pile of moneyIf diligence is the mother of good luck, as Ben Franklin wrote in The Way to Wealth (the first, and many would say, still the wisest American book on personal finance), then what is its father? Perhaps it’s learning. Though considerably less exalted than Franklin’s maxims, we thought of other common-sense, plain-talking wealth-building strategies after reading a smart usnews.com piece–headlined 5 Power Truths for Wealth Builders—by the always interesting David Ning. His article:
“Successful wealth building is a simple concept that is tough to achieve. It takes tremendous discipline to pull off the slow and steady saving and investing required to build a significant nest egg. Here are five powerful habits that will lead to financial independence.
“Don’t get too upset if the outcome doesn’t pan out. We tend to associate good habits with a positive result, but even bad decisions can sometimes lead to amazing results. For example, you often hear about people who bet the house on one stock and strike it big, but most people who try this lose it all because of the lack of diversification. You probably won’t be able to pick a single investment that will make you wealthy. When it comes to investing, it’s important to focus on making sensible decisions that tilt the odds to your favor, because then you will end up ahead more often than not.
“A little effort can lower your expenses. I’m pretty good at living below my means, but there are often times when I could have gotten a better deal. Whether it’s being too lazy to comparison shop, failing to negotiate a discount on household services or forgetting to wait for a sale I know is just around the corner, many dollars are leaked out of my wallet on a regular basis. There’s a balance to living life, and you don’t always want to put in the time to save every last penny. But every dollar lost to the lack of patience or effort is another added stretch on the path towards financial independence.
“Buy low and sell high. It’s awesome to see the markets going to new highs all the time, but high valuations are not a long-term accumulator’s friend, even if the market never declines from lofty levels. That’s because volatility can help investors to buy shares at lower prices. The financial crisis in 2008 was really frightening, but the swoon in asset prices gave investors a chance to buy equities at bargain bin prices. The markets will inevitably drop again at some point in the future. Look at this as a buying opportunity and stay the course to reap the rewards.
“Consider the downside. We all buy equities seeking the upside, but it’s equally important to consider the potential losses. Many dollars have been lost buying equities because investors didn’t take the time to evaluate the chances of a negative outcome. Impulsively buying the latest hot stock without regard to what it truly costs is the same as giving into the appeal of the latest hot product dangling in front of you. A new and shiny product may make your life wonderful, but is the purchase worth the extra, say, 20 hours of work that is needed to pay for it?
“Balance is important. I admire the people who take early retirement and truly enjoy themselves without spending money at the level that society has deemed normal. But for the rest of us, it’s hard to see that type of lifestyle as anything but sacrifice and living without. Unless you truly feel comfortable trying to stretch every single dollar to the max, it’s OK to spend a little as long as you are still on track to reach your long term goals.”