What is your level of understanding or education around personal finance? Good. Because you really don’t need to know much about personal finance to build wealth.
Here’s the craziest answer you’re ever going to hear to this question and I’m damn proud of it. Your level of understanding and or educational level relative to personal finance could be otherwise exceedingly low and you can still build wealth…PROVIDED…you follow some simple rules as they relate to building wealth.
In fact, building wealth doesn’t have much to do about the ‘event’ of picking the right stock or bond or even asset class. It, however, has everything to do with the ‘process’ required to build wealth.
To that degree then ‘knowing’ about personal finance or investments for that matter is very much a misnomer. If you are willing to follow the ‘process’ of building your wealth it is not as important to have a detailed understanding or knowledge of the actual mechanics of these things as it is what they stand for and ‘how’ they build wealth.
You just need to know which game to play in, not necessarily be an expert at the game
Let’s use the analogy of the automobile. I would vehemently argue that the person who operates a fleet of rental vehicles doesn’t necessarily have to know a thing about how that vehicle mechanically works as much as they do need to know about how to utilize that vehicle in order to exploit an opportunity or discrepancy in the market.
Same goes for being able to build wealth. I don’t necessarily need to know a thing about the stock market but if I can come to the conclusion that owning shares in companies that appreciate in value over time is in my best interest to build wealth, then I am making the right decision.
Here’s the other craziest thing you’ll ever hear on this subject matter. As long as you have come to the acceptance that owning a stake (shares) in appreciating assets, private companies in this example, is in your best interest to build wealth you don’t even have to own shares in the individual companies making it less important to know a thing about these companies or what they do.
So you’re telling me that I can own shares in companies that I don’t know a thing about and still have the opportunity to build wealth? Yeah, that’s right! I don’t need to then be able to pick the right company to build wealth? Nope, you don’t!
Own appreciating assets
If this sounds way too good to be true…and I would tell you you’d be justified in saying that…here’s how it works. If you understand the value of owning appreciating assets but don’t want to pick the ‘right ones’ all you’d need to do is pick the market.
The analogy that I like to use is as follows: You think the economy is going to do exceedingly well going forward and you’d like to take advantage of this financially if possible.
Instead of having to pick the right industry such as aviation, petroleum, paper, steel, automobile, high technology, financial services, etc. and then have to pick the right companies within the right industry, why not just invest in the overall economy? In this example, what you would need to do is to simply purchase shares in a fund that reflects the entire market or for the US stock market, this would be something like Vanguard’s VTSAX.
Even without doing anything someone could have earned 8.87%
This strategy has yielded on average roughly an 8.87% average annual return from the inception of VTSAX on April 27, 1992 until March 31, 2020. So here’s what needs to be understood. According to an S&P SPIVA report, 88.4% of all actively managed funds were not able to beat the annual performance of the non-managed overall stock market.
What does that mean? Simply stated, people who have gone to top elite business schools to ‘learn the markets’ and who spend their waking hours ‘educating’ themselves on every aspect of the financial world on a hourly and daily basis were not able to outperform the simple act of someone not having ANY personal finance knowledge executing the simple act of buying a share of VTSAX.
You don’t need to be a financial expert in order to build wealth
So here’s the news. You don’t really need to know much about personal finance, the markets or investments other then this: owning appreciating assets is important in building wealth. It’s that simple.
Augmenting this ‘knowledge’ with the fact that you need to understand some basic financial concepts such as how Compound Interest either works for you, if you’re a saver or an investor, but works against you as a borrower (as explained earlier in this document) are essential concepts in order to build wealth.
Also, adding to this the concept of needing to pay yourself first and it’s ‘time in the market’ and NOT ‘timing the market’ that builds wealth are additional basic wealth building concepts that if accepted and followed will help in building wealth.
It’s the process of building wealth that’s important
So to boil it all down it’s the ‘doing’ of building wealth or the process of building wealth that is so important to know versus having to have detailed knowledge about the individual investment vehicles to use.
