The Basics of Building Wealth


NOTE FROM AUTHOR: Working as a Financial Advisor to the general public for more than 42 years I was able to help a lot of people build a lot of wealth. Since I retired as a financial advisor and started writing stories on the blog almost 3 years ago, I’ve written several articles on Stocks and Options and general investing principles – but in this article I want to get back to the Basics of Building Wealth.

Books Help A Lot

I cannot take sole credit for helping people build or add to their wealth. Over the years I’ve read hundreds of books on the subject and most of what I taught people came from books that people before me wrote. One such book that I would like to give credit to here is entitled, The Richest Man In Babylon by George S. Clason. Clason was born in 1874 which means he was way before my time by about 77 years. He served in the U. S. Army during the Spanish-American war and gained his college degree at the University of Nebraska. He founded and ran the Clason Map Company and published the first Atlas of the United States and Canada. Beginning in 1926 he began to published several pamphlets, that was handed out by banks, on thrift and success using parables set in ancient Babylon to make his points. These Babylonian Parables have become a modern inspirational classic known as The Richest Man In Babylon.

The book itself is not the easiest one to read since it is written in the “old proper English style” which is hard for some Americans to really want to understand. While I may refer to some things in this book from time to time in this article – I will do so in the American theme and not the “old English” theme. For Example: All through the book where Clason refers to “gold” I call it wealth or money. We must remember that in days of old the only currency was actually copper, silver and gold in most countries. Where Clason calls it “Fattening thy purse” I call it “creating your wealth.”

Why I chose to write this article now

I fully believe that our prosperity as a nation depends on the personal financial prosperity of each of us as individuals. And proper preparation for that prosperity is the key to success.

I not only believe this but it is the first sentence of the Forward in the book signed by G.S.C – which I presume stands for the Author George S Clason.

Money or Wealth is Plentiful

Money is plentiful for those who understand the Simple Rules needed to acquire it. Over 8,000 years ago the people who lived in Babylonia were living in walled cities. These were not barbarians … many of them were highly educated and enlightened people. They understood that money is the medium by which earthly success is measured. They understood that it was plentiful for those who understood the laws to acquire it.

Here I am not talking about “Loving Money” above all else, but rather understanding that money and wealth are the points on the scoreboard in this thing called the “Game of Life.

So what are these rules? In a nutshell here they are (and we will discuss each of these in detail as this article continues).

As you consider these seven rules consider these questions as well:

  • Why do people who don’t have a dollar to spend sit around like they have all the money in the world? Don’t they understand that it is the broke who become rebellious?
  • Why do people who live in the richest country in the world (America) end up being so broke in their old age? Doesn’t it seem that they are just “Dumb Sheep?”
  • Why can’t the average American acquire wealth? Is it because they go year after year in a slavish way working … working … working and never getting ahead?
  • Why would “Fickle Fate” single out one to enjoy all the good things in life and ignore the rest of us who are equally deserving?

The problem is too many people WISH to become wealthy. WISHING gets you nowhere. If you truly want wealth you have to seek it out.

If you end up being old and retired and have nothing more than a bare existence it is because you failed to learn the laws that govern the building of wealth … or if you learned them you were not disciplined enough to follow them. Reading the laws above does no good – you must act on them and live them daily.

Fickle Fate brings no good to anyone. Every man or woman who is showered with unearned wealth usually ends of squandering it all. Just look at the thousands who have won millions of dollars in the lottery and only a few years later are either dead or dead broke.

ALWAYS REMEMBER THIS: Wealth is power. With wealth many things that seem impossible are possible.

If you truly want wealth – then time and study are required to achieve it. As you study, remember there are but two kinds of learning …

  1. Things we learned and knew, and
  2. Training to teach us to find out what we do not know.

As you look at #2 above think about this.

Thousands of years ago in order for one to learn things they did no know they would have to read (same is true today). However, thousands of years ago people who wrote had to do so on stone tablets with a hammer and chisel. It would take years to write a manuscript and once written only one person at at time could read it.

Later pen and paper came into existence and the writing became easier, as did the learning. Then someone dreamed up publishing so that more than one person at a time could learn by reading the same manuscript others were reading.

The educational system was founded and thousands began to get formal educations to learn even more and was taught by a leader in the classroom that was supposed to be the utmost knowledgeable about what they were teaching.

