You’d be surprised at how simple it is to build wealth. You don’t need special connections, luck or anything of that sort.
You also don’t have to waste money on expensive financial seminars or “buy” the latest tricks and strategies.
John Bogle said that there’s no secret—and that is the secret.
Anyone can access the truth and knowledge on how to build wealth. As a matter of fact, it can be summarized in only two sentences:
- Earn more money that you spend then invest the difference.
- Adopt small daily habits which contribute to your wealth accumulation goal.
This may be disappointing. Many people don’t want to hear this, they want a new and clever secret.
While many marketers will promise you a special ingredient, this is the tried and tested strategy. Ask any wealthy person you know. Even Benjamin Franklin taught this truth hundreds of years ago.
This wisdom is timeless and will work for you if you commit. So, take a deeper look at each of these sentences.
Earn More Than You Spend. Invest the Difference
The first sentence is all about having a positive cash flow. Either spend less or find a way to make more money.
Spending less may mean adopting a frugal life.
You can start a business, ask for a raise or change your job for more income.
Make sure you have something to save and invest so your wealth can grow.
Frugality requires you to be self-disciplined. Depending on how much you earn and what you want to save, it may mean making a lot of sacrifices. This is what makes it difficult. Everyday you will have to choose between your financial freedom goals and lifestyle desires.
People who like simplicity may enjoy it, though.
Extreme frugalists have been known to save even 70% of their income just so they can become financial independent in 10 years or less. But this is not something that everyone can do.
Raising your income seems like the easy alternative. You can earn as much as you want. You are your only limit.
An even better alternative is to do both. Minimize your spending and increase your income.
In investing, you can either choose:
- Paper assets, such as a low-cost index fund
- Real estate
Small Habits to Achieve a Big Goal
The strategy outlined above is simple and people have proven that it works. All you have to do is act. This requires efforts and consistency.
Small actions done consistently over time lead to wealth accumulation.
Procrastination is your worst enemy. There will always be something else that requires your attention and money.
Start today. Identify a habit that will serve your goals and stick to it. If you have no idea where to start, here are some examples.
- Join a program for automatic saving.
- If your company offers a 401(k), opt in.
- Prepay on your mortgage (even a small amount counts).
- Eliminate unnecessary expenses.
- Sell any unused assets.
- Learn to repair instead of replacing when not necessary.
- Find a way to get a raise.
- Learn about real estate investment or asset allocation.
Financial institutions have a distinct genius for marketing. They are able to get millions of Americans to hand over their money with very little thought taken, very little knowledge of the so-called investments offered, and even less control of their investments.
When the evidence is plainly presented, it becomes overwhelmingly clear that putting money into 401(k)s and similar qualified plans is not investing at all–it is one of the riskiest gambles for most individuals. Read the following reasons why I say this, and ask yourself if it’s time to reconsider your 401(k).
- Limited Opportunity For Cash Flow
Qualified retirement plans, such as 401(k)s and IRAs, do not provide immediate cash flow, which means that you cannot benefit from them through velocity and utilization. The theory is that letting the money sit allows it to compound, but for most people this really means that it stagnates. Most people will not choose to utilize these funds even when a particularly compelling opportunity arises that will make them far more than the 401(k) would, even accounting for the penalties. This means that numerous legitimate opportunities are passed by as people stay “in it for the long haul.”
- Lack of Liquidity
The money is tied up with penalties attached for early withdrawal. Although there are a few technicalities that allow penalty-free withdrawals, the restrictions are so numerous that very few know how to get around them.
- Market Dependency
The performance of the funds is dependent upon market factors that most individuals do not have the knowledge nor the ability to understand or mitigate. This means that your retirement plans are based on unknowable projections, making for a dangerous and uncertain planning environment. Uncertainty causes fear, and fear leads to mistakes, worry, scarcity, and ultimately lost hopes and dreams. Do you want to live your ideal life only if the market cooperates?
- The Match Myth
“Take the match–it’s a guaranteed 100 a year, based on an average return of 8 annually, but that means that some years will be lower, some will be higher. If in one year your fund is down 10%, you’re tapping into your principal to take your interest withdrawal. At that point, you have only two choices: 1) start withdrawing principal, or 2) leave the money alone until your funds are up again.
- No Holistic Plan
I’ve witnessed on many occasions people whose finances are in shambles and although they have much more pressing needs, they diligently contribute to their 401(k). They’ve been convinced to do so, of course, because of the match, tax deferral, etc. It’s like a person trying to take care of a scraped knee when their wrist is slit. What they really need is a macroeconomic approach to their finances that will help them identify, prioritize, and manage all pieces of their financial puzzle, with all pieces coordinated and working together.
- Neglect of Stewardship
Ultimately, the most destructive aspect of 401(k)s is that they cause many individuals to abdicate their responsibility, abandon self-reliance, and neglect their stewardship over their own prosperity. People think that if they just throw enough money at the “experts” that somehow, some way, and without their direct involvement they will end up thirty years later with a lot of money. And when things don’t turn out that way they think they can blame others–despite the fact that they only have themselves to blame.
Qualified plans are promoted on such a wide scale because those promoting it have vested interests–and their interests don’t necessarily coincide with yours.
If you currently contribute to a 401(k), stop and think about it for a minute. What is it really doing for you, now and in the future? The desire to save money for retirement is wise and prudent, but after reading the above, do you think it’s possible to find other investment philosophies, products, and strategies that would meet your financial objectives much more quickly and safely than a qualified plan? Are you really comfortable exposing yourself to this much risk? How can you mitigate your risk, increase your returns, and create safe and sustainable investments? How can you create more control and better exit strategies, reduce your tax burden, and increase your cash flow?
Your financial future depends on your answers to these questions.
Contrary to what is taught in popular financial media, 401(k)s and other qualified retirement plans are one of the riskiest investments for most people. Increase your wealth by learning 15 secrets that the media and conventional retirement planners don’t want you to know.