So what does it take to become financially free?

Well, in this video, we're gonna learn how you can turn your income from this, all the way to this, and then maybe even to this.

And to answer this question, we're gonna be using a framework called the Ladders of Wealth Creation.

This is a concept that 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 that I also consider wealth building, making 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 four is where you make the most money.

And you can climb as high as you want on any of these ladders, but some of these ladders are ultimately just a lot taller than the others.

So when trying to build wealth, a lot of people try to jump from ladder one, where you are trading your time for money, straight to ladder four, where you are building and selling 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 the thing I love about Nathan's article here is that he shows you all of the skills you need to develop at each step of the ladder to eventually make your way to ladder number four.

Ladder number one, time for money.

This is Sarah Blakely.

Now, Sarah started her first business in 1990 when she was just out of high school.

She charged $8 to babysit kids for a few hours at a local Hilton hotel while their mums and dads tanned.

Fast forward to 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 love about this story alongside literally thousands of others is that most people who become financially free started off in ladder number one with some kind of hourly job.

Now, the bottom rung of ladder number one is doing hourly work for someone.

And this is where you think in terms of how much money you're making per hour, otherwise known as a wage.

Now, I was at this rung when I was 14 years old and started working at a maths and English study centre called Kumon.

I'd be paid $5 an hour to work for four hours a week, teaching kids maths and English and helping them with their coursework and that sort of thing.

Now, generally the next step up ladder one is some form of salaried work.

And this is where you work for a company and you get told what your annual salary is.

This is for example, what I was doing aged 24 to 26 when I worked as a junior doctor in the UK's National Health Service.

My annual salary was around 36,000 pounds GBP and I was working on average 48 hours a week.

And I had around 28 days off per year in terms of like paid annual leave.

Now, you might've noticed something a little depressing, which is that ladder one is the shortest ladder when it comes to wealth creation.

But ladder one is how most people make their living.

And ladder one is the shortest ladder because it's really, really, really hard to become financially free by trading your time for money.

Yes, there are a handful of professions where you can become financially free if you do trade your time for money.

If for example, you're a very well-paid software engineer or you're a very well-paid doctor in the US or you work in finance and like hedge funds or private equity or investment banking, then yeah, sure, you're still trading your time for money but your salary is in the millions.

And therefore, if you save a huge proportion of your salary and then you put it aside into investments and you think about things like the 4% rule and blah, blah, blah, blah, blah, this is basically the method that most people who are following the FIRE community, financial independence, retire early.

This is what they're doing.

They're trying to earn loads of money in their 20s and 30s so that they can retire by age like 35 and then that to them is financial freedom.

But unfortunately, if you're 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 might find that like the trade-off of working in an investment bank for 15 years from age 21 to age 36, the amount of damage that does to your life and your health and relationships, from what I hear from people who are in that position, might not even be worth it when you do get to age 36 and suddenly you can retire.

But anyway, when you're on ladder one and you're trading time for money, your growth in income will look something like this.

You start off working for a company and if you stay at the company long enough and do relatively well, then you'll get a raise.

Then maybe at some point you'll get a promotion and then you'll get another raise.

And these little raises create these sort of small step 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 foundation year one, I'd be making about $40,000.

In foundation year two, maybe about 48,000.

Then during core training, maybe I'm making like 50, 4K.

And then I become a registrar and maybe I'm making like 58 to 60K.

And then once I become a consultant, age like 35 or above, then I'm on around about 100,000 to 150,000 depending on how I play my cards.

That is the annual salary that I'm basically gonna be at for the rest of my life, unless I decide to, for example, do private practice, which could involve working for a private healthcare company or starting my own thing, but that would take us to a different ladder.

Now, interestingly, in the UK, if you wanna be in the top 1% of earners, that is an annual salary of 160,000 pounds, which is about $200,000.

So if I continued working in medicine,

I'd have been around about at that salary

I would have joined the 1%, maybe in my 40s or my 50s.

But however much money you're making in a job, there is inevitably some kind of cap to how much you can make when you are trading your time for money.

It kind of begs the question, why do most people stay on ladder one?

Depending on your circumstances, you might not be able to actually physically go into ladders two or three or four.

And honestly, I think for most people who are sufficiently privileged, with all of the caveats aside, who are sufficiently privileged to have the option of moving to different ladders, but who seem to stay in ladder one,

I think a big part of it is that we just don't consider that you actually can move to these different ladders.

I went through med school.

It did not even remotely occur to me when I was applying to medicine that there were ways to make money other than to just get a job and earn a salary.

And what it took was for me to read Tim Ferriss' amazing book, The 4-Hour Workweek at the age of 18 to be like, oh my God, my whole world has opened up to the fact that you can in fact make money using a vehicle other than a salary job.

And there's that fun story from David Foster Wallace that I think really captures this.

You might've heard it before, but two fish are happily swimming along and they meet an older fish swimming the other way.

The older fish nods and says, morning boys, how's the water?

And then the two young fish swim on a bit and then they look at each other and they say, what the hell is water?

And for most of us, the water that we are swimming in when it comes to making money is ladder one of the wealth creation ladder, the idea of trading our time for money.

By the way, if you were wondering about the absolutely sick background music that we've been using in this video, and in fact, every other video on my channel since 2017, that is from Epidemic Sound who are very kindly sponsoring this video.

Epidemic Sound, incidentally, is a cross between a sort of marketplace and a SaaS product, Software as a Service, which we're gonna talk about in ladder four of the ladders of wealth creation.

