If I could convince you, beyond a reasonable doubt, that YOU could become wealthy I believe that you would. It really IS that simple. The dirty little secret of becoming wealthy, which took me a LOT of years to discover, is that it’s not in the tools or the vehicles that build wealth as much as it is in the commitment, discipline and process of building wealth.
To put this as direct and simple as possible, building wealth is in the ‘process’ NOT the ‘event’! I wish I knew who coined this concept, because they really do deserve all the credit for it. I happened to figure this out only when it became obvious to me that so many individuals that I saw either failed on their journey of building wealth, or were in the midst of failing, seemed to be more interested in the ‘concept’ of building wealth versus actually ‘doing the work required’ to build wealth.
Wealth is not an Event
More specifically, they were looking for that one event, the get ‘rich quick scheme’ as it were, that was going to unlock the door to wealth for them. They were looking for the ‘secret’ that must exist and which surely can be had by taking a short cut.
These individuals will always favor the event mindset of how they perceive wealth is built. Unfortunately, this is ultimately the lottery mindset that suggests wealth is created by some stroke of good luck or good timing which could not be further from what I believe is the reality.
Unlike in baseball where you may have an endless supply of opportunities to proverbially swing for the fences, building wealth is played in such a different manner. Building wealth is not about swinging for the homerun, to use the same analogy, it’s more like what could be described as playing ‘small ball’. Doing just enough to get on first or second base each time at bat and keeping yourself in scoring position throughout the inning.
This would look like having the ability to have purchased some paper assets such as Index Funds, ETFs or even some individual stocks and reinvesting their dividends over time. Or automatically investing a portion of each paycheck in your 401(k), 403(b) or 457 and adding any raises to those contributions over time.
It’s the Process
Again, it’s NOT the event that will build wealth, it’s the process. Therefore, what this ultimately comes down to is being able to develop the wealth building ‘process’ mindset. THAT is the dirty little secret to building wealth!
Now here’s what’s interesting. Although I used to think that the ‘process’ of building wealth meant which investment vehicle or product I needed to concentrate on, it is SO much easier than that. The process of building wealth is actually much simpler.
It is as follows:
(1) Time,
(2) Assets and
(3) Compounding.
These three elements working together, regardless as to which wealth building strategy that they are applied to…real estate, business or paper assets (stocks/bonds)…will build wealth. In fact, this simple formula is what is responsible for building wealth and not, as previously mentioned, the individual asset that is ultimately chosen.
Now PLEASE understand what I’m saying here! It is NOT necessarily as important as to which asset class that is chosen NOR the actual individual investment within each class of asset as long as these three elements…time, assets and compounding… are being applied. So what I am saying is that you don’t need to pick the ‘right’ asset class nor do you need to pick the ‘right’ individual investment within that asset class in order to build wealth. All you have to do is follow the formula.
You don’t need to know much of anything about investing to build wealth
What this effectively means is that you really don’t need to know much about anything about investing! In other words, it shouldn’t matter to you that you’re not following the latest ‘hot stock’ or that you know anything about high tech companies or the next ‘it’ tech gadget. This is ‘event thinking’ and is a distraction from focusing on the wealth building process.
The reality is that when it comes to paper assets and in particular stocks, you’ could consider buying the ‘market’ and dissolve any need to know much about the intricacies of the stocks that make up the market.
More specifically, the entire US Stock Market is represented by what is referred to as an Index Fund, which is an exact composite of every stock being traded in the market. Vanguard Fund’s example of this for the entire US stock market is a fund that they refer to as VTSAX.
What’s so interesting about a broad US Stock Market Index Fund is that you don’t have to be individually ‘right’ about a particular stock, just right about the overall market going up over time.
The 1% Rule in Real Estate
As this strategy relates to the other asset classes, like real estate, you’re just going to strictly adhere to the process of wealth building. As an example, as long as real estate demand and pricing is stable in the area that you are looking to invest in and the economy looks like it will remain stable going forward (no threat of the only employer in town going out of business!) then as long as you can purchase a multi-unit property that meets the 1% rule (roughly speaking, that a property selling for $100,000 will have gross rents of $1,000 a month) then you have the ability to build wealth over time.
In regards to a business, provided that it can generate a reasonable ‘return on investment’ (ROI) consistently year after year you will be able to build wealth. Although this is a highly debatable subject, a return on investment of 15% annually (without taking a salary) is a reasonable threshold to consider for someone to establish before either investing in a business or assessing the wealth building ability of a business.
A mentor of mine won’t even start a conversation if a business doesn’t have the potential to generate at least a 25% return on investment in addition to taking a salary. Everyone has their own opinion on the matter and the value that they put on their time and perceived risk in the venture and this is exactly what a business venture is…a decision to spend your time and resources on not knowing how it may turn out.
Conclusion
So let’s reflect on things just a bit. As you can see in this post, I highlighted that I believe that there are three (3) main elements to the process of building wealth; Time, Assets and Compounding. I hope that you saw the interplay between these three elements and ultimately the general theme that is woven throughout all three and how they are interconnected.
Here’s a hint…TIME. It takes TIME to build wealth. It takes TIME for a process to be a process.
Again…please remember this, without TIME a process is immediately transformed into an event…which is NOT part of the wealth building process!
So if you dare to ask yourself…as painful as it may be for you to answer…”What is the ‘process’ of building wealth?” Ultimately, the answer is TIME!
