Hi Everyone! It’s been a while since I’ve had one of my own posts up, as things have been pretty busy offline. It’s time to get back into sharing my personal finance experiences with everyone, and getting some good discussion going.
Along those lines, I’d like to share what I consider the high level fundamentals of building wealth. After reading though this, it would be great to hear your thoughts on the topic as well.
First of all, before even getting into the financial part of it, I consider wealth to be just a component of the bigger picture. To me, there is a 3-pronged system of health, wealth, and relationships that feed off one another. I wrote about this before in a post on the Role of Money in Life. To the extent that we are strong in one of the 3 areas, it will put us in position to be stronger in the other 2 areas.
Ultimately, the idea is to strengthen each of these to help us live the life we really want to!
Sound interesting? Thoughts? I’m curious what all of you think of this frameowrk
Okay, now let’s talk about building wealth.
At a high level, my life experience has taught me that there are some key aspects to building wealth and position ourselves for financial success:
Grow and Protect Your Earning Power
Basically, the idea is that before you can even start to save money, you have to make it. This is an area where many people, I think, get a bit sidetracked – particularly those of us really into personal finance. It can be a great feeling to save money, but if we’re spending an inordinate amount of our mind space to saving strategies, we might be shortchanging our investment in our earning capacity. We can do both!
Growing and protecting earning power involves getting the right education, having short and long-term goals, keeping your head in the game every day, persevering and persisting, networking, and always learning. All the while, working hard and smart.
Live Within Your Means and Prioritize Savings
Look, it’s great to want things. Life is to enjoy! That being said, focusing on taking care of needs first and controlling our impulses for things we simply want and being selective about it, is the way to go here.
I suggest setting a target percentage to save, and simply save and invest that. Then, live on the rest. Think savings first, lifestyle second.
Of course, not everyone can do this at the drop of a hat. Some can, hopefully many, but some are in positions where they have debt or other issues. Understandable. But ultimately, the bigger picture goal here is to simply think of saving first. At the end of the day, we’re not just working for ourselves today, but also for the future version of us years down the line who won’t be able to work.
Remember that You Can’t Work Forever
This is one that comes to mind because I’ve heard enough people say they’ll be working until they’re in old age. Well, unfortunately I think that’s a long-term vision seen though rose-colored glasses. People can increasingly develop health issues as they age, and also unfortunately face ageism. While we can and should keep a positive attitude, it’s prudent to acknowledge the forces that we’ll be facing as we age and plan ahead for the reality that you can’t work forever.
Ultimately, it boils down to this: in advance of the day when you can’t work anymore, have earning power diminished, or are not really valued as much in the marketplace, plan for it. This probably goes back to the part about saving – do it early in life, and do a lot of it!
Strategically Manage Your Investments
As we know, throwing money under the mattress won’t help us grow wealth efficiently. Rate of return matters, and we need to generate a rate of return after taxes that exceeds inflation in order to grow.
Along those lines, it’s important to have a balanced portfolio that has an asset allocation that’s appropriate for your age, situation, and goals. While I’m not a professional doing this for a living, you could see one or do your own research to determine the right approach for you.
Be Aware of Risks in Life
Life rarely takes a straight line, linear path to where we think it will go. There are often detours along the way, and some of them could be fantastic!
Others, not so much. For example, there are risks of accidents, health problems, divorce, job loss, bad housing markets, and so on. Ultimately, it’s important to have our head in the game and think rationally versus emotionally in situations where our financial lives are at stake. In reality, that can be every day.
My Questions for You:
What do you think of these fundamentals?
Are there any areas you’re in which you’re particularly strong (or weak)?