How does one begin to build wealth? One begins by taking the first step.
Previously we noted that the hardest step is to start. It seems so simple and yet so difficult.
When we look at where we want to be, and then look at where we are, the overwhelmingness of the challenge can depress us and discourage us so we never really start. But…
It can be done
Building wealth is a journey, not a destination. If we think that if we finally get to a specific dollar figure then all will be well, we are sadly mistaken. There is no finish line with cheerleaders waiting for us. Our journey of building wealth to our goal of financial independence is simply that: a journey.
Starting To Think
Conventional wisdom say to start with a number which we consider will be our annual expenses, guess what a good dividend yield is, divide the yield by the annual expense amount, and there you get what kind of a nest egg you need to live off dividends at that rate of return. That is all well and good, BUT.
The big “but” is because of many questions. How does one to know what their annual expenses will be decades from now? How is one to know what a reasonable dividend yield will be then? No one know how things will change, but rest assured, things will change. Nothing planned twenty or thirty years ago comes out as expected.
This should not stop us. In fact it should motivate us. It can motivate us because we have discovered that there are many unknowns, that life can barely be planned out, that we need to be flexible, that there will be many twists and turns along the way. No line is straight when it come to life.
As a result, it behooves one to prepare for a wide future. Namely, with all possibilities open, we need to be prepared and ready for most anything. We need to build up our resilience to change and to higher costs. The best way is to save and invest.
If we have to start with no savings and no investments, it can seem beyond the pale. But it is possible. Do not be discouraged, for there are ways to see ourselve through and past our doubts.
What, No “Goal”?
It may seem that I have just eliminated having a big financial goal. Well, I did disparage having a specific set-in-stone goal too many years in advance. What I am proposing is to have the initial goal of Growing One’s Wealth. Namely, in my view, one should start with the goal of building wealth. What are the steps to this kind of a goal?
The first step is to build an emergency fund.
The second step is to save more than an emergency fund.
The third step is to start investing.
The fourth step is to continue to invest.
The way I see it is that after one has started and continued to invest for some time, can one look at long term goals. Until I began investing, I had no idea what was possible in the realm of my financial life. I had no idea how much I could save, and how much I could invest. I had no idea when I started what my financial life would look like, such as what kind of a mortgage I would need for a home I had not even seen, let alone not yet purchased.
I feel that the opportunity to set too high and difficult goals can set a person up for discouragement and failure. We all need to find that our goals are potentially within our grasp. So goals come once we have the groundwork assessed and ready are more likely to be attained.
What is your starting point? Let me know here.
The illustration of “Ida from Idaho” is for a song’s sheet music, published in 1901.
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