By: Stephan Hess
Sometimes things in life are so simple, yet for some reason, people like to make things harder. Everyone dreams of having financial security, life options, and financial peace of mind but only a small percentage of people ever get there. Why is that? In talking to many of those who have personally solved this riddle, we’ve identified two critical elements that must exist. In tandem they become your personal “Rocket” to building wealth.
Most people assume that the solution is all income related, so they spend their lives focusing on earning more income. While earning more income does not hurt, it doesn’t ensure that you will have the discipline to save. We’ve seen many people with modest incomes save more than people with extremely high incomes. Element number one: you must be able to live beneath your means to save and build your launch pad.
Gravity is a relatively small force, but it is constant, which causes objects to accelerate at increasingly faster rates over time. A similarly imperceptible force can work on your assets in the same way. Many of you, I’m sure, have heard the quote, “It takes money to make money”. People often learn the power of this statement too late, but if you do this right and start early enough, most resources that you will accumulate over your lifetime will come from the growth on your existing assets and not from the money that you save each month. This is where you want to be. Here is a quick example. A hypothetical 10% return on $500,000 is 50 times more than 10% on $10,000.
To ignite a rocket, you need the right mixture of oxygen & fuel and then a spark. Similarly, the engine of wealth building does not run without savings, an appreciating asset, and then time. Element number two: ignite the engine. When your savings rate and early growth hits a certain critical mass, go ahead and flip the switch and be prepared to be amazed. Here is a typical trajectory.
Stage One: Get to the crossover point as soon as you can. This is where the average new assets that are being created annually are exceeding your own annual savings rate. Let’s call this Mach 1 where you break the sound barrier. You are on your way and your wealth building engine is running well.
Stage Two: Keep it going and let’s watch this accelerate even more. At Mach 2 and 3 your existing assets are creating even more new assets and real wealth is now being accumulated. Your long-term financial security is really improving, and new life options are presenting themselves.
Stage Three: Most people are quite content to stop somewhere in stage two, but some people will surpass 25,020 mph which is the “Escape Velocity” required to exceed the gravitational pull of the earth. This is where you start creating new assets faster than you can even spend them. How cool is that.
Good luck on your mission!