Updated: Aug 6
It’s common to look around and see financially successful people and wonder, “How did they get to where they are?” It seems to look so easy for them and so far away from where many of us are in our financial lives. Oftentimes, when I put financial plans together for younger people, the dollars that are required for a comfortable retirement look unattainably large. I am going to let you in on some of the secrets to wealth building that are incredibly simple, but at the same time require a sustained effort and a focus on positive habits. For the vast majority of people the attainment of wealth is a process, not an event.
I like to compare the wealth building process to pushing a boulder up a mountain. Before you can even get started with the task you need a firm foundation. Otherwise, there is a chance the rock will roll back and crush you. There are three major keys to a solid financial foundation. First, always live below your means. Second, have 3-6 months of emergency funds in savings and third, do not carry expensive consumer debt. Once you have reached this point, you are ready to push that boulder.
The boulder only moves with our effort. Our effort, in this case, is to consistently add to your investment accounts and take advantage of long term wealth creation with the help of compounded interest. Early in this process, nearly all of the work is done by our action and not by the work of the market. For instance, if you invest $10,000 the first year, even a 10% gain only adds $1000 to your investment total. Without your consistent work, your progress loses momentum and slows to a crawl, just like a rock you were trying to roll up a hill.
After several years of sustained effort, you will begin to realize the the load seems lighter as the boulder’s momentum builds on itself. For example, if you now have $100,000 in your investment accounts, the same 10% return adds $10,000 to your investment balance. Now the market’s work is matching your contributing effort. It’s important not to let up at this point so you can keep building momentum to reach the peak of the mountain.
Once you get the boulder up to the top of the mountain, it begins to roll down the other side whether we choose to push it or not. It takes on a life of its own. As an investor, you want to reach these heights. At this point you can begin to use some of your hard earned gains to fund retirement or other financial goals you may have and potentially, still have the boulder rolling forward. This is the very definition of financial wealth, having your investments provide for your lifestyle rather than your work.
As you can see, no part of this process is complicated, yet it not easy to achieve without focus and discipline. Seemingly small actions can have a major impact on your momentum, especially when you are just starting to get the ball rolling. If you want to create real, sustainable wealth, you will need to buckle down and not let up. You have a tremendous amount of control in shaping you future financial world but only if you keep the boulder rolling.