The Difference Between $1 and $1Million is Not $999,999

The days of tucking away dollar after dollar has far been over for those who have ‘greener’ grass than the rest of us. I’d say it’s not for lack of trying, effort or intent that so many of us fall from having a savings account that’s larger than the pile of debt we have to pay off. The difference between success and ‘getting by’ may very well be the few percentage differences we gain on our investments.

I’d be remiss in telling you that investments are the answer; however, investments are part of the answer. Combining financial well-being and decision making into your life, plus investing wisely, will genuinely steward you into a heftier future bank account versus not doing so.

So let’s get to the punchline. One dollar today is not, and will not be equal to a dollar tomorrow. A dollar today is worth more than a dollar a year from now because of its ability to generate income, interest and/or opportunity. By and large, a dollar that sits in a CD at a bank will make you roughly 1% for every year you hold, considering average bank deposit rates in 2014; Parallel to that, that same dollar in a brokered investment account can make you (on average, S&P Historical) 10% for every year you hold.  Of course, the major difference between these two is the fact that you can stand to lose your entire dollar if you decide to invest versus having it insured in a bank deposit.

So what really is the difference between $1 and $1 Million? In the instance of a 35 year old person, your $999,999 may look a lot more like $93,662.94*. Of course this depends on a lot of things, but one thing is for sure, the earlier you start investing your money, the stronger your returns have the potential of becoming. Let’s identify a few factors that will increase your future piggy bank. Think of it this way, you can increase ANY of these levers and it will generate much more income for you in the long run.

·         Time (how long you are invested for)

·         Dollars invested (how much you are investing)

·         Contribution rate (how much are you adding per year)

·         Return rate (how much you are making on your investments each year)

But wait, you don’t have $93,662 to invest in today... How do you get there? Utilize your current contributions to get you up to speed. You are allowed to contribute up to $17,500 per year into your 401k. So let’s take this $93,662 and rework it backwards. With the same assumption of 7% annual returns and your company matches 100% of the first 3% of your contributions, you could start from $0 and be at the $93,662 by the end of 13 years if you were a person making $50,000 a year making 6% contributions to your 401k. Although this may sound like a lot, it certainly is a sacrifice that you could make for the betterment of your financial future; especially if you haven't started just yet. You have nowhere to go, but up.

Also, if you’re 60 years old and are staring blankly at the screen, start doing research on ‘catch-up contributions’. This will give you a great understanding on how you can start building your nest egg up to help transition you to retirement. The government understands that some of us were not in a position to maximize our investment returns in the past, but has enabled individuals to make the best of what they do have, today.

Have questions? Get started now by emailing me at tom@exploringalpha.com. 

No money, no obligation, just answers.

*Assuming annual returns of 7% over 35 years (to the age of 70 for retirement)

The Three Stages of Building Wealth

The Three Stages of Building Wealth

At some point in our lives, whether we are 23 or 63, we all decide that there is a right time to start
thinking about the future. I believe that the quote “the future is just a sum of moments” couldn't be
truer when it comes to investing in our own financial wealth. If we look at the future (especially
retirement) as some distant land that we’ll get to when Elon Musk decides to make a functional rocket
that can transport us there, we’ll never be able to get to where we want to be, let alone purchase the
ticket!

Financial wellness requires us to be aware of our situation today; and then translate the sum of our
‘todays’ into what it may look like ‘tomorrow’.

Let’s look at how we can do that:

Building financial and wealth awareness is critical to obtaining present and future wellness. How do
we do that? We do that by starting with contentment. As a society, we’re pre-programmed from
childhood to want more, to want better and to stretch any means necessary to achieve those wants. The only issue is we’re never satisfied. The first journey to our wealth is to understand that we are already wealthy. We need to be happy with the financial situation we already have, and understand that we’re already equipped with everything we need to achieve future goals.

The second step to building wellness is the concept of net zero. Everyone knows when you owe
something, that’s called a liability. If you own something, that’s called an asset. If we continue to owe
money on the things we own, we will forever be at a net negative. One of the first steps to building
wealth is to create a chart containing how much you owe and then how much it’s worth. Separately, we
can record the things we do own and how much those things are worth. 

Here’s a simple example:

Now that we know our net worth, it’s time to consider how we can start gaining a net positive.

There is no secret to financial wellness. It requires a plan, the diligence to stick to that plan and
perseverance to weather the storm of curbing our spending habits and increasing our savings (or paying down debt). Not everything is merely a dollar for dollar trade off, though.

There are many ways we can utilize investing as a way to increase our method of paying debt off and
ultimately exponentially increasing our wealth. The third step to building our wealth is by investing
wisely in financial instruments that best fit our needs. This involves a proper education on financial
means and perhaps a financial adviser, all of which point back to a solid financial plan. Coincidentally,
planning for your future requires for you to do something today.

What are those steps?

1. Readjust your view on wealth – Are you content with where you are? Why not?
2. Start your education – Start reading. Simple Google searches like “build wealth”, “habits that
build wealth”, “build a wealth plan”, are all great starting areas
3. Start talking – take a class, talk to an adviser, talk to peers in your life that are on a similar track
to where you want to go
4. Jump in – The worst thing you can do is not act. There are small steps you can take each and
every day to make a better future for yourself and your loved ones

Are you ready to start building your future?

Would you like to have a more in-depth conversation for free? Send a message to tom@exploringalpha.com. No gimmicks, no sign ups, no payment.. nada. My goal is to help you get motivated to change your financial life.

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