Today we have the high-speed internet, Google, You Tube, Facebook, Twitter and all other educational ways of learning. There is no reason today why any individual who can read and comprehend what they can read cannot learn. The key is taking action on what one learns. When, and only when, you take action do you embrace learning as a way of life.

I recently read an article where Elon Musk, the leader of Tesla Automotive and Space X was asked how he learned as much about rockets as a rocket scientist since he did not study such things in the few years he attended college. His answer: “I read a book.”

Let’s look at the 7 Rules to building wealth in detail

RULE 1:

You will find the road to wealth when you decide a part of all you earn is yours to keep. A minimum of 1/10th (10%) of all you earn should be set aside for the older person you will one day become. And it should be set aside before another dollar is spent out of your paycheck.

Knowledge like this (acted upon) can truly change the heart of a Janitor (and there is nothing wrong with being a janitor) into the heart of a money lender. My own brother, Ed, started out as a Janitor. Then he became a supervisor of janitors. Next he bought a janitorial business (ServiceMaster Franchise) and now he is lending money to and counseling people who want to own their own businesses.

As yourself these questions: How much do you have from what you earned over the past one month? How about over the past one year? If your answer is nothing or next to nothing then do you feel like a fool? Why do you pay everyone else before paying yourself?

If you did keep 1/10th of everything you earned for yourself … how much would you have in the next 10 years? How about the next 30 or 40 years?

Every dollar you save should be a “Slave” to work for you. What you save must earn and it’s earnings must also earn.

When I first started my career as a financial planner I would spend my days and nights preaching to the general public that they must learn to …

Pay Yourself First

Yes, this meant that they must pay themselves before the banker, the baker, the utility man, the phone man and even the candlestick maker.

You see – WEALTH – like a tree … grows from tiny little seeds.

SCENARIO 1: Let’s think about this. Imagine you are 25 years old and freshly graduated from College and beginning your career. Let’s assume you start your working years on a salary or wage of $40,000 per year. How much will you make between the age of 25 and 65 (a period of 40 years)?

The simple answer is (with no pay raises and no growth in income from promotions, etc.) you will have $1,600,000 pass through your fingers. How much of this are you going to keep?

Do you know if you kept just 10% and put it into a hole in the back yard in 40 years you would have accumulated $160,000. Did you know that in 2019 the Average savings of Americans was just $255,130. What’s worse is the Median Retirement Savings was only $65,000.

How bad is it today when we look at IRA and 401(k) savings only? This table tells the story and it can be found in detail here.

Now if a person were to save 1/10th of everything they earned from age 25 to age 65 and that 1/10th would earn 10% per year … how much would they accumulate? ANSWER: $1,770,370.22.

In other words, they would end up retaining $170,370.22 more than they earned during their entire working careers.

But what about the guy or girl that says to themselves, “I am too young to worry about saving money. I have a full life to live and want to live it good today. I will worry about saving money later.”

Let’s assume they say this for 10 years and really don’t start saving money until they are 35 some ten years later. This is what would happen under this scenario.

They would still have the same $1,600,000 pass through their fingers … but if they only saved 10% for the last 30 years of their working lives and it in turn earned 10% they would end up with only $657,976.09 left in their Investment Account. This is $1,112,394.13 less for saving 10 years less.

In other words … that 10 years of partying and having a good time early in their earning years cost them $111,239.41 per year (which is 2.78 times more than they make) in the end. That’s $111,000 thrown right out the window for reusing to save $4,000 per year.

SCENARIO 2: The reality is this. The $40,000 of annual earnings is likely not to stay at that level for an entire lifetime. Incomes do go up. What would happen if in the same scenario you simply had a wage that would keep pace with inflation and assume that inflation ran an average rate of 3% per year. Now how much would pass through your fingers over your “working lifetime?” Answer: $3,016,050.39. How much of this are you going to keep?

If you kept 10% you would keep $301,605.04.

However, if this 1/10th of annual earnings that you saved were to earn you a nice 10% return … you would end your working career with $2,399,941.02 in the bank/investment account. That is about 80 cents for every $1.00 you earned. Your last year of earnings, by the way, would have grown to $126,681.08 (that’s $40,000 inflated by 3% for 40 years) and a nest egg of $2,399,941.02 earning just 5.28% per year would throw off a retirement income of $126,681.08 for the rest of your life and you would never touch the principal of $2,399.941.01.

