Wealth: to have it means you have much in your possession. Ipso facto, wealth is difficult to quantify because of its very relative nature. Whether or not someone is classified as being wealthy largely depends on where that person lives. A wealthy resident of Venezuela would look quite different from a wealthy resident of Germany. Nonetheless, we won’t worry about the relative nature of wealth in this article, but Instead focus on what it takes to become wealthy as fast as possible.
To help illustrate the points made, we’ll work with a simple car analogy. We won’t worry about the top speed of a vehicle, but rather how quickly we can accelerate to reach our top speed.
0 to 60 in under 2 seconds
According to wikipedia.org, the car with the fastest acceleration is the 2014 Porsche 918 Spyder, which can accelerate from 0 to 60mph in 1.97 seconds. Most people would be surprised to know that the corvette holds the 0 to 60mph acceleration record, but that’s because it’s top speed does not match the prowess of a Bugatti Veyron or a Lamborghini Aventador, which is what most people remember.
With regard to wealth in America, Mark Zuckerberg is the Corvette, but Warren Buffett is the Bugatti Veyron. Warren possesses much more wealth than Mark and actually builds wealth at a steady and faster rate compared to Mark. However, Mark grew (accelerated) his wealth from zero to billions much faster than Warren. To be able to grow your wealth at a fast rate is important, but acceleration is equally as important, especially at the beginning. Technically, we could all become billionaires as long as we’re saving, but if we’re not accelerating our savings it may very well take us over a century before we reach billionaire status. Building wealth quickly requires not saving at a fast rate, but accelerating that savings rate.
The Wealth Formula
It may not come as much of a surprise to many people, but the secrets to building wealth as quickly as possible are rudimentary and have not changed for ages. Ordered from least difficult to most difficult to execute, accelerated wealth building requires you to spend less, earn more, and invest wisely.
This is the easiest thing anyone can do to build wealth quickly, but also the least profitable. It’s easy because it’s 100% in your control. So how much less should you spend? Everyone has a base standard of living in their minds. The absolute minimum base standard of living is whatever one needs to keep from losing his/her sanity. Whatever that base standard is, it cannot be zero. It’s practically impossible to function normally without having to spend any money! This is especially true in the 21st century. The minimum cost of living depends almost entirely on your place of residence: How much does food cost? How much is shelter? What about clothes? That’s probably all most people need as an absolute bare minimum, but there’s often more one needs to function in this day and age. You can get some interesting details on the cost of living in various places here.
With regard to wealth building, spending less helps speed up the savings as less money is wasted. It keeps you light. By analogy, a small and light car wastes less fuel on moving it’s own weight. Just the same, the car’s weight cannot be zero! Otherwise you don’t really have much of a car…
Good news, your earning power is potentially unlimited! Usually this is an area where most people have some control over. However, this is definitely more difficult to execute than simply saving. Most people can easily cut down on their daily coffee consumption, however, not everyone can easily manage getting a raise equivalent to a daily coffee. If you’re working for a company, your earnings are (hopefully) increased each year as part of an annual raise. And if you’re self-employed, your earnings increase is dictated by what you believe makes sense for yourself and your company.
In order to get wealthy faster, your weekly/monthly/yearly earning power needs to increase as much as possible. This is the acceleration of wealth. If your earning power never changes, you’re still getting wealthy by maintaining an average savings speed, albeit slowly. The speed of savings can be accelerated greatly by earning more.
Analogously, earning potential is your car’s engine. The bigger the engine, the faster you’ll be able to save and accelerate those savings. What do you have under the hood? A lawnmower motor, or a powerful turbo-charged V12 engine? Do whatever it takes to install a bigger one.
Up to this point you’re tied up earning as much money as you can, all the while shaving off as many wasteful spending habits. That’s pretty much as far as most people get. Keeping to our analogy, you are sitting in a light vehicle with a powerful engine. There’s not much else you can with your vehicle except drive it, and investing is the open road. Your only job now is to wisely steer your car towards a solid road. Will you steer towards that gravel road where you know you’ll have difficulty going fast, let alone accelerating? Or how about that well-paved road? It may still have a few potholes as far as you can see, but it still beats that gravel road!
Contentiously, investing is an area that may be the most difficult to execute successfully. It requires much of your personal time, patience, and the willingness to self-educate yourself on the topics of finance, economics, and investing as a whole. The point is to use all that money that you’ve saved and put it to work. If it sits in a bank, your money is working very little for you. This is the gravel road. If you’re buying dividend paying stocks of well established companies, then you’re steering yourself to that well-paved road. Steering your money towards the high returns is the way only way to go. However, even after you’ve done your due diligence and learned all about the area of investing, there’s still little control you have in this department. The external market forces that are beyond your control will dictate how quickly your wealth will build.
Summarizing 95% of Financial Self-Help Books
In order to accumulate wealth as fast as possible, you need to do all of the following:
- spend less
- earn more
- invest wisely
Just how Isaac Newton had his Three Laws of Motion, these are the Three Laws of Wealth. I know, it’s disappointing to learn that there are no shortcuts. These tenets reek of common sense and I wish there was more I could include here, but sadly, that’s it. But I do marvel at how simple it is to understand how to become wealthy, yet so difficult to execute. As long as we habitually ask ourselves whether what we are doing is a form of spending cuts, earning gains, or wise investments, I truly believe we’ll be paving ourselves a road to future riches.
How Fast Can You Become Wealthy?
Use the calculator to see how wealthy you may expect to be given a few sets of parameters. Note that the calculations are idealized, but nonetheless help to illustrate the impacts of various factors (largely, the growth rates). Will this level of wealth help you to achieve your dreams?
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