I imagine that if you are reading this blog, you are probably interested in building wealth for yourself. Most of the time (but not always), I focus on saving money in my posts. However, this time, I wanted to take a step back and look at the bigger picture of building wealth and let you know why I like focusing on money saving (without sacrificing!) Introducing:
The Control Scale
There are a few main factors that are working for or against you while you are trying to build wealth. You have more control over some of these factors and less over others. Let’s take a look, from least amount of control to most:
- The Market – You have no control over the market. Whatever market you have invested in, whether it be the stock market, bond market, real estate market, etc, you have no control here. The market is going to fluctuate no matter what obscenities you yell at it, so you might as well roll with it. Now, I’m not saying you shouldn’t invest, not by a long shot. “The market” can work in your favor and help build your wealth. The stock market for instance, historically has always gone up, given enough time. It’s just that you don’t know when or by how much. You have to be zen about the market.
- Your Investment Performance – You have some control over your portfolio’s performance. True, it is linked to the market you are in, and you can’t predict or control that, but you can make wise investments. You can diversify your holdings (so you don’t lose all your money on one company that goes bankrupt) and keep your costs down, which is why I am such a big fan of Vanguard Index Funds (they do not pay me to say that).
- Your Income – You have quite a bit of control over your income. You can choose the professional career you pursue (a choice that includes more factors than just income, granted). You can also develop your skills to reach higher pay grades. You can also work on side hustles, second jobs and a ton of “non-traditional” ways to bring in extra money. With some hard work, you can absolutely improve your income. However, it takes time. And regardless of your skills, you still have to convince an employer to hire you, a client to hire you, people to buy your widget, etc. Some of the control is still out of your hands.
- Your Savings Rate – You have almost complete control over your savings rate. Sure, you can’t save 100% of your income – you need to spend enough to survive, but beyond that, the choices you make on how to spend your money are yours and yours alone*. The New York Budget is about choosing to live well in New York City while saving money, but if I chose, I could easily sacrifice, scrimp and save much more. In any event, the savings choices you make today – right now – can greatly impact the wealth you build over time. That’s powerful stuff and the main reason I decided to focus so many blog posts on the topic of saving money in New York City.
So what does this mean? What should you do with this info? I suggest focusing more time and effort on the factors that you can control. Really work on your budget and your income and stop checking the stock market every day (I am guilty of doing this). Work on earning more money rather than tweaking your portfolio for hours every day. Unfortunately, too many people have these priorities exactly backwards. You, on the other hand, have an opportunity to really get ahead!
* This reference to Legends of the Hidden Temple probably dates me a bit.
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