 2: Income Replacement

What is it?

Income replacement is when your savings and investments generate enough passive income to cover your expenses.

This is where wealth-building gets exciting—it’s the transition from relying on a paycheck to letting your money do the work for you.

This is the fun part, when you get to learn about the different types of investing and identify what works for your plan.

What Counts as Passive Income?

A common misconception is that passive income only comes from real estate. In reality, there are countless ways to generate it, including:

  • Real Estate: Rental income or commercial properties.
  • Dividends: Payments from stocks or mutual funds.
  • Interest: Income from bonds or loans.
  • Portfolio Strategies: Selling covered call options or using high-yield accounts.

Passive income isn’t about following trends—it’s about finding investments that align with your goals.

When Does Income Replacement Start?

It’s different for everyone, but the magic often begins around $100,000 in savings. At an average 8% annual return, $100,000 generates about $650 per month in passive income.

It’s not enough to quit your job, but it’s enough to move the needle. From there, it’s all about scaling:

  • Save more.
  • Invest smartly.
  • Grow your passive income until it matches—or surpasses—your earned income.
  • That’s financial freedom which is the goal

Why You Can’t Skip Steps

Here’s the thing: Income replacement won’t work if you haven’t mastered income preservation.

Imagine skipping ahead to investing without a solid budget. You might start making passive income, but if you haven’t built the habit of saving and spending wisely, you’ll just spend it all.

Mastering Step 1 is what gives you the basis to thrive in Step 2.

Final Thoughts

Building wealth as a W2 employee is not easy, but its also not complicated. It’s about always remembering and focusing on the basics:

1. Earn more.
2. Save more.
3. Invest wisely (but only when you’re ready).

If you can focus on income preservation first, you’ll build the habits and savings you need to make income replacement a reality.

And when you reach that stage, wealth-building becomes not just achievable but fun.

📩 Feedback & Future Topics

What’s your biggest challenge when it comes to income preservation? I’d love to hear your thoughts—reply to this email and let me know!

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