Wealth Building for Beginners (Even if You Are Not Young Anymore)*

4.- “The Most Powerful Force in the Universe”

Legend has it that Albert Einstein was once asked what he considered the most powerful force in the universe. He answered, “Compound interest!”

It’s commonly thought that Einstein was joking when he made that famous pronouncement. I’d like to think he was serious. Compound interest is indeed one of the most powerful forces in the universe of making money. But it’s also one of the most profoundly powerful forces in every area of human enterprise.

Whether your goal is to create a new vaccine, build a faster computer, design a better building, or eliminate poverty, the time and effort you invest in your goals will compound over time, providing you with increasingly greater rewards.

When it comes to wealth building, the more time you have to invest, the easier it is to become wealthy. So starting when you’re young gives you a major advantage. However, the advice I’m going to give you here will work for you no matter how old you are or where you are right now in your wealth-building goals.

A simple example of the power of compound interest

If you took a penny and doubled it every day for a month, how much would you come up with? A hundred dollars? A thousand dollars? How about a million dollars?

Not even close. If you start with just a single penny and double it every day for 31 days, you’ll end up with… $21,474,836.48. More than twenty-one million dollars in a single month!

Your original penny will have turned into two. But then those two will have turned into four, those four turned into eight, and so on. The growth of your money will have accelerated, or sped up, not only because your original penny was collecting interest but also because all the pennies your received as interest also began to earn interest. And so the growth built up – or compounded.

That’s how we get the term compound interest.

There are three components to compound interest:

  1. How much you invest
  2. What return you get on your investment
  3. How much time you stay invested

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Wealth Building for Beginners (Even if You Are Not Young Anymore)*

 

3.-Your Invitation to the “$150,000 Club”

In the last installment https://www.markford.net/wealth-building-for-beginners-even-if-you-are-not-young-anymore-2 of this series, I told you how I got started on my own wealth-building journey. I hope it amused you. Looking back at it now, I can see that the ratio I kept between foolish and sound habits was about 2 to 1. But that was enough. I hope it comforts you to know that you can do most things wrong (as perhaps your parents and teachers always reminded you was your habit) and still become as wealthy as you need to be!

The second thing I did was to introduce you to a very simple and crazily powerful wealth secret that most high earners never follow: As your income increases (and it will!), you must resist the urge to ratchet up your spending accordingly.

And thirdly, I shared with you one of the most important insights about wealth that I ever learned. Luckily for me, I learned it when I was still relatively young. (In my early thirties.)

That insight was this: You need a lot less than you probably think to live a rich life: A lot less wealth. And also a lot less yearly income to acquire that wealth.

As for income… If you can get your income above $150,000 a year and simultaneously curb your enthusiasm for expensive toys, your chances of one day retiring wealthy are about 99.9 percent.

As for how much “money” you’ll need to sock away… A very rough number would be about 12 to 15 times the amount of money you’d need right now to lead a rich life.

If you can get your income up to $150,000 or beyond (and as I will show you that is quite easy to do if you are willing to put in the right sort of time) and if you can save 20 percent to 30 percent of that (which is very possible if you manage your finances as I’ll suggest), you will arrive one day at a net worth of between $3 million and $30 million.

And that – if you know how to spend your money – will be enough to provide a great, rich life for you and your family.

Before we move forward on that, you have to answer one question…

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Wealth Building for Beginners (Even if You Are Not Young Anymore)*

 2.- Welcome to My Path

 Let’s stop here, before we move through this thick wood, and think for a moment. What is it that you are looking for? Where do you want to go?

You say that you want to get rich. And as quickly as possible.

I say you are mistaken. But at this point, at the beginning of our journey, you can’t be expected to know that.

“If not getting rich, then what?” you want to know.

“You want to build wealth,” I say.

“What’s the difference?”

“There is a big difference,” I say. “It’s the difference between wanting and possessing, between anxiety and serenity, between having now and forever lacking.”

“Sounds like a lot of horseshit,” you reply.

“Follow me down this path and you’ll see,” I say with a wink and a smile.

“And why should I let you guide me?”

“It is my path. The one I cut. The one I know.”

Before I found my path

As a boy, I never had any goals or specific ambitions. I wanted only to be different from how I saw myself: weak, lonely, poor, and insignificant.

I dreamed – actually dreamed – of being rich and popular. I had a specific dream repeatedly for years. It took place in the parking lot “schoolyard” where we played during lunch break. All my classmates are there. A white limousine rides by slowly and stops. A chauffer jumps out, prances around the car, and opens the door. Little me, in white tails and brandishing a diamond-tipped walking stick, steps out. My classmates ooh and ah. I am loved.

I was earning money – or having a side hustle as they say now – ever since I could ride a bike.

I had the usual childhood jobs: delivering papers, cleaning neighbors’ kitchens, cutting grass, stocking groceries in the back of Al’s Deli, working in the Rockville Center Carwash, etc.

Before we graduated from high school, my friend Peter and I had a business painting the houses of the rich people that lived on Long Island’s north shore.

To pay for college and graduate school, I generally worked three jobs, including writing essays for my fellow students. (I offered them a guaranteed grade of B or better.)

Through it all, I never had a clear view of what I was doing. I had no money. I needed money. So I did whatever I could to make ends meet. Some weeks I made more money than I needed. When I did, I found a way to spend that money on something that pleased me for a few hours or, if I was smart, a few days.

