Possibility of Building Wealth

While the majority of financial advice places a strong emphasis on maximising return while minimising fees—possibly explaining why so many people’s financial plans fail over time—I’m going to take a moment today to introduce a concept that, while by no means novel, is one of those pearls of wisdom that has the power to fundamentally alter the way you view financial matters in the context of your own self-worth.

I’ll offer the following image to help explain the topic of today’s post because SOPA and PIPA went down the tubes. Naturally, not before stating that it’s not my original creation and that you can get it straight from despair.com. (Just so you know, I haven’t started charging for ad space.)

Now that you’re all gloomy and contemplating all the things you probably won’t do, let’s have a positive chat about all the money you waste annually. On this one, we’re going to start with the most basic building blocks. It will look practically childlike at first, but trust me—by the end, it will look better than an artist’s sketch.

We’ll start with a hypothetical guy who makes $100,000 a year and has 30 years left before he mails it in and moves down south to become a professional shuffleboard player. I was going to say guy or gal, but decided against it because I’d be typing “him/her” a lot. Sorry ladies, I’ll remember to use a hypothetical female next time, promise. Over the next thirty years, this person would have $3 million if he could save every dollar he makes. Visually (I have a lot this time) it appears like this

All that worry about increased risk exposure for an additional $300,000, or around.009% of your capacity to generate wealth overall. Furthermore, a 10% rate of return—that is, a compound yearly growth rate—is already highly implausible.

What then should I do? Take a seat and whine about how the system works against you. No. It’s time to exercise a bit more caution. a little more astute with money. Perhaps a little more mature, in that you understand that everything you do has an impact and that the maths underlying this idea is fairly broad. It’s time to accept the real cost of all those Venti Frappuccinos and decide between the 528i and 328i. It’s probably time to acknowledge, though, that if you can save up money inside whole life insurance and access it while continuing to make money, you have a means of avoiding losing all of this potential riches.

It is not wise to spend a lot of time worrying about rate of return because you will never be able to control it. Recall the adage, “assuming less is more.” If I assume five and receive eight, I’ve done fantastically; if I assume eight and receive five, I’m in serious trouble. Make a strategy that, instead, focuses more on the things you can control, including how much money you really save. Keep in mind that there is a financial tool that allows you to save money, spend it, and then put it back—and the money grows even as you spend it. That works pretty well for changing red bars to blue bars. Increasing your savings does not, then, require you to give up everything. Your issue with ostentatious consumption (while cutting back a little would certainly help) just indicates that you need to slightly rearrange the timeline. Here is an illustration of a good place to start when we concentrate on savings rate:

I hope that by now you are considering the limited nature of your resources and your identity. You have two options: spend the money or make an effort to save every last dime. Remember to ask yourself: How many paychecks are left before you retire? Now would be an excellent time to start thinking about this if you haven’t already. Because your retirement and general legacy will be built on these remaining paychecks.