SEEK ADVICE:

As you are growing your nest egg for retirement or any other need between now and retirement seek advice on how to invest it and grow it better from those knowledgeable in such matters.

  • You don’t want to ask the Carpenter about building wealth, nor
  • should you ask the Baker about stock dividends or
  • the Auto Mechanic about stock options

Advice is freely given away — but make sure you only take that which is worth having. Take advice about investments and building wealth from those experienced in such matters. I can’t tell you the number of times I’ve had clients get out of an investment because their brother-in-law or uncle said its the best thing they could do … only to see the investment explode in value a few weeks or months later.

Three Critical Learnings to Building Wealth

  1. FIRST AND FOREMOST – Learn to live on less than you earn.
  2. SECOND – Learn to seek advice from those competent to give it.
  3. THIRD – Learn the various was to make your money work harder for you than you do for it.

You must be prepared at all times for all Opportunities. Opportunities wastes no time time on those who are unprepared.

When working on your plan to achieve wealth set tasks that must be completed for you achieve each of your short, medium and long-term goals. Make those tasks reasonable (along with your goals) them MAKE yourself complete them.

Wealth Grows whenever Men Exert Energy

Say these words to yourself but out-loud: “A part of all I earn is mine to keep.”

  • Say it in the morning
  • Say it at noon
  • Say it at night
  • Say it each hour of each day
  • Say it to yourself until the words stand out like letters in fire across the sky.

As your wealth grows it will stimulate you and a new JOY of life will thrill you. Then also learn to make your treasure work for you. Make it your slave. It is wrong to enslave people but never wrong to enslave money.

A small safe return when you are first starting out is generally more desirable than a risky large return. All this being said …

You still need to enjoy life while you are here!

Live according to your income and don’t get stingy and afraid to spend. Life is good and rich with things worthwhile and things to enjoy. While a part of what you earn is yours to keep … a part should also be spent on enjoyment while you are alive to enjoy it.

We should never condemn a man or woman for succeeding financially because they know how. Neither should we take from a man who has earned it fairly to give to one with less ability to learn to do for himself or one who is too lazy to do it himself.

One becomes wealthy by taking advantage of opportunities. And, people can become wealthy by being taught by those who have knowledge of wealth.

Summary of Rule 1: For every $10 you earn use only $9 to live on and save $1. This is simple and the truth always is. To one who saves first for himself/herself … more will come his/her way. Riches have a tendency to avoid those who will not save.

We’ve talked about the first rule of becoming wealthy … Keep 1/10th of all you earn. Now let’s spend some time on the second rule.

RULE 2:

This means that you should live within your means.

Here’s a simple truth: what each of us call necessary expenses will grow to equal our incomes and more unless we stop it. It is human nature. We all have more desires that we can gratify.

As I practiced Financial Planning I would have clients make a list of their needs. I was always amazed at how many of the items that they listed as needs was actually “Wants” more than they were “Needs.” What are our basic needs?

  • Food
  • Clothing
  • Shelter
  • Education
  • Transportation to and from work

Anything other than the above could be considered a “Want” and not a “Need.” Also some of the above may include a want here and there.

For example in the area of food … Hamburger may do when a steak is wanted.

In the area of clothing … sometimes it may be more beneficial to go with non-named brand or thrift store purchases than to spend hundreds on the latest craze.

In the area of shelter … it may make more sense to take out a mortgage and buy a home to create equity than to throw money away paying rent. Or vice versa, depending on the situation and how long you plan to stay in one place the rental may make more sense than the ownership of a home.

In the area of education … one my get just as good of a degree from a local community college as they will the first two years in a state or ivy league universityand just as good a degree in a state college as in a private college or university. This too may depend on the area of study and actual credentials of those that are teaching.

In the area of transportation … Just because your automobile is old does not mean you must trade it in on the latest and greatest to “keep up with the Jones’ if yours still runs good and is not costing a fortune to keep it running.”

I cannot begin to tell you the people I ran across that had car loans that made them upside down in car debt. In other words because of their inability to forego a new car every 2 or 3 years they were $50,000 in debt on a car that had a value of less than $20,000.