But sound design is an incredibly important part of making great videos and we get literally all of our tracks and sound effects from Epidemic.

They've got a huge library of over 40,000 songs and 90,000 sound effects that are restriction free.

So you can use them in pretty much whatever way you want in your videos.

And it genuinely just makes it so easy to build the perfect sound design for your content.

For example, you might search inspiring soaring piano music, and then you can find stuff and then you can click find similar and that will make it easy to find stuff that sounds similar to that.

That's how I personally find a lot of the music that I use in my videos.

The music is also professionally produced and it's all original music and they own 100% of it as well.

So there's never a chance that your videos are gonna get a claim or a takedown in the future.

Epidemic Sound gives you so much freedom as a creator and it helps me avoid claims against my content and it all remains licensed even after you end your subscription.

And like I said, I've been using it for literally the last seven years.

So if you wanna bring your videos and stories to life with sound, then click the link in the video description and that will give you a seven day completely free trial where you can start creating amazing soundtracks for your content.

So thank you so much to Epidemic Sound for sponsoring this video.

So now we come to ladder number two, which is a traditional service business.

Now, when I was around 12 years old,

I discovered something absolutely magical, which is that I had the ability to make money on the internet by offering services to people online.

And through that realisation,

I learned how to make websites.

I learned the basics of online 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 major unlock because I'd now gone from trading time for money to doing more of a service business.

And this is ladder two of the ladders of wealth creation, which is some form of freelance service business.

And it's very possible to make money like this.

There are platforms like Fiverr and Upwork and People Per Hour where anyone in the world can post themselves 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 on ladder one, the core skill you need if you want a wage job or a salary job is essentially being reliable, performing well and showing up consistently.

Yes, of course, there are more specialist skills.

Like if you're a doctor, then obviously you need the doctor skills.

And if you're a banker, you need the banker skills and stuff.

But when you jump to ladder two, you then need to learn a new set of skills.

Now at the bottom of ladder two, you're most likely charging for some kind of hourly work.

So for example, you might be charging $20 an hour as a freelance writer or $50 an hour as a video editor.

But at the very least, you need the skill of finding clients who will actually buy your service.

Secondly, potentially creating proposals for those clients and pitching for work.

And thirdly, probably knowing how to price whatever your service is.

And then you graduate to doing per project based work.

So instead of me saying, hey, I will design you a website for $10 an hour and it will take me 10 hours, so I'm gonna charge you $100.

It's more like, hey, I'll charge you $200 to make your website.

And then in fact, the incentive is for me to take as little time as possible in actually delivering that service, because now I'm not being paid by the hour.

And then if you decide to move one step up in that particular ladder, then you're not necessarily the one who's actually delivering the work.

Maybe you're selling the work, but you are hiring other people to do the work for you.

And so that is what a service based agency is.

For example, if you hire a web design agency, it is very unlikely that the person who you talk on the phone to, who sells you the web design project is actually the one writing the code and making the website.

Chances are they have employed 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 a lot better.

And if you get to that point where you're managing a team to do this sort of service work, then you're probably gonna need to learn the skills of setting up a company, figuring out things like accounting and finance and the business side of everything, and putting out job applications to hire employees to support you and what you need.

These are generally different skills to what you have when you're trading time for money, because when you're trading time for money, usually you're a component in a grander system.

And so you're unlikely to learn those skills, but you learn those skills as you progress up ladder number two.

Now, you can absolutely climb higher on 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 climb on ladder two.

Because most people who are freelancing or offering kind of agency-based services to clients, most of these people begin by customizing the service for each client.

And this is great for the client, but before you know it, you have multiple different customers with like a dozen different requests each, maybe more, and you end up going back and forth, and it's very difficult to scale up a business that is providing such bespoke services for every client they're working with.

And that's where we get onto ladder number three, which is productized services.

On ladder number two, we have the mindset of selling a service.

But to move up to the next ladder, instead of thinking that we are selling a service, we are thinking of selling our service as a product instead, hence the phrase productized services.

So let's imagine that you're a video editor, for example.

Even if you have no experience editing videos, you are watching this video on YouTube, and you probably know a little something about like the fact that these videos are edited, for example.

So what would this look like if we thought about video editing as a productized service instead of just a normal service?

So you might, for example, develop a package called the YouTube Short Starter Kit, and you'd then define the scope of this YouTube Short Starter Kit.

You could say this package, this product, involves one Zoom call per month for one hour with the client, 10 hours of video editing work, five completed videos per month, one revision per video max, and all videos are 60 seconds or less.

Then you'd put a price tag on this, for example,

I don't know, $2,000 a month, and this is your productized service.

It is essentially a systematic service that you can deliver for multiple clients, and you are selling it as a whole bundle, as a whole product.

And if some of your clients are like, oh, but can you do long form instead, or this or that, or can you do funkier edits and stuff?

You're like, nope, I have one product, and I just do this thing repeatedly, and I get really good at doing this thing, which means you can then start creating systems and processes around the thing.

You can now start hiring people to help you do the thing, and because all you're doing is selling one thing, that has a very defined scope with a very defined product price on it, it means it's a lot easier to scale a productized service.

By the way, if you're interested in learning more about this, my friend Robin Waite has an amazing book called Take Your Shot, which is basically about the process of going from ladder number two to ladder number three, and you should check it out, it's fantastic.