Here is the wonderful liberating truth about building wealth – it’s incredibly simple.
Here is the catch – it’s not easy.
Let’s start with the simple part.
#1 – Make a plan to build wealth
#2 – Follow the plan
#3 – Wake up wealthy around the day you set
That’s really all it takes. Simple, right?
If you don’t believe me, let’s put some hard numbers to it.
For every case below, I will use a 4.2% Real rate of return. Real rate of return = rate of return above inflation.
Inflation = the rate at which the goods and services we purchase every day increase (talk to your parents about the $15k house they bought or look at the price of stamps over time for simple real world examples).
I’m using a 4.2% Real rate of return because it was the worst 40-year real return for the S&P 500 since 1926. So these numbers could and have been much better.
Case #1 – Median US Household
$50,000 income (it’s a little higher but I like round numbers), 40-year career, 10% savings rate, 3% raises each year. Ending wealth in today’s dollars = $834,679
Not bad, right? Save just a little more, get a company match on your savings, earn a little better than the worst 40-year return and bang you’re a millionaire! In today’s dollars too.
Case #2 – Two working spouses making Median US Income
$100,000 income, 40-year careers, 10% savings rate, 3% raises each year. Ending wealth in today’s dollars = $1,669,358
Case #3 – Affluent Household with shorter careers
$200,000 income, 35-year career, 10% savings rate, 3% raises each year. Ending wealth in today’s dollars = $2,442,966
Case #4 – High Income Earning Household with early retirement (or late start)
$400,000 income, 20-year career, 10% savings rate, 3% raises each year. Ending wealth in today’s dollars = $2,442,536
Maybe you don’t consider those numbers, wealthy? I think they’re all pretty solid, but that’s a pretty minimal effort too. 10% is kind of the bare minimum to me for savings.
So let’s look at one last case that’s a little more fun…
Case #5 – Affluent Household serious about building wealth
$200,000 income, 35-year career, 20% savings rate, 5% raises each year, 6% real return. Ending wealth in today’s dollars = $9,201,103
Now that number better get you a little more excited! This is an aggressive plan, but it’s not unrealistic. It may take you until you’re 35 to start making $200k, but then you can work 35 years until you’re 70.
A 20% savings rate is easy with that income, especially if your company matches contributions. 5% raises over the course of a career are reasonable for high achievers too.
The average 40-year real return for the S&P 500 has been 6.68% and the median 40-year real return for the S&P 500 has been 6.6% so a 6% real return is certainly attainable.
So that’s the simple part, now for the not so easy part.
It’s not easy because it takes discipline, perseverance, faith, and patience. You see, it’s really behavioral issues.
All of us procrastinate so we put off making the plan. All of us get tired and distracted so we stop working the plan. All of us give into fear and panic so we sell out of our investments. All of us get tempted by the easy road so we follow get rich quick schemes or chase hot investment tips.
This is why we don’t succeed and build the wealth we are capable of. This is why it’s not easy.
And this is why I believe everyone needs a financial advisor.
Ultimately, we’re all wired to fail financially. It’s not you. This isn’t personal and it’s not an attack. It’s all of us!
That’s why you need someone who can be objective about your money and someone who can be there for you as a coach, an encourager, and a friend. Someone who can help you stay disciplined, help you persevere, help you keep the faith, and help you stay patient.
If you do those things, you will succeed. You will build wealth. You will reach your goals.
Please reach out now to schedule a brief chat to get started.
Or if it’s not me, make sure you reach out to a solid financial advisor who can help you set and reach your goals.
Remember, it’s simple, but it’s not easy!