Wealth building is a process. It takes steps, and it takes time. By taking the right steps effectively and improving along the way, you can go faster. I want to start with fundamentals and the basic premise. While there are many ways to make money and, perhaps, build wealth, in this publication, we describe a systematic approach that can be used by people who are not necessarily expert investors.
Simple, but not too simple
We start with a model that might seem simplistic, as in, “yeah, I already know that.” Once we understand the track we want to be on, then we will explore the myriad ways we veer into the weeds, slowing our progress.
Four elements
The four elements are goal, capital, rate, and time.
Goal is how much wealth do you want to have.
Capital is how much you save and invest. That includes lump sums and regular or irregular contributions along the way.
Rate is the rate of return on savings and investments and includes a mix of rates across a whole portfolio of different savings and investments.
Time is a result of goal, capital, and rate.
Obviously, there can be a universe of complication within those variables. Some complication helps (useful sophistication), and a lot of it is noise or mirages. We can be mesmerized by ideas and strategies that work sometimes or appear to work or promise to work, but in the end, they are still subject to the fundamentals:
How much capital do you have?
What rate of return can you get?
How long do you have to reach your goal?
If we set the goal and the planned deadline, then we have only two variables, capital and rate. It is conceptually simple but not always easy to implement.
Noticing Myths, Lies and Noise
There are lots of reasons we become distracted about these fundamentals. There are dozens or hundreds of ways to invest, and because it’s not easy to reach our goals as fast as we want, we look for secrets, short cuts, and magic. We look for advice, investments, and all kinds of services and expertise that promise to turn our savings into the goals and lifestyle we want.
Some services are helpful. Others are well-intended but wrong, incomplete, or insufficient. Others are just wrong, deceptive, and therefore destructive for the compounding you need to succeed.
For many years, I listened to the people, experts, and advisers who I expected would know what was best for me and my goals, and my failed compounding showed what a mistake it was to trust without understanding what takes us off the path of the fundamentals.
Your wealth building is your responsibility. It is your job to detect which ideas will contribute positively to your compounding and which are part of the Financial Hall of Mirrors that will distract and mislead you. Later, we will focus much more on the work you can do to become a better detector of myths, lies, and noise and a protector or your compounding.
Simple Wealth Model Next Steps
The rest of this series goes deeper in to the goal, capital, and rate variables of the simple wealth building model. Most of us have adopted inferior approaches to these choices because we have listened to information and advice that compromises compounding.
This series will help you become more savvy. To do that, we will learn more about the function and decisions of the goal, capital, and rate so we can make smarter plans.
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