I was walking but I wasn’t on a path.

I think I found my path in 1983.

The thing about having many goals…

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Wealth Building for Beginners (Even if You Are Not Young Anymore)*


1.- Wealth Matters: You Decide How Much

Making money is not the most important thing in life. And getting rich shouldn’t be your number one goal.

But money does matter. And building wealth is necessary if you have any hope of (a) living well and (b) retiring one day.

This is true for just about everyone. And what’s equally true is that nobody – not your parents, not your spouse, not your children – is going to care about your financial comfort more than you.

That’s the way it is. Forget about the mental bullshit you hear from social idealists: that everyone deserves a “living” wage and that it’s the government’s job to “even out” the wealth gap.

The truth is that we are all born into this world naked, nearly helpless, and without any guaranty of being taken care of by others. As soon as we are able, we must learn how to fend for ourselves.

You may not like to think about money. But like it or not, you and you alone are responsible for your financial situation. And your financial health will affect your ability to enjoy every aspect of your life.

This series of essays is meant for relatively young people, and the younger you are the more powerful the secrets you learn here will be. But it applies to older people too – people in their 30s and 40s (and even 50s) that have not been successful at building wealth and want to start fresh with a proven plan.

The strategy I’m going to give you is not remarkable in any way. And there will be few aspects to it that will strike you as especially clever.

The reason for that is important. “Clever” financial strategies are almost always complicated and expensive. They work very well for the financial professionals that sell them to you. But they rarely if ever work for you.

I sometimes talk about financial “secrets.” But the truth is, there are no secrets to building wealth. There are universal principles – powerful, eternal principles – and there are tried and true practices that work. The thing is that 98% of the investing population ignores them.

It’s true. If you have the good fortune to be under the age of 40 and are of average to above-average intelligence, the “secrets” to becoming wealthy are no more difficult to grasp than the secrets to playing poker. Or playing the trumpet.

And that’s why, as you read what I have to say here, you may find yourself thinking, “I’ve heard that before.” And “I know that.”

Well you probably have heard it before. Because if you’ve been reading about wealth building for any length of time, you’ve been hearing about the most successful wealth builders in history.

But hearing something and knowing it are two very different things. My purpose in writing this series of essays is not just to teach you what I’ve learned but to tell it to you in a way that will motivate you to do something with it. To try out some of the strategies and techniques I’ll be recommending. To get the knowledge of them from your ears to your brain to your gut.

I want you to know the truth of these principles and strategies deeply – and eventually I want you to know them reflexively. So that your day-to-day decisions about your career and your investments will come naturally to you. So you will make the smart moves and avoid the most common mistakes.

When you get to that point, you will find that your net investible savings (my definition of financial wealth) will increase steadily. Somewhat slowly at first but at a more rapid pace as the months pass. And one day you will realize that you are making more money passively than you are making from working. That is the day you will look back and be glad you took this step.

This was my experience. And it was the experience of dozens of people I personally mentored, as well as hundreds of people that came to my lectures or read my books and wrote to me. People such as:

  • HP, who was stocking shelves in a supermarket when I met him and now earns more than $400,000 a year
  • SP, a recent college grad making $14,000 a year who went on to build a business that gave him a net worth of approximately half a billion dollars (and still growing)
  • RP, who had just gotten out of jail when I began mentoring him, and who now lives in a multimillion-dollar house and enjoys a fantastic lifestyle working less than 30 hours a week

(These are just three. I’ll tell you about dozens more in future essays.)

None of these people did anything extraordinary or had any special luck. They just faithfully followed the rules you will soon learn and found that their wealth increased almost automatically.

What I mean by “Automatic Wealth”

Some years ago, I wrote a book titled Automatic Wealth that made it to some of the bestseller lists. The thesis was simple. Most of the world – and I include doctors and lawyers and college professors in this group – work their tails off throughout their lives, struggling to make ends meet, and end up with little or nothing to show for it. But some people – including many that aren’t well educated and have no family connections – seem to find a way to escalate their income and their savings year after year so that it starts to build automatically. Like they have a printing press in the basement.

You might know people like this. If you do, I’m sure you would agree with me that some of them are not particularly bright or even financially sophisticated. They are plumbers and car salesmen and small business owners and people that make money by selling things on the Internet.

I know lots of these people and I can testify: Many of them have very ordinary minds. Ordinary in terms of academic intelligence. But they have learned something in their guts – a sort of emotional intelligence – that they apply to their careers and their investments. And it’s this reflexive knowledge that has allowed them to build the wealth they have built.

Again, I’m talking about a dozen or so principles and practices that you will find easy to understand and, if I do my job, easy to put into practice until they become automatic.

When you get to the automatic wealth building stage, things get much easier. I don’t know when I got there exactly. I’m sure it took me longer than it will take you. But I can tell you this: When I got there, I no longer thought about making money. I no longer had “make more money” on my to-do-next-year list. I was able to pay attention to other things – my family, my friends, and my hobbies. And the machine kept on going.

That’s what I mean by automatic.

Now let’s back up for a moment and deal briefly with the other word: wealth. What does it mean to be wealthy?

I’ve asked countless people for their definition and have received many interesting answers. Among them:

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