“A penny saved is a penny earned”
True. But terrible to focus on.
I will never forget hearaing this over and over again during my childhood and thinking how much sense it made back then. Never waste money, never step over a penny without picking it up, every little bit counts, etc….
All of that is true, but it won’t get you to true financial freedom.
It just won’t.
It just can’t.
I’m not being negative here, it’s simple math. You can’t “save your way to a 10M dollar net worth” in the traditional sense. Not in enough time to be around to enjoy it much that is. Compounding is a wondrous thing but it also takes great time to work in large numbers.
Don’t believe me? Let’s use the below example of maxing your 401k every day at work for 20 years straight, don’t you think that would get you to true freedom?
The maximum contribution has continued to go up periodically, but for the ease of math let’s say it averages $18,000 over this period of time. How much would you have in 20 years?
That is an impressive number to most people, don’t get me wrong. But you aren’t going to live a life of true financial freedom if that is your entire net worth at retirement. To be clear, I got there by using an average 8% return – history is on my side in saying that is safe to achieve but most people won’t calculate relying on that.
What if we drug it out 30 years and you started doing this at 30 years old, how does the number look at age 60?
Pretty great, but you are 60 years old now and still haven’t achieved true financial freedom. Also you have to be honest with yourself and note that inflation is real, that dollar amount won’t mean the same thing to you then that it does today.
Ready for the good news?
I’m not writing this article to say it’s doomsday and you can’t get ahead, what I am saying is that you’ll have to work harder and expand your mindset to reach the numbers we all want in a shorter amount of time. You will have to do more than just max out your 401k.
Great you say? But….. WHAT DO I DO?
Plenty of things, but I’ll start with the most common few ways to create a large net worth faster.
Real Estate – Learn to use leverage to your advantage. It’s not uncommon for investors to log 6 or 7 figure profits off of one single deal in this world. It’s not easy, but it does work when done correctly.
Start a small business – Most of the wealthiest people in the world are business owners. Contrary to popular belief, they didn’t “just inherit it”. This works because while it removes the comfortable “floor of earning” that a salary provides – it also removes the “ceiling” that most companies will put on your earnings.
When you suggest those two things to almost anybody that works a 9-5 they will almost immediately say one of these two things in response, it’s almost like a pre-programmed response or defense mechanism.
- I can’t do that, my life is too busy. There are 24 hours in a day, I know people who have young children and manage 5 companies or more while still exercising daily and meeting their goals. “I don’t have time” means nothing more than “I’ve arranged my life in a way that I don’t want to succeed further”. You have to call it what it is.
2. I don’t have the money to start with either of those things. The truth is you can do either with very little out of pocket cost if you are willing to work hard and get creative enough.
I’m guilty of it myself, letting that mentality of “If I can just” creep back into life. But it has no room in your mind if you want a higher level of success. No room at all. A penny saved may well be a penny earned, but it won’t get you where you want to me. I’m sure of that.
Let’s do the math
Calculate your mortgage or work with the compound interest to see what it can do to expedite your wealth building.