Or, those that owed thousands in Credit Card debt because they thought they really needed that new big screen TV and other items and did not have the cash to pay for them.

Here’s a Truth to live by: If it is guaranteed to depreciate the minute you drive it off the lot or take it out of the store … use cash to make the purchase. If there is a chance that it will appreciate in value then it is okay to borrow money to pay for it. If you just follow this one truth or guideline you will come closer to living within your means.

A simple Fact:

If you borrow from Peter to pay Paul,

Peter will become a Paul Bearer!

So, how best can one live within his or her means?

First of all, stop buying things you don’t need to impress people you don’t even like!

Study your complete living habits now. Then budget the necessary expenses. Keep working with and adjusting the budget as necessary.

A budget, like any plan to build any building, road or bridge should not be set in stone. All engineering plans must be modified from time to time to fit the situation. Yet you would not attempt to build a building, road or bridge without and architect’s plan and the blessings of a knowledgeable engineer. Why try to build your fortune or budget without a plan.

Find out which expenses you now have that could realistically be cut. For example if you have a pet and really cannot afford the pet … get rid of the pet. I know it sounds cruel but chances are good that unless the pet is an Alligator or Parrot you are going to outlive it anyhow. Give the pet up to a family that is more capable of affording it.

If you live in a home you cannot afford … consider downgrading to one that is more affordable for you. Chances are good that you are going to lose it anyhow, eventually, if you cannot truly afford it.

If you cannot afford the tuition for the college you have chosen – rather than taking out more student loans find a institution of higher learning that is more affordable and always remember … self learning may not open as many doors as you would like – but it is a viable alternative to paying out the nose for an education – while giving you the wisdom needed to kick down any doors that may not be opened for you.

Create a budget, live within its means, and amend it as is needed.

How about we move to the 3rd rule now.

RULE #3:

Dollars in a Man’s Wallet or a Woman’s Purse can be gratifying … but at the same time very Miserly if they are earning nothing.

You may find people working in illegal or cash only occupations with a lot of money in their wallet or purse simply because they do not want to invest it (money laundering) or pay taxes on it. But this does not make them as wealthy as they otherwise could be.

It is the earnings on money that can build fortunes. I used to tell people it is the Magic of Compounding Interest that will make them more money than what they actually put away in an investment. Let me give you an example.

Remember Scenario 1 from above … the person earning $40,000 per year and saving 10% and letting that 10% earn another 10%. Well at the end of the first year they would have earned $400 on their investment of $4,000 (if interest was paid annually).

By the 9th year … interest alone would have grown to $4,574.36 ($574.36 more than they saved that year); and by the 40th year their interest alone would be a whopping $160,379.11 (fully more than they set aside for the entire 40 year period out of their earnings). In fact, while the savings alone would have amounted to $160,000 … the earnings on these savings would have amounted to an additional $1,610.370.22. This is what I mean when I say make your money a slave that will work harder than you will work for your money.

So, a man’s wealth is not about the amount of money/cash he carries, but it is the income he builds with it – the golden stream that continues to flow to him. Rarely will you see the MILLIONAIRE NEXT DOOR (another book worth reading) carrying ton’s of cash in his wallet or her purse.

I could write a book on how to make your wealth multiply since there are literally thousands of ways to do so but I will leave you with this one thought before moving on to the next rule:

Wealth will increase rapidly when it is making reasonable earnings and not losing a lot along the way.

This brings us to rule 4 …

RULE #4:

There is an old saying that says, “If you cannot protect small amounts of capital, why would you be trusted with more capital?”

In all investing for future growth you should figure out ways to Secure your Principal. This does not mean that you should not be willing to accept some risk as your investments begin to grow … but you probably should have some amount throughout life that is guaranteed to be there when you need it.

I used to tell my clients that they should have between 3 and 6 months of ordinary living expenses in an Emergency Reserve Fund before they really set out to invest money. Ordinary living expenses would be money for Food, Clothing, Shelter, Education and Transportation. Notice I did not include savings (pay yourself first), Taxes or Charitable Contributions in this. If your Normal Monthly Expenses are $3,000 per month then you should have set aside in a secure liquid account (bank or money market fund) between $9,000 and $18,000 as an Emergency Cash Reserve.

