Play the Long Game
All good things are done in moderation. The dirty secret is there’s no obscure trick to getting rich quick. Instead, I’ve found that the key to creating financial freedom is to accumulate slowly. You’re hopefully at an age when a methodical approach drowns out shouts of urgency from your id to get rich quicker, and if you are, listen up. Here are four steps to take a gradual approach to building wealth over time:
1. Think income instead of outcome. Yes, it’s common sense, but it’s often easier said than done — you should always spend less than you earn.
After the Great Recession had many Americans counting their pennies, household spending is up 14 percent nationwide since 2004 and 25 percent since 1996. While that’s good news for the economy, it’s up to you to make sure the amount of money going out of your bank account is lower than the amount coming in.
Incentivize yourself, and turn saving into a game. Brew coffee at home, get a roommate, or make do without a car payment. Carving out these types of incremental opportunities for building capital is the foundation for a financially free life.
2. Pick your spots. Risk often gets a bad rap. However, when it comes to creating long-term wealth, an occasional detour isn’t just good — it’s required.
Think of calculated risk as an investment in success. It’s actually exciting because even when the financial payoff isn’t what you’d hoped, you’re still learning. A unique way to take a chance while gaining knowledge is to do work in exchange for equity.
But don’t take the leap on faith alone. Be extremely choosy, evaluating everything from the potential payoff to the business plan to the people involved. Best-case scenario: You’re on the ground floor of the next big thing. Next best scenario: You’ve gained valuable experience that bolsters your résumé.
3. Run your race. In a culture that puts a high premium on material possessions, most of us are destined for the middle class. That’s totally fine, but it makes staying rooted in reality a must in a world that celebrates excess.
Trying to keep pace with extreme ideals yields irresponsible spending choices rather than ones that create long-term wealth. Hold yourself accountable for financial decisions. Ask yourself whether a choice is about appearances. When it is, take responsibility for it; don’t allow yourself to make excuses when you find out later that it wasn’t in your best financial interests.
4. Set an early pace. If you get hit with a lot of “If I were your age, I’d..." lectures, it’s for good reason. Financially speaking, the younger you are, the more time you have to build your nest egg.
Continually reinvesting and growing earnings over time is what builds wealth. This notion — the power of compounding interest — was deemed the “eighth wonder of the world" by Albert Einstein, who had an innovative idea or two in his day.
The numbers to support it are impressive. Invest $10,000 at age 20, and watch it grow at a 5 percent interest rate to $70,000 by age 60; put in that amount at 30, and it’ll reach $43,000 by age 60. It’s simple — capitalize on your youth by saving as much as you can as soon as you can.
Managing day-to-day finances can feel daunting. Creating a plan for long-term financial success can seem impossible in the moment.
Take your time, but hurry up. For Millennials willing to start today, keep the big picture in mind, and continue to learn along the way. The payoff is greater control over your own financial destiny.
About the Author: David Osborn is an entrepreneur, public speaker, and author. He is a principal franchisee of Keller Williams, the 19th largest real estate company in the U.S., which grossed more than $5.2 billion in sales in 2015.