Money Talk: Creating Wealth is Simple… But Not Easy

Money Talk: Creating Wealth is Simple… But Not Easy

Financial success is for everyone. It really is, and that’s what drives me every day in the work that I do. But too many people haven’t discovered that yet. People think they’re not clever enough, or they’re not financially savvy enough. But that’s just not true. If there’s one lesson I could help everyone to understand, it would be this: Creating wealth is simple, but it’s not easy.

It’s simple because it’s almost formulaic. You need to employ certain strategies; to take certain actions. You need to live by certain rules – while allowing yourself some flexibility. Yes, it can be unpredictable and risky, but by reacting to that unpredictability and risk in certain learned ways, you can still be successful.

It’s not easy though, because – like all things that are worthwhile – it requires work and dedication. It takes discipline and emotional fortitude. It takes determination and a forward-thinking mindset. Here’s why.

The Millionaire Next Door

How well do you know your neighbors? Not just next door, but all the way down the street. You might know them by sight, you might know how many children they’ve got and you probably know what cars they drive. But they might be millionaires – multi-millionaires even – and you might never know.

There are 11 million millionaire households in the USA (but interestingly, that study didn’t count the primary home towards their assets, so there’s probably heaps and heaps more). Your average millionaire probably looks and acts a lot like you – for the most part. I’d bet that they behave slightly differently with their money though.

The millionaire next door probably doesn’t drive a flashy car. They probably don’t flaunt their wealth much at all. That’s because they live modestly, and it’s through that modest living that they have become a millionaire. They haven’t got caught up in lifestyle creep – that gradual increase in spending as income goes up. They’ve not let ideas of necessity detach from desire – i.e., they spend because they need to, not because they want to.

The millionaire next door quietly maxes out their 401ks and IRAs. They invest raises and bonuses, and they live below their means. They buy used cars and they clip coupons. They don’t overindulge and they don’t live on credit or with debt. Sounds good, hey?

Consumerism: A Disease of Society

Americans generally overestimate the amount of happiness they will get from owning a large house, a flashy car and other big ticket items. If you have a high income, lifestyle creep and consumerism could get the better of you, and you might still find it extremely hard to save money.

After all, we are constantly being persuaded to part with our money. All those adverts you see on the TV, billboards, over the internet, sent directly to your inbox, they are all very clever campaigns to make you think you want things you don’t need. Corporations spend huge amounts of money on marketing, because they can then recoup all those costs through the money we willingly hand them by buying their products.

So, while waging that war against the advertisers, having a high income doesn’t guarantee wealth. You need a plan. And, as I said earlier, you need emotional strength.

Warren Buffet once said: “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

So you need to be able to make good decisions, preferably according to a plan, and you need the emotional strength to stick to those decisions.

That doesn’t just mean making a budget and sticking to it – although that’s a great first step. It means having some guiding principles in your financial life and being clear on necessary versus frivolous expenditure. It also means not being thrown by market volatility, and making investment errors. It means delaying gratification, knowing that savings today means a richer tomorrow.

Investment For Wealth

There is no set formula for creating wealth through investment. I wish there was. But I’d also be out of a job. There are tactics though. I’ve found that it’s best to set up automatic investment plans, which you systematically add to and not withdraw from, even in times of stock market volatility.

That volatility is going to occur periodically, and they say time in the market is better than timing the market. A buy and hold approach like this isn’t exciting, but I believe that over time this is one of the best ways to accumulate and create wealth.

Diversification Is Key To Creating Wealth

Any investment advisor worth their salt should be telling you to diversify. They’ll be meaning that you should diversify your portfolio. It means that a variety of investments, and assets allocated strategically, should generate a bigger return and pose less of a risk.

But I’ll go one step further than that. Those millionaires next door, I bet they apply the same principle of diversification to the rest of their lives. Successful people don’t put all their eggs in one basket. At the same time as maintaining a career, and regularly pursuing good promotions, they will most likely have other sources of possible income.

They will invest in property. They may start up or invest in a small business on the side. They may learn a language or a new skill. So if their principle income dries up suddenly for any reason, they have other things to fall back on, and other buckets of money to draw an income from.

When Less Really Is More

So the key is to use what you have extremely wisely. Don’t overindulge. Know your spending limits, and keep to them. Invest any leftover money rather than needlessly spending it. Think about what you need now, rather than what you want. And with investments, slow and steady usually wins the race. Diversify not only your investments, but also your income sources.

Small savings now are going to mean a richer, more comfortable life later. Wouldn’t you rather meet those financial goals now, by living with a little less, knowing that by doing so you are creating wealth that is going to benefit you when you need it most?

If you feel like you’d benefit from some financial advice, don’t hesitate to get in touch. We can look at where you can make savings, and how we can use that to build a resilient investment portfolio to give you the life that you truly want.

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Plus receive my free ebook: 5 Simple Ways to Bring the Purpose Back to Your Retirement Plan