The unfortunate, but realistic truth in all of this is that many of us still will not understand the troubles that we put ourselves through until we wake up to find how low we have actually sunk. It won’t be until we successfully prevent our wealth, that we realize the ramifications of our past actions. But by then, it may be too late. We may find ourselves working at age sixty, not because we want to, but because we have to. We will live vicariously through those who have actually made it, and envy their success.
We must resist the described extreme financial mistakes, and we must realize that we can live for today, but only if we are well prepared for tomorrow. Having learned throughout this book the ways that we prevent wealth, how should we actually build it? To put it simply, we have to be conscious to avoid doing the things that prevent our wealth. No one can guarantee riches in real estate. No one can guarantee success in the stock market. And no one can predict what tomorrow will bring. However, what we can predict is that if we heed the information presented in this book, wealth is within our reach, as long as we have given ourselves time to succeed.
Time is our true enemy, but it can also be on our side. The earlier we set a plan for wealth, the wealthier we can become. The earlier we realize our mistakes, the earlier we can turn them around.
Depending on how far we’ve sunk, wealth accumulation will not be easy, and for some it can be almost impossible. But what we can do is vow to live a better financial life composed of wiser financial decisions; decisions that does not burden us with debt payments, or led us to impulsive spending, but ones that well thought out and made consciously.
What is your vision? Think about it, and set goals to get there. Instead of simply living for today, plan for tomorrow. Does this mean that we can’t buy the things that we want? Should we live a life of pure frugality? Should we not enjoy life’s pleasures as they are presented? The short answer is no, as long as we have a strategic plan in place.
There are really only four main steps to build wealth. We must:
- Define what wealth means to us.
- Determine what needs to happen to bring wealth within our reach.
- Set effective financial goals to meet our personal definition of wealth.
- Reevaluate our goals as necessary.
I’ve learned that there is no magic formula for building wealth, although, a golden rule will sum it up: Make smart decisions! After all, it’s not how little we earn; it’s the accumulation of unwise decisions that prevents us from building wealth. For many, wealth accumulation is a slow process, but most of us can get there if we allow ourselves to do so. We must create a plan that we can commit to, but continually reevaluate it as necessary. Only then can we understand where we are going. Only then can we stop preventing wealth.
An Example of a Plan in Action:
Define what wealth means to me:
Wealth is not working, unless I want to work. If I enjoy what I do, then working won’t be a problem, but if I don’t enjoy what I do, I want to walk away, and not have to worry about how I’m going to pay my next month’s bills. If I’m sleepy in the morning, I should be able to sleep in. If I’m tired at work, I should be able to go home.
Wealth should maximize my time. If I want to take a month of travel, I should be able to do so, without answering to anyone, and not having anything to worry about. If I want to extend my vacation for a week or two, I should be able to do so. If my grandchildren have a school play, I should be able to attend, without any repercussions for taking off of work. After all, if I’m wealthy I wouldn’t have to work.
Wealth is helping others. If there is someone in need, I should be able to give without hesitating to help. With minimum bills, and a steady stream of income, this would be no problem.
Determine what needs to happen to bring wealth within my reach:
- If I pay off my home, my largest monthly expense should be gone in retirement.
- If I start a plan now to ensure that my children’s college tuition is covered before they actually start college, I will not have that expense taking away from any retirement income.
- If I save enough towards retirement such that I generate a healthy retirement income, I will not need to work.
- If I appropriately insure myself, I can protect my assets, and subsequently my income generating ability.
Set effective financial goals to meet my personal definition of wealth:
- I want my home to be paid off before I am forty-five years old. I am now thirty-years-old. In order to do this, I will mortgage my home for no more than 15 years. This means that I must refinance to correct my mistake of an original thirty year mortgage. This will not only pay off my home before I am 45, but it will minimize the interest that I pay, and help me actually build equity in the process. The $200,000 that I will save in interest by not using a thirty year mortgage, I can use to pay for other things. If I cannot refinance my home for whatever reason, I will affirm to make the extra monthly payments so that my goal will still be met, while continually pursuing a refinance.
- I will keep all of my debts minimized. I will try to pay cash for all things that I desire. I understand that the interest that I pay the banks is money that can go towards other goals.
- I will build myself an emergency fund. This will cover unexpected expenses.
- If I have to purchase a vehicle, I will purchase a reasonable car for a reasonable price that does not affect my effective financial goals. I understand that the more money that I spend on cars, the less money that I have to meet or apply towards other goals. If I have to finance a vehicle, it will never be for more than 36 months, and I will educate myself to understand the effect of high interest financing.
- I will save at least $50,000 in college tuition for my child. If my child is now eight years old, I would have ten years to reach my goal. If I start this goal today, I will invest $416.66 monthly for college savings, nothing more and nothing less.
- I will save for an expected retirement income stream of $3500 monthly in an employee sponsored retirement plan, or in an IRA if time permits. This monthly stream will have to last me for thirty years. I will use a conservative estimate in a retirement income calculator (6% of growth) and save at least this monthly amount.
- I will purchase adequate insurance, so that my assets are protected. I will purchase full coverage for my vehicles, home insurance for my property, dental and medical insurance for my family, and disability insurance to protect my income. I will further purchase life insurance to protect my financial legacy, if I shall perish.
Reevaluate my goals as necessary:
I understand that my goals should be constantly evaluated to reflect my situation. I may decide that I’d rather purchase another home than the one I have. In any case, a paid off home should continue to be a retirement goal. Maybe the effect would be to push back my retirement date. Either way, my plans may need to be adjusted to account for any life changes, seen or unseen.