This week, we are again highlighting a sketch from Carl Richard’s book The Behavior Gap. The power of Carl’s sketches comes from his ability to identify a simple truth about money using an elementary illustration.
The premise of this illustration is how to accumulate significant wealth over a lifetime. In other words, why do some people accumulate money rather easily and for others it’s an ongoing struggle?
We might initially think that someone accumulates significant wealth due to good fortunate, better education, or hard work, and certainly, these factors can play a role in determining someone’s net worth. However, more times than not, financial success is highly dependent on consistently making wise choices.
It could be tempting to chase after “get rich quick” schemes or a “hot” investment to accumulate wealth. Unfortunately, these perceived shortcuts usually lead to disappointment and discouragement. As Carl’s formula illustrates, prudent investing does play a substantial role in wealth accumulation. However, it’s just a secondary factor to the choices you make and your behaviors. Following are a few time-tested financial principles that lead toward a lifetime of significant wealth accumulation:
- Spend less than you earn every month.
- Systematically invest into a well-diversified stock portfolio.
- Avoid the use of consumer debt.
- Utilize tax-favored retirement accounts when possible.
- Use windfalls and wage increases to bolster your long-term investments instead of your lifestyle.
In summary, making wise financial choices along with prudent investing gives you the highest likelihood of accumulating significant wealth over your lifetime.
As you reflect on your own situation, what decisions or behaviors have had the greatest impact on your overall wealth accumulation?