Of the hundreds of wealth-building strategies I have tried over the last 40 years, the best one was also the simplest.
It simply is this:
Make sure you get a little bit richer every day
This thought occurred to me almost 40 years ago… when I decided to become rich, and that decision had me reading and thinking about wealth building day and night.
I had daily fantasies of getting rich in all sorts of fancy ways. But deep down inside, I knew complicated strategies were not for me. When it came to making money, I was extremely risk-averse. In the race to a multi-million dollar retirement, I was a tortoise in my early investing years, not a hare.
At the time, at age 29, I had a net worth of $50,000, an annual salary of $35,000, and about $20,000 in the savings bank account. With two small children and my wife retired to become stay home housewives, our expenses were gobbling up every nickel of my after-tax income. And so my first wealth-building goal was small: I would get richer by just $20 a day.
I did the numbers and was happy with the answer: almost $1.06 million US dollars at age 65.
And then I asked, “What if I leaned investing in real estate or invested in stocks and bonds to grow my retirement funds at 9%?” That number came to $2,34 million US dollars at age 65.
You can imagine my excitement. So I made this my No. 1 wealth-building commandment.
But I soon realized I couldn’t follow this rule consistently if I invested my money in stocks. The market fluctuated too much. One day, I’d be worth $110,000, for example, and the next day, I’d be worth $94,000.
My friends and colleagues who knew more about investing than I did (35 years ago) told me not to worry about these short-term fluctuations. They said that if I kept my focus on the long term, I’d get the 9% or 10% that the market delivers over a long period of time. But even though I understood the principle, I didn’t want to settle for that.
I resolved the problem. I put the bulk of my savings into high yield municipal bonds and high-yielding bank CDs, and started investing in leveraged multi-family rental real estate properties on New Jersey side of Hudson River, across from Times Square, New York. This drastically increased my portfolio’s return on investment (ROI) and produced substantial tax-free capital gains [of millions] from multiple “cash-out” refinancing of rental properties over the past 40 years. I also developed my expertise and took on more work responsibility and devoted a portion of that extra income to my retirement savings. That ensured that I was always ahead of my schedule – even if the ROI I was getting on bonds, CDs, dividend stocks, or real estate dropped.
This simple, tortoise-paced program worked.
Since I made this resolution in the mid 70’s, I have never experienced a single day of being poorer than I was the day before.
Think about that…
And there’s more… submitting yourself to this commandment will change the way you think and feel about building wealth. It will help you appreciate the miracle of compound interest. It will make you less accepting of risk. It will make it easier to understand the benefits and drawbacks of every type of investing. And it will turn you into an income addict, which is, in my book, an essential component of thinking rich.
If you want to use this strategy for retiring rich, begin, as I did, with a goal of $20 a day. Once that becomes easier, you will find that you want to raise the ante. You could hike it to $50 a day, as I did my first year… But soon thereafter, your addiction to income will make it possible for you to raise your target much higher than that. These days, my target is only $100 a day – and I do it without worry.
I have explained this strategy to lots of people over the years. And I don’t think a single one ever took it seriously. Perhaps it didn’t seem clever enough for them. Or perhaps they felt they were already doing well by following the investment schemes they were using at the time.
But none of them ever acquired the wealth I did. They sometimes had great individual hits they’d tell me about – or even streaks of winners when the markets were favorable. But as time passed, Mr. Market always had his way with them.
In the race for wealth, I’ve always been a tortoise… even though I do dabble in some high flyers from time to time. However, by following this simple rule of getting richer every day, I was able to do better than I ever expected, without a single day of feeling poorer than I was the day before.
I knew that I would eventually raise the ante, but I wondered, “How much money would I acquire in, say, 40 years by just putting an extra $20 aside every day in some kind of investment account earning 9% a year?”
My total capital investment would be $292,000. The interest would be $3,058,000… for a total of $3,350,000.
Then I wondered, “What would happen if I worked a part-time job, or did some consulting work, to put away $50 a day?” That number came to $7,376,000.
Get a little bit richer every day… Right?
[Curated content based on excerpts from posts, blogs, media articles, and sponsored research]