There are many articles I’ve written that apply to the 5 steps of building wealth. A short reminder on the 5 keys:
- Start early
- Set a goal and create a plan
- Live below your means
- Invest wisely
- Be patient and stay the course
I’ve written a couple posts related to the 5th key with regards to patience. In short, it simply takes time to build wealth. There are no shortcuts and please don’t fall for any get-rich-quick schemes. They tend to not work and in the end cost you.
What I haven’t written much about is the “staying the course”. While mastering the 5 keys of building wealth there will be setbacks, gotchas and even distractions. I’ve dealt with them all and withstood most.
The reason I write about it today is clear to those of you already well on their way to building wealth. That is for those of you that have chosen the stock market as their vehicle to wealth. The erratic market behavior we’ve seen the last few weeks and the lackluster growth (lack thereof) for the last 10 months can’t be easy.
Your plan probably assumes a certain return each year to make it to your goal in time. I don’t have a crystal ball but I have faith the market will pick up again, if not this year, the next. Then again, what do I know? I’m going on faith, not wisdom or knowledge on this one. The market does what it does.
Market corrections or slow growth are just one thing that can make it hard to stay the course. After all, plans to build wealth (done right) will last years and lots can happen in that time span.
Here is some of what I’ve dealt with that would have sent many running for the hills or simply abandoned the plan.
Bad investments. If you follow the blog you’ll find that I preach about keeping it simple (stupid). I’m mostly invested in SPY and VINIX, both investment vehicles that track the S&P 500. It has served me well but, I didn’t always live by that philosophy. I’ve made some knucklehead investments over the years (earlier ones) and lost out big. Some deals gone bad have lost me over $60,000, on others I missed out gaining thousands.
These types of events can easily make you thrown in the towel. I didn’t and I recommend you don’t either. Walk away with the lessons learned, try not to repeat them and stay the course.
The great recession. Before the great recession began in 2008 I was well on my way in my plan to become a millionaire. A little over half to be exact with a portfolio of about $550,000.00. Pretty good I’d say, 39 and a half a millionaire. Then the recession hit. By November of 2008 my portfolio hit an all-time low of $241,000.00. I shouldn’t say all-time. The last time I had that “little” was November of 2004. The great recession had set me back 4 years. Did that send me running for the hills? No I stuck with it and stayed the course. I didn’t sell a pennies worth of stock and simply held on. Is that sound investment advice? I’m guessing not but it paid off for me. I stayed the course, didn’t panic, actually bought some more SPY at its new lows and it paid off.
That 240k portfolio went up to a million in “just” 5 more years. Stay the course. There is nothing wrong with creating a contingency plan should the market crash (talk to a real certified financial adviser) but don’t panic, re-evaluate and stay the course. I’m glad I did.
Illness. I’ve made no secret of it in my book so I’ll put it out here as well. I suffered from a devastating depression whilst working on our plan to building wealth. So there you have it (again): Money doesn’t bring happiness. It was hard for me to find a reason to live, let alone to stick to a plan for building wealth. I did nonetheless. Like me, you probably won’t be alone in executing your plan. There is family and friends. My wife and children is what kept me going through this depression and along with it, the execution of the plan. I was “lucky” that my depression didn’t affect my ability to function normally, do my job and my duties as a husband and father. As a matter of fact, focusing on those probably helped me get through it.
You may go through something similar (I’m told depression is quite prevalent these days) but it may also be some other illness that strikes. Unfortunately illness in the United States can cost you dearly so there may actually be a major impact on your finances. That said, try to stay the course. Maybe reduce your contributions, put them on hold for a little if needed but stay, or get back, with the plan as soon as you can. My depression did change the parameters of my plan (you’ll have to read about that in my book) but I stuck with it and saw it through.
Temptation. I can’t ignore this one. I talked about it (and lots more) with the Debt Free Divas on the Midday Money Show. At some point in the plan you will be looking at a lot of money in the “bank”. With me it was when I reached the $800,000 level. I was making 6 figures in a very secure job and unrealized gains in investments were keeping pace with my salary. Temptation kicks in: Why shouldn’t I buy that Snow mobile? Why can’t I buy a 300Hp Tritoon like my neighbor just got? I certainly can afford it. I wish I had a trick for you to not fall for temptation but I don’t.
All I can say is, you need to keep reminding yourself of what it is your doing and not loose sight of your end goal. I didn’t and I’m glad I didn’t. The snowmobiles would have just reminded me how much I hate the cold and the Tritoon would have gotten me across out tiny lake in just one minute which makes for lousy boating. Remember that too: Stuff only stays interesting for so long while it looses its value.
Reward yourself. With all of that said I have to remind to keep enjoying life and not loose out by just focusing on the plan and the end goal. Early on in the plan I actually set some rewards ahead for myself and my family. You know, kind of like the carrot on a stick. My first reward I set was a Cartier watch. If I reached the first $300,000 I would get Cartier Santos Chronograph. The day I reached that (sub)goal I went on eBay and got it. It was fun for while but like anything shiny, it grows old. I’ve long since switched back to my trusty Casio. For the 400K level I set a reward of a vacation on the Bahamas. That one is still in my memory and that will last for years to come.
It is okay to reward yourself and your family as long as it fits within your means and doesn’t have any lasting impact on your plan to building wealth. It is okay to live in luxury as long as you do it in moderation.
There you have it, some of the reasons I almost veered off course but in the end didn’t. I’d love to hear some of the hurdles you’ve encountered in your path to building wealth.
Also remember, getting out of debt is just the beginning of your path to building wealth.
In the meantime: good luck reaching your financial goals.