Why?

Because we don’t know what curves life is going to throw our way. What happens if you are sick and can’t work? What happens if for some reason your employer closes his doors (Covid 19) and can’t pay you? There are a number of things that would cause you to be without income. Most of these will not last more than 3 to 6 months. You must have a way to continue your lifestyle until things turn around or you find more employment. It may not be a good idea to pull the money you need from investments since (a) the investments could be down in value and (b) this could destroy your longer-term goals that you have for this money.

It is ashamed small businesses – which employ about 80% of America – does not operate this way. If they did we would not need all this government subsidy being paid out (during the Covid Pandemic) and income taxes could be much lower than what they are or will become. Most small business though operates month to month based on current revenue streams.

Once you are retired and no longer at work … this number of months should actually increase since all most people will have to rely on, when they are older, is the money the younger person they were sent ahead to be there when they reach their golden years. Here you may want to have 3 to 6 years of capital in secure accounts to provide any income you would need in addition to guaranteed retirement income from things such as pension plans and social security (which generally does not provide enough to really enjoy your remaining years). But the remainder of your capital still needs to be invested to earn greater returns than what is available in secure, guaranteed, investments. In addition you need to manage your cash flow accounts and replenish them each year after taking out a years worth of income that is needed.

In addition to Securing your Principle in your shorter term investment accounts, you need to secure your investments in the longer-term accounts. What I mean be this is that you MUST have an exit plan for every investment you make.

For example, if you are going to invest $10,000 or $100,000 into an investment (whether it be stocks, real estate or some other longer-term investment) when are you going to move that money out, if it is making huge gains, or if it goes against you and starts to lose you money.

Warren Buffet a Modern Day Investor says he has two rules: (1) Never lose money, and (2) Never forget Rule #1. Does this mean that he only invests in guaranteed investments? No to the contrary … he normally makes investments that are not guaranteed.

If a person is investing they need to understand the amount of losses they are willing to take and get out when they hit that limit … and understand the amount of gains they are looking for and get out when they hit that limit. A rule I’ve learned to live by and that I have alluded to in past articles is this:

Pigs get Fed and Hogs get Slaughtered

When it comes to taking risk with investments (for example options) … I will not make an investment if I can’t afford to lose it all. This does not mean that I want to lose it all … it just means that I can afford to lose it all. What I will do with my investing is set a stop loss order. In other words if I paid $10 per share for a stock and the most I am willing to lose is 25% of the amount invested … I would set an order at the outset to sell the stock if the price dropped to $7.50. This would not guarantee a price of $7.50 but it would alert the brokerage firm to close out my position at market price if the stock fell that far.

On the flip side I realize after years of working with equity investments is that they go down … but they also have a pretty good chance of going up in value. Once an investment has grown by two times (100%) I like to take my principal out and invest it elsewhere and leave the gains to continue working in that investment (with a stop loss in place to never lose more than 50% of my gain).

Let’s assume I invest $10,000 in a stock at $10 per share. I own 1,000 shares of that stock at the outset. If the stock grows to $20 per share my $10,000 investment is now worth $20,000. I would then sell half the investment (500 shares) and get $10,000 out to invest elsewhere. As long as the remaining 500 shares continued to grow I am happy as a “pig in mud.” However if the $20 per share drops to $15 per share – I’m not going to be a hog and get slaughtered … I am out with at least a $5,000 gain. Or, if the investment goes to $40 per share (and my 500 shares are now worth $20,000) I will continue to hold … but if the stock drops back to $20 per share (half the $40 price) I am out with my $10,000 gain.

The point is to secure your investment have an “EXIT PLAN” and follow it.

I think it was Will Rogers who said, “When it comes to investing you can’t go broke by taking profits.”

We live in a world of computer technology and the internet and getting mislead about investments is very easy to do. Never fall for Get Rich Quick Schemes! There are a ton of those out there.