What’s utterly amazing about this concept is that a large majority of ‘experts’ on Wall Street (88.4%), educated and trained to do this, don’t beat the annual performance of someone who doesn’t know a thing about the markets OTHER than to be an owner of the overall market in that given year.
The other part of all this is you don’t need to take any formal class(es) in personal finance and you certainly don’t need a professional degree or certificate in any of this either. Let’s face it, as described above almost 90% of the ‘professionals who claim that they know what they are doing and eat and breathe this stuff everyday are not doing any better than a non-managed asset that you can easily invest in with next to little management expense to do so.
The so-called experts who get paid to create wealth don’t do much better than we do
Stop beating yourself up! You’d think it would be just the opposite…those individuals who have spent over a $250,000 on a formal education ‘learning’ the financial markets and then not being able to do any better than what you have ready access to do.
THOSE are the people that should be beating themselves up! And to add insult to injury, they are charging people millions and millions of dollars each and every year to not out perform what you and I can get with very little overhead to purchase.
If you were to accept and understand some of the very basic principles of wealth building that are being explained in this document that is all you’d truly need to know about the subject.
While we’re add it let’s also dispel the myth that you don’t have the ‘ability’ to learn personal finance or how to build wealth. Bull!
I say this not knowing whether you will ever learn how to graph a bond yield but guess what?…your inability, or mine, to be able to graph a bond yield is probably not going to have one iota of impact on us being able to build wealth.
Why do I know this? Because I have followed this same very basic framework to build wealth that I am sharing with you and I have only graphed a bond yield in order to pass a finance class…and have never used that ‘knowledge’ again.
So that said, whether or not you have the ‘ability’ to learn personal finance has nothing to do with your ability to build wealth. If you have ability, good for you! If you feel you don’t have ability, then no sweat. Just follow the wealth building principles consistently and you’ll be able to build wealth just as well as the next person.
Where you are does not necessarily predict where you could end up
One more thing, your economic ‘class’ has no bearing on whether ‘you can’ (a going forward concept) build wealth or not. The one thing that we know today is that you may not be wealthy today. That has nothing to do with what you can do going forward. It may be a statement on what you were doing, or not doing, before today but it does not define what is going to happen tomorrow or in the future.
I’m not naïve. I understand that the conversations that you had or didn’t have prior to today have some bearing on your mental makeup, your expectations, your knowledge, your patterns of behavior and other aspects.
In addition, would it be easier to become wealthy if you currently had an incredibly lucrative job with a substantial amount of money in the bank and perhaps needed just a small change in direction, of course! However, your ability to follow a proven wealth building plan has absolutely NOTHING to do with what happened or what you were capable of yesterday.
In fact, due in large part that you did NOT even know about these wealth building concepts yesterday how could you even be able to judge whether you could have been able to build wealth up until now? You probably couldn’t have. So here’s the ultimate consideration; do you have desire, drive and commitment to want to build wealth?
If you do, I can provide a proven framework for you to follow that will get you there if consistently followed and aggressively practiced. What your parents did as it relates to money or what your boyfriend or girlfriend told you you were capable of doing as it relates to money has literally no bearing on whether you ‘can’ build wealth. We all can regardless of what our financial background is or was and or how we performed up until this point.
Conclusion
Now the obvious. CLEARLY if you are not able to change your thoughts, actions, behaviors and habits surrounding money and your finances then we’re not going to have too much to be left for the imagination. I’m going to tell you EXACTLY what is going to happen. You’re probably going to get pretty close to the same results you’ve had up to this point. You know that.
However, if you’re at that point in your evolution where you don’t care one little bit of what your situation was yesterday and can see a different future if only you could follow a successful plan of action, then you have the ability and every right to build wealth as another individual who is playing under the same rules as you do.
In fact, as it turns out your chances of building wealth rely more on following the right plan of action than it does on the level of your knowledge of personal finance.
