While it’s really important for people of all ages to understand how they can manage the money they make, most young people don’t know where to start when making smart money moves, forgetting that smart decision-making could lead to a wealthy life.

My father, Vice President of Commercial Real-Estate Lending Mendel Holt, works at M&T Bank and is invested in making smart decisions with money. To give a deeper understanding of how to manage money properly, here are four points he shared.

The goal: Building generational wealth 

A common question is “what is generational wealth?” By definition, generation wealth is when assets are passed down from generation to generation. It can also be seen as children inheriting money from their parents. This goal is key because you are not only setting yourself up for success, but you an ensuring that your future family does not have to struggle.

“We have to generate wealth and start that building process, because its’s going to open different opportunities for your children and grandchildren,” Holt said. The building process for generational wealth can start as soon as possible through investing and saving. Here are the steps to help build to this goal:

1) Not spending all of your resources. 

“I think the most important thing people forget [is that] its’s not about how much money you make but how much you can keep and invest,” Holt said. Spending money on the latest Jordans or the brand new iPhone is more of a loss than a gain. A great way to distinguish between money to spend and money to invest is to do the 50-50 plan.

The 50-50 plan is very simple: 50 percent goes to saving and investing and 50 percent is available for spending. This is super important because it trains you to not to spend everything you earn at one time, and instead turn it into a bigger pot of money for your goals. In order to be smart with money you have to have the money, and fortunately the more income you obtain the better.

“People overcomplicate investing,” Holt added. “They overcomplicate building wealth when really it’s just a matter of not spending the money you have and investing it.”

2) Investing your money

“The basic principle [for investing] is I need to keep as much money as I can to send that money back out to make me more money,” Holt said.

Money can be invested in anything from small businesses to large corporations, but a common place to invest money is in the stock market. Think of the stock market like a Cici’s Pizza place. The pizza buffet is the stock market, the pizzas represent several different companies, and each slice is a piece of stock that you can buy from each company. When a company needs money, they will give up a part of ownership of their company and sell it in stocks.

“The significance of it is it makes ownership in companies available to common folks,” said Holt. In regards to the pizza analogy, if a company needs to raise 100 dollars, they will “cut their pizza” ten ways and make each slice ten dollars. Now just because you own a part of it doesn’t mean you own the company, because companies make the “slices” so tiny. Every year when the company does well, they send out money to each owner of “the pizza”.

It’s important to understand that not all companies are the same. From technology companies to retail, each company is different and they all provide a different supply. When looking for the best kind of company to invest, look for well established large cap companies. This means large companies that have decades of performance and experience showing how unlikely the company will go out of business. Also be on the look out for companies that are seen as a sustainable trend.

“One of the companies that I invested in last year, all it does is semiconductors…All small computer devices require a semiconductor to run. [That’s a big deal because] all of the trends in technology [are getting smaller], so the smaller devices require semiconductors which then means that business model is not going anywhere,” Holt said. “You need to pick something [where] the trend [is something consumers] are going to need.”

But how do you get a hold of the stocks that are available for purchase? Staying with the pizza analogy, it is no secret that Cici’s Pizza is not the only pizza shop available. There’s Dominos, Papa Johns, Pizza Hut, and many more. Just like their are many different places to buy pizza, there are different places to buy stocks and those are called Brokerage houses.

A brokerage house is a government regulated hub that has access to the market to buy and trade these stocks. “This brokerage house is plugged into the market matrix so when you ask them [to buy a stock from Apple] they go into the hub their brokerage house [and all of these places] are connected to a central hub were all the trading is done electronically,” Holt said.

Investing is amazing because it exposes you to the benefits of passive income.

3) Passive income 

“The concept of passive income is [when] you put money out the door [to invest money or become apart of a business] and that investment creates a stream of income [where] cash comes back to you,” said Holt.

My favorite way to explain passive income is that you are making money in your sleep… literally. Why is passive income important ? Passive income is a way of having another stream of income without doing as much work to get it. Obtaining passive income can come from not only the stock market, but in owning property.

Owning a primary residence is great and all, but there is no cash flow from that. If you were to own a rental property and rent it out to a tenant, you could be collecting cash flow every month. “With real-estate, you buy a property and you rent that property out and every month, if the renter is doing what they are suppose to do, that cash comes back to you,” said Holt.

It sounds super easy, but there is one catch. Passive income is not passive. For example, if you buy a piece of property and never manage it or manage the tenant who is living in it, the profit off you make from that property goes down. If you invest in the market and own stock, but you never check on the market and make good decisions within all the constant changes, the likelihood that you will lose money is very high. So while passive income sounds like you can kick your feet up and watch the money roll in, you do have to play your role in ensuring that you’re getting the most “bang for your buck.”

4) Obtaining Multiple Streams of Income

Imagine this: You work your dream job every day, five days a week. You also own stocks in Apple, Target, and Instagram, which are doing really well. You have invested in your friend’s small business, which is getting great attention. On top of all of that, you own three condos in your area. In this scenario, you have eight streams of income. Many people believe that you have to be the best at one thing in order to become rich, when in reality if you are a part of several things that can generate money in your pocket, you could be just as rich. With multiple streams of income, there are more opportunities to buy larger portions of companies which can result in more passive income or even more networks for more streams of income.

Celebrities are a great example of this. When you see people like Cardi B in movies, Netflix series, or in a commercial, she is getting paid for doing those things. Rihanna is a music mogul, but also dominates the fashion and makeup industry, all of which put money in her pockets. Having multiple ways to obtain your money isn’t just for the rich. With the right plan. Anybody can get to the top.

“The encouragement I would give [to people wanting to make smarter financial choices is] don’t allow set backs to keep you from restarting,”  Holt said. Managing money is a difficult process. There will be ups and downs that can make it feel like the biggest struggle, but it will be the best thing for you and your future generations. Money rules the world, but it’s the people who can make their money work for them that sit on top.