THE OLE “PUMP AND DUMP” SCHEME

One of the most common Get Rich Schemes is the email or advertisement that suggest that you invest into new company XYZ before the stock really begins to take off. The ad or email sounds legitimate and sounds as though there is some real research behind the company being touted. Most of these are written by people in the copywrite business that can make things sound very good. What happens is that a few wealthy individuals purchased hundreds of thousands of shares before the stock became known – then they hire someone to write about how great it is so that other fools will invest to make the stock shoot up in price for a short period of time while these “insiders” sell out of their shares that they bought at much lower prices, while all the other late comers end up losing their entire investment. Yes, early on I was a victim of this scheme as well. It is an illegal scheme – but it happens just the same since it is so hard to prove.

How can you tell if it is PUMP and DUMP?

Read the fine print at the bottom of the email or advertisement. If the writer is paid money or shares in the company for writing the article … it is likely a pump and dump scheme with no real research behind it. Most of this will be displayed deep in the fine print that none of us want to take time to read because we are so caught up in the glorious returns touted.

Also, never invest in one of these new comers until you watch the graphs and make sure there is plenty of volume at a fair price before getting involved. This is not to say “Penny Stocks” (as many of these are) will not make you a handsome profit occasionally, but it is to give you a warning that many of them actually will go broke before they pay off.

REMEMBER THESE NUMBERS …

From the Bureau of Labor Statics:

Data from the BLS shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.

From the Small Business Administration:

The Small Business Administration (SBA) defines a “small” business as one with 500 employees or less. In 2019, the failure rate of startups was around 90%. Research concludes 21.5% of startups fail in the first year, 30% in the second year, 50% in the fifth year, and 70% in their 10th year.

Finally, consult with people about your investments who understand investments and growing wealth. Don’t ask your relatives or friends about investing and growing wealth if they have never done it.

Let’s move on to Rule 5.

RULE #5

No man’s family can really enjoy life if they don’t have a good place to live. Most of us start out in our adult life by renting our living quarters. This may be good for the single person or even the couple that have no children. It is also a necessity for many while they are trying to accumulate a nice down payment on a home. However, a man with a family should most likely own a home of their own to shelter him and his family.

Remember earlier I said that you should not borrow money to purchase an item that is guaranteed to depreciate in value the minute you drive it off the lot or take it out of the store? Well this is not the case with a home. A home has the potential (if taken care of and if in a good location) to appreciate it value. This being the case – it is okay to borrow money to purchase the home.

Once the home loan is paid off you can live there till the day you die, if you choose too, for only the upkeep cost and taxes which is far less than any rent you would pay.

I’ve actually seen families renting a house to raise their family in that was costing them $1,500 to $2,000 per month. At today’s low interest rates in 2021 there is no need for this nonsense if a person has a decent credit score.

The current 30 year fixed mortgage rate as of now is between 2.75% and 3.25% depending on creditor and credit rating. Using the higher rate a person could actually borrow $344,644 for a $1,500 per month payment. Unless they are living in some outrageously high real estate area like California or parts of New York they could purchase quite a home for $1,500 per month.

Even at the outrageous cost of $153 per foot to build a house today … a person could build a 2,000 square foot home for about $306,000 (again depending on location). If they were to put 20% down and finance 80% for 30 years the monthly Principal and Interest payment would be $1,065.30 per month. If they paid this payment every month for 30 years they would have paid a total of $383,538.62 for a loan of $244,800. However, remember the home which was valued at $306,000 at the outset would appreciate. If it only appreciated at a rate of 3% per year (less than the interest they pay on the unpaid balance of the loan each month) it would be worth $742,742.32 (about two times the cost to finance it).

However … In addition, just because the payment is $1,065.39 per month does not mean they would have to pay this every month for 30 years (360 months). By sending in an additional $434.61 per month (the difference between the $1,500 rent and the $1,065.30 mortgage payment) they would actually pay the mortgage off in full by the 164th month (13.67 years). That would leave them 16.33 years to go ahead and invest the $1500 per month they were spending on the home.

Therefore, at the end of 30 years they could have a home valued at $742,742.32 PLUS an investment account (if 10% per year was earned) of $727,980.95 for a total value of over $1.4 million in value.

Don’t through money away on Rent if you don’t have too

Let’s move on now to rule 6.

RULE #6:

As you start off on your Journey to wealth and Financial Independence, you must remember that you are not in this “Game of Life” alone – or at least most of you are not. Many of us have people depending on us.

