4 Tips for Building (& Sustaining) Wealth
YOU DON’T NEED TO BE “RICH” TO BE WEALTHY
Stop me if this sounds familiar: a famous person, with an obscene salary and lavish lifestyle, ends up dead broke due to over-spending and mismanaging money. Or a lottery winner – having received a lifetime’s worth of money – spends everything in a couple of years with nothing to show for it.
I’m sure you have also heard stories like this: a person of modest income, with few noteworthy achievements or accolades, dies and is subsequently revealed to have amassed millions of dollars over decades. The person had no special training or insight, received no inheritance or financial windfall, possessed no secret information, yet still managed to accumulate a fortune.
How is it that some people with huge incomes and vast resources spend everything they earn and others with moderate incomes and no exceptional skills end up millionaires? Why do some people live paycheck-to-paycheck and others in comfort – regardless of income level?
“We’ve got a lot of rich people in the league, but the difference is –
wealthy guys write the rich guys checks.”
– NBA legend “Iceman” George Gervin
Lots of people make enough money to be rich. According to Stephen Rose, a nonresident fellow at the Urban Institute and research professor at George Washington University, households with annual incomes above $373,894 are considered “rich”. While you or I may not earn that much, the anecdotes above show that income alone is not enough – plenty of high earners spend as fast as they earn.
Merriam-Webster defines wealth as an “abundance of valuable material possessions or resources”. The discrepancy between “rich” and “wealth” is that rich is something you are, while wealth is something you own. A rich person whose spending keeps pace with earning is no wealthier than a person with a moderate income and moderate spending.
“Wealth is not about having a lot of money; it's about having a lot of options.”
– Chris Rock
While income can buy things, wealth can buy something priceless: freedom to choose what to do, when to do it, and with whom – as often as you want. The “abundance” of resources from wealth’s definition is the key to understanding what is actually important: having more available than is needed. It represents an abundance relative to living expenses.
There are no iron-clad guarantees for landing a high-paying job, but there are simple and effective ways to increase the difference between what you have and what you need.
A person earning an average income but with modest needs can comfortably save and invest a larger portion of income than a someone earning a high salary with commensurate spending. A larger percentage of income saved represents moving toward a future in which work is not an obligation, unexpected expenses are easily navigated, and large purchases require less or no debt.
Four simple ways to build and sustain wealth:
These four simple guidelines can speed the path to wealth – the abundance of resources needed to sustain your lifestyle indefinitely.
• Increase the difference between what you earn and what you spend.
Some purchases are essential, some improve quality of life, and others serve only to boost ego. Reducing or eliminating the latter is an easy way to increase the amount saved.
• Establish an Emergency Fund of at least 3 months’ worth of expenses.
As the Covid-19 pandemic has made clear, the most impactful events are impossible to anticipate. Cash set aside in an interest-bearing account specifically for the unexpected may make the difference between relative comfort – and complete ruin.
• Avoid debt when you can; pay it down quickly when debt is necessary.
When possible, delay large purchases until enough money can be saved to cover the cost. When debt is required for a large purchase like a home, pay more than the minimum monthly amount. Even as little as an extra 1% per month bring huge long-term savings.
• Invest money not needed in the next 3-5 years in long-term holdings like stock funds.
The stock market is notoriously volatile (i.e., risky) – over short periods of time. Over long periods, though – 15 to 20+ years – investing in stocks is the most reliable way to grow wealth. Invest money not needed in 3-5 years and allow it to compound for decades.
Following those four simple guidelines can speed the path to wealth – the abundance of resources needed to sustain your lifestyle indefinitely.
Ready to take control of your financial future with a Fee-Only, fiduciary advisor as your guide? Reach out now to get started. It's your future – but we can help you along the way.
Timothy Iseler, CFP®
Founder & Lead Advisor
Iseler Financial, LLC | Durham NC | (919) 666-7604
Iseler Financial helps creative professionals remove stress while taking control of their financial futures. As both advisor and accountability partner, we help identify current strengths and weaknesses, clarify and refine your long-term goals, and prioritize understandable, manageable, and repeatable actions to bring long-term financial well-being. Reach out today to take the first step.