There are no shortcuts to building wealth. In most instances, wealth is created by the accumulation of assets which appreciate over time. The time element is critical because yearly returns compound. Over time, as the assets go up in value, the same percentage return nets greater dollars. This is one of the reasons why the "rich get richer". If I have $10,000 and you have a million dollars, who comes out further ahead if we each get a 10% return. In this example, I make $1,000 while you earn $100,000.
Take this example out over the course of 10 or 20 years and you can see how the two accounts will be substantially different. Nevertheless, if one is consistent with the investing, even the $10,000 account will grow fabulously over that time frame. The time element is crucial in building wealth. Too many omit this factor without realizing how fundamental it is.
To exemplify it, I will note a couple of examples that most are familiar with. Debt is something that most of the Western world holds in larges amount. Between mortgages, car payments, and credit cards, the masses are swirling downward because of there debt load. The reason this is so has to do with the compounding (time element on money) effect.
Did you ever sign a mortgage at closing and come across what is called a Truth in Lending Statement. This is a piece of paper stuck in the mortgage which spells out how much you will pay for the house over time. For example, it is not uncommon to see a $150,000 house costing over $350,000 on a 30 year mortgage. Consider if you pay $1,000 a month for 360 months, that is $360,000 for a house that you are buying for $150,000. That is a lot of compounding.
We see the same thing with credit cards. Now, these companies are required to state how long it will take to pay off a balance if just the monthly minimum is paid. It is not uncommon to see balances take 7 years to pay off and cost 2 or 3 times the original amount. This is again a factor of compounding.
Therefore, we must be truly aware of the effect of time on wealth development. Shortcuts often do not work. While it is possible to hit on a fabulous return quickly, your attention should be to putting time to work for you.
In life, to succeed, discipline is required. This is common sense. If you want to lose weight, you need the discipline to go work out and eat properly. Work success is the result of having the discipline to learn your craft while taking the action that others are not willing to take. Any success in any field requires the quality of discipline. Wealth building is no different.
One needs to the discipline to set aside money on a regular basis if he or she is going to accumulate wealth. I recently read an article by a financial writer who was retiring. He put together an article explaining how he went about creating a situation where he was financial secure at retirement. The first thing he mentioned is that he was disciplined enough to consistently save no matter how much money he made. This is key. Regardless of what was going on in his life financially, he took a portion of the money earned and put it into savings. This habit provided him the foundation to build wealth over the course of his working career. He was not dependent upon astronomical stock market returns for success. The fact that he was disciplined enough to always put money away secured his future. Modest returns over time amount to the money he needed to safely "sail off into the sunset".
How come so few ever get to this point? Statistics are showing that only about 3% of the population is financial secure at retirement. Most are subject to having to continue to work simply because they do not have enough money to live on. And what was the cause of this? There are many reasons but at the top of the list was not setting money aside from each check. The old adage is "pay yourself first". However, most opt to pay themselves last. Everything they earn is spent. This lack of financial discipline leads to one being broke in later years.
Discipline is also required to avoid the 'Get Rick Quick" schemes that are promoted in different places. People lose untold fortunes because of their greed and desire for quick riches. This is most often a losing strategy. Often the best answer is "no" yet few can resist the temptation to go for it all. Greed usually is the emotion that will win out. Discipline is the trait that will help one avoid this fiasco. It is best to develop it.
The time to start building wealth is today. It is best for you to start putting time to work for you. Consider what I wrote about the credit card debt and how that affects you. Apply this same idea to savings to see how things can change in your favor. This is a crucial mental shift that needs to occur. The number one financial problem in people's lives is that they find themselves on the wrong side of compound interest. It is best to get on the right side. If you can do that, then everyday you will wake up a little richer than the day before. Do this long enough and you will have massive wealth.
Share and Enjoy!