5 Keys to Building Wealth 6

It has been close to a year since I created this blog millionin10 with the lofty goal of inspiring you to build wealth the way we did. I was a salaried employee with wife, kids, two cats and a picket fence (not white). I also happened to be an expat that came to this country some 18 years ago with only $500 and a diploma in my pocket; We now have over a million. If we could do it, why can’t you?

Since the start of this blog I’ve written posts on topics varying from investing and how it shouldn’t be hard, about saving and how you can save the same. I’ve written many posts on budgeting which can help you get started with that. I’ve written about less obvious topics like healthcare and depression. Most recently I’ve created some calculators (more of those to follow) that can help you do some of the same.

Over the course of that year I’ve also learned that out of all the financial blogs, most are focused on helping individuals and families get out of debt. I’m still a firm believer that there are others out there, like us, that do make ends meet and that can do a lot better. I can’t however ignore the ones that can’t. If you’re in debt and feel this doesn’t apply to you, please read on; the good news is that building wealth applies all the same principles needed to getting out of debt. Getting out of debt for you is simply the start to building wealth.

What I maybe have not done so much is inspire or even properly explain how you can build wealth like we did. I’ve written about the tools and component but not much about the big picture. All posts written belong, in one way or another, to a consistent set of principals.

I call these principals the 5 Keys to Building Wealth. So without further delay here they are:

First Key to building wealth: Start Early

It almost sounds too simplistic but time plays an enormous factor in building wealth as true success when building a portfolio is based on compounding. The more time you give yourself the more time compounding has to kick in.

On the flip side if you have to get out of debt before you start your path to building wealth, time plays an important factor in the amount of interest you pay over your debt.

In both scenarios it is better to start today than it is to start tomorrow.

Articles related to the First Key:
Compounding; if you’re 25 read this, if not read this
why I’m not in early retirement yet

Second Key to building wealth: Set a goal and create a plan

Ours happened to be a goal of one million dollars and the plan was to get there by investing. It doesn’t matter what your goal and plan is. Whether you want to retire at 40, become a millionaire like us or get out of debt in one year. It doesn’t matter what the goal or what the plan. All that matters is you need them!

Goals keep you focused. Without a goal your mind may start to wander after 4 months or even 4 years. Set yourself that goal and remind yourself every morning what it is you’re working towards.

You need a plan to reach your goal. There’s little chance of reaching your goals without a plan. Figure out how it is you want to get there. Is it by first paying of your mortgage and then start investing? Are you okay with the mortgage and want to invest right away? Is investing even something you would consider? Maybe you’re more of a landlord type and want start building a rental property portfolio. Whatever suits you best, put it in a plan and stick to it. There is no shame in changing that plan when circumstances call for it (chances are they will). In that case adapt the plan and again, stick to it till you reach your goal.

Articles related to the Second Key:
10 factors to consider planning for retirement
Should I invest in stock or rental property?
Pay yourself first, for yourself by yourself

Third key to building wealth: Live below your means

If you are currently in debt chances are you’ve already learned that living above your means gets you nowhere. There are of course exceptions for those of you who ended up in debt due to unforeseen circumstances or a broken system.

For those of you just getting by, you are living at your means which sounds okay but won’t build you wealth either. Don’t aim for okay, aim for better, aim for great!

In both cases you need to start living on less. For many of you that means making sacrifices. For probably more of you it simply means stop wasting money. I hate to resort to the old Starbucks cliché but it’s there for a reason. paying $4.45 for a Caffe Mocha Venti is an utter waste of money. Paying $200 for four different phone plans is a waste when similar services are available under a family plan at $120.

In order to build wealth or to pay off debt you NEED to find ways to free up money that you can then apply to your goal. Without money left you can’t pay towards that credit card. Without money left you can’t buy those monthly 5 shares of SPY.

This blog has many posts on how we managed to save thousands a year (more than $20,000 to be more exact), simply by cutting our expenses. If you can’t find what you need here, search the web. There are thousands of places to look on how to save an extra dollar.

Articles related to the Second Key:
How we saved $23,000 a year
Creating and maintaining a real budget.
10 ways to save money on your way to a million
Luxury in moderation
Stick with cable and still save hundreds

Fourth key to building wealth: Invest wisely

There are many ways to build wealth. I’ve mentioned investing in the stock market and buying rental properties and there a more ways than just those two. That said, within those two options there are smart and not so smart ways to approach this. This is where it might be worth seeking advice from a fee based, fiduciary certified financial adviser.

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Find out what works for you but don’t get caught in the trappings of getting rich quick. In general they don’t work and worse they are often just blatant scams.

I built my wealth investing but did not do it by day-trading or trying to time the market. Actually, I’ve tried those and failed at it. If over 50% of the market managers (those that that manage your 401(k) funds) can’t beat the S&P 500 what makes you think you can? I applied the philosophy of Keep it Simple Stupid to my investment strategy and it has paid off.

To quote Warren Buffet: invest in what you understand

As a disclaimer: I’ve been tempted myself in trying to speed up the process. I lost or missed out on tens of thousands of dollars, trying to time the market or trying to catch that next google.

Articles related to the Fourth Key:
KISS applied to my investments
Compounding; if you’re 25 read this, if not read this
Should I invest in stock or rental property?

Fifth key to building wealth: Be patient and stay the course

To reiterate what I said under the 4th key; it takes time to reach your goals and it is paramount you be patient and stick to the plan. There will be temptations to divert from the plan because other seemingly opportunities come along, there will be setbacks. Don’t give in and don’t give up.

When the great recession hit in the midst of my plan it took every bit of emotional strength to not sell when the market evaporated half my portfolio (half of half a million at the time). I didn’t and it paid off; that $500,000 dropped to $250,000 but since then has skyrocketed to over a million.

When the troubles in China surfaced some weeks ago, the market dropped by 10%. For me 10% on a million dollar portfolio is a significant drop that is hard to stomach. That doesn’t mean I go running for the hills though. Again I’m staying steadfast trusting the market will go up eventually again.

Those were some of the setbacks that can take you off-course from your plans. Then there are the temptations. When I reached a portfolio of $800,000 I was tempted to just quit the plan and enjoy the wealth I had at the time. There is a lot of fun to be had with $800,000. When my neighbor bought his 350HP Tritoon, I too was tempted to keep up with the Joneses and for just this one time give in. I didn’t, I didn’t buy a bigger boat, even though I could easily “afford” it. Instead, I kept making my monthly investments and stayed the course.

You will have to do the same. I have every bit of confidence that if I could do, you can do it too.

Articles related to the Fifth Key:
10 factors to consider planning for retirement
why I’m not in early retirement (yet)
How to make a million in 10 years, and how we did it in 13

So there you have it, the 5 Keys to Building Wealth that where instrumental in us reaching our goals.

Instead of moving on to the next blog, stick around for a while a check out all the articles that apply to the 5 keys mentioned above.

1. Start early
2. Set a goal and create a plan
   
3. Live below your means
   
4. Invest wisely
   
5. Be patient and stay the course
   

Good luck reaching your financial goals.