Creating Phenomenal Wealth Over Time
| October 23, 2007 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
One of the most outstanding observations about high net worth individuals is that they do financial planning from a generational perspective. They deliberately leave a financial legacy. Some believe that this is because they have more money to do the financial planning with. Let me assure you that much of the critical planning occurs BEFORE they actually get wealthy. Moreover, I would argue that it is the strategic financial planning that helped them get wealthy in the first place. Consider a study from Harvard business school showing that the 3% of their graduates with specific, written goals earned more on average than the other 97% combined (I describe the study in more detail HERE). Similarly, those who prospectively plan their finances will likely amass more wealth than those who do not. Although purely anecdotal, many people say that once they decided to pay off their debts, their income increased.
Simply stated, what you respect , you will attract . Thus, if you respect money, it will come (as in the case of those paying off their debts). Respect does not mean want, desire, or love. Plenty covet money but never keep much of it themselves. Respecting wealth deals with studying it and those who have it and following a practical plan to obtain it. To determine if you respect wealth, answer questions such as: What are the last three books you read on wealth? Is your budget up to date? The proof of respect is the investment of time.
Accordingly, this long-term view of wealth is not congruent with many of our current societies’ values (there are definitely notable exceptions). We live in a fast-food culture where everything must be instantaneous. This would explain the preponderance of get-rich quick programs. Although the quality of such programs varies tremendously, most are terrible. The very few with any merit usually require a lot of hard work (that you could do without spending money on the programs) and are not quick as promised.
Most programs are simply not worth it, but the reason we are drawn to such schemes is because we dismiss the Law of Process that states: you cannot always be what you are not, but you can become what you are not. It is unpopular to suggest that change is not always effected immediately, yet it is true. Meaningful change often necessitates a significant time-investment. Accordingly, don’t try to “be wealthy;” instead, “become wealthy.” By having an emergency fund, investing systematically , and avoiding consumer debt, building wealth is not too complicated, it is just not easy or quick.
Some may ask what I mean by systematic investing. Peter Lynch (Fidelity), Warren Buffett (Berkshire), and even Dave Ramsey recommend a conservative and simple approach for the typical investor: rather than trying to outsmart the markets, use benchmarks to track the markets instead. For example, the Vanguard Index 500 fund has outperformed two-thirds of all mutual funds on a rather consistent basis (Cash Flow Quadrant, 1999). Usually over 10 years, these types of index funds yield a return exceeding 80-90% of returns of the “professional” mutual fund money managers (Motley Fool, 2007). Interestingly, the average millionaire is this type of investor (The Millionaire Next Door, 1996). Although there is no 100% guarantee, this method does dramatically decrease the risk over time and provides respectable returns. Provided that one starts early enough (i.e. before mid-forties), consistent investing over time can be the key to achieving a great deal of wealth.
In summation, don’t fall for the schemes or simply try to “look” rich. You can obtain tangible wealth, but it usually requires work, a respect of money, and time. That is what most millionaires do; need I say more.
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Copyright 2007, Roshawn Watson, Pharm.D. All Rights Reserved.
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.
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great article ! we try to inspire people to LTL; live the life. Financial Freedom is our goal so I have been reading a lot of books and blogs about this subject … this post is a must read for everyone who want to LTL !!!
I find that if you cut charitable contributions, you can take home a bit extra. Giving away 5% per year really adds up after a while and it is better to have it in the hip pocket!
Very smartly written article….makes total sense! I am currently at this point in life where i am very intrigued by accumulating wealth and the things u bring up is spot on!!Keep up the great work!!
i was always convinced that wealthy people are wealthy because they do exactly what you imply, they don't piss their money away on stupid things.rushman
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Great post. Planning my finances and setting goals is probably the biggest reason why I started a PF blog. Helps keep pf bloggers accountable for their finances.
So what if all of your basic expenses (shelter, Ramen noodles, Diapers, Formula, Clothing (gotta get dressed for work), gas , and Inusrance) take all of your money? I've cut everything out of my life over the last 3 years and all it has done is made me miserable, and because of inflation and housing prices, The cutting has just kept me afloat. Have any suggestions for the oh I don't know 2 million 20 somethings in this situation who got screwed by the .com and housing booms? I do contribute to my retirement, 6% but thats all I have to hold onto at this point.
Less teeth more tongue.
I knew a guy that had a lot of money. He spent a lot of it at strip clubs and bars, traveled extensively and ate at the finest restaurants. Unfortunately, the rest of his money, he just pee'd away on Enron and died broke. So, what's the moral of the story? I don't know.
Anonymous,I am a twenty something myself and do believe we get a raw deal in many instances. I wrote a post about this last month: https://www.roshawnwatson.com/debt-by-design/. My one sentence summary is that the financial deck is stacked against generation X and Y. However, no matter what level one is financially, there are almost always ways we can improve management of our finances. That's why I generally focus on topics that resonate with people at all income levels.
Quantass,Thank you so much for your support. It is much appreciated.
Okay I’m coicnnved. Let’s put it to action.
Rushman, I am with you. At one point, I became so convicted, I knew that it would be wrong and wholly irresponsible to continue wasting my money on things I could care less about long-term.
ASTV, I just wanted to thank you for sharing your site and for your support. Million Dollar Journey, I will be checking out your site shortly. Thanks so much for reading and commenting on this post.Regards,
The idea of "phenomenal wealth" excites me! :-)Frank @ Debt Advice
Vanguard seems to have funds that are consistently in the top. I personally have my money in their STAR fund for now, but once it hits $3000 I'd like to move it into a "better" fund. Any other recommendations?
[…] they instead focus on their finances from a long-term perspective. Now, I realize that being able to focus on long-term wealth is a luxury of having surplus, but one […]