We never know what the “Game of Life” will throw our way. We could become unemployed, sick, disabled, sued or even die prematurely. When your income from work stops you must still have an income. Most of your employers have provided for unemployment through unemployment payroll taxes. It is up to you, however, to provide some assurances against other misfortunes that could come your way.

You need to make sure you have …

  • Adequate Healthcare Insurance,
  • Adequate Disability or Long-term care insurance,
  • Adequate Liability insurance and
  • Adequate Life Insurance.

The only one of the above that is not a contingency is the need for Life Insurance. Everyone is going to die at some point in time – the only contingency with life is when is it going to end. If you are young, with a young family when it occurs, do you want to leave your family destitute?

I recommend that you get with a Financial Advisor knowledgeable in the area of Personal Risk Mitigation and discuss these matters in detail. There is a lot that can be covered in this discussion and that is not the purpose of this article. Personal Risk Mitigation or Protection is needed though and I would not be doing my job if I did not mention it.

You can build all the wealth you want to and a stroke of misfortune can take it all away in an instant. For example: A 70 year old man has a 60% chance the he could spend some time in a Nursing Home prior to his death. If he is retired with a million dollars in assets and the cost of the nursing home is $80,000 per year a five year stay would amount to about $400,000 (40% of his net capital net worth) — not to mention the fact that there is probably still a wife at home that needs to be cared for. Incidentally, $80,000 per year is a low estimate. The cost in many states and places can be much higher (in the neighborhood of $150,000 to $200,000 in some cities and states).

Or want about the person who ends up with $10,000,000 at retirement and unfortunately gets into an auto accident without proper insurance and unfortunately kills someone. It would only take one court appearance to lose it all and you could still end up owing thousands in court costs and legal fees.

You owe it to yourself to make sure your wealth is protected

Let’s move on to the 7th and final rule for Building Wealth.

RULE #7:

I can’t tell you the times I’ve heard, “I can’t save any money if I am not making enough to live on now!” While I will agree that it may be hard, at first, it is not impossible. I used to tell clients earning very little money to assume that the state they live in were to increase state income taxes by 10% and they could not afford to move out of the state. What would they do? Naturally they would pay the tax (they would have no choice since it is payroll deducted in most cases) and learn to live on 90% of what they were living on before. So, it is possible to save 10% regardless of what you are earning.

As a parent, paying our child a weekly allowance, it would also be a good idea to start them early, mandating that they save 10% of that allowance to build a good habit.

So, what do you do if you are working a “Dead End Job” that does not pay a lot? You must Increase your ability to earn more. You do this by educating yourself and looking for a new line of work. Education used to cost a lot of money … but today it can be virtually free with all that is available on the internet to study.

Another option, until you get that education that is going to get you out of the dead end job, is to work perhaps a part-term job to generate more income.

Here’s the facts as I see them:

  • Everyone has a desire to be wealthier … any accomplishment must be preceded by desire.
  • The desire must be strong and definite, but it must also be simple to accomplish.
  • Think of your desires as goals.
  • These goals should not be too many, too confusing or beyond a man’s training to accomplish. In other words you won’t go from Auto Mechanic to Surgeon by studying on the internet – but you could go from auto mechanic to auto builder, or even self-employed auto mechanic with others working for you.
  • Remember that the more wisdom you attain, the more money you will earn.
  • So, if you want to be richly rewarded you must first “Seek to Learn.”

In Conclusion …

Men and Women should learn to respect themselves. They can do this by following these seven rules plus a couple of extra:

  1. Pay yourself first … at least 10% of everything you earn.
  2. Control your expenditures and learn to live on less than you earn after savings and pay your debts promptly and on time.
  3. Invest your money to make your wealth multiply.
  4. Guard your money against investment losses.
  5. Make your living quarters a profitable investment.
  6. Guard your wealth against losses and insure future income to you and your family.
  7. Make a will to distribute the wealth you accumulate according to your wishes when it is time for you to leave this physical life.
  8. Have compassion on those who need help and help within reason.
  9. Cultivate the powers of study … become wiser … become more skillful and act to respect yourself.
  10. As you achieve your carefully thought out desires and goals you will gain confidence and will be able to achieve more than you can imagine right now.

In America they say we have the “the Right of Free Speech.” I want you to know that in America you also have …

The Right to Grow Wealthy if you Choose too!

One thought on “The Basics of Building Wealth

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