Building Wealth: The Control Scale

controlI 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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12 thoughts on “Building Wealth: The Control Scale

  1. Shannon @ Financially Blonde February 17, 2014 at 1:03 pm

    You are absolutely preaching to the choir and this is exactly what I have built my new business around, helping people control the financial aspects of their life that they can control. It is easier said that done, but when you do, you will get far better results than any other investment.
    Shannon @ Financially Blonde recently posted: Music Mondays – Sweet Child O MineMy Profile

    • Mr NYBudget February 17, 2014 at 5:28 pm

      Awesome – yeah, too much time is spent on the parts that we can’t control! It seems obvious, but it’s actually pretty easy to get caught up in that.

  2. Stefanie @ The Broke and Beautiful Life February 17, 2014 at 3:23 pm

    I think education is another thing we can control. Not our past education but what we chose to learn and inform ourselves of now and in the future. The things we chose to teach ourselves can serve us down the line.
    Stefanie @ The Broke and Beautiful Life recently posted: I Suck at EbayMy Profile

    • Mr NYBudget February 17, 2014 at 5:31 pm

      Good call! I know it is always beaten into the ground, but it really is amazing how much information we have access to these days. There is so much potential for educating ourselves.

  3. John S @ Frugal Rules February 18, 2014 at 8:50 am

    Focusing on what we can control is simple in theory, and in practice really, but so many struggle with it. I think so much of that goes back to our emotion and our unwillingness to control it or not educating ourselves like Stefanie mentioned.
    John S @ Frugal Rules recently posted: Giving Your Spouse a Car is a Really Bad GiftMy Profile

    • Mr NYBudget February 18, 2014 at 9:21 am

      I agree – I do think it gets easier to implement as you listen to and read more about personal finance.

  4. Mel @ brokeGIRLrich February 18, 2014 at 1:55 pm

    I know that this is probably too far in the opposite direction, but I almost consider stock market money just gone. I did the research before I bought whatever I bought and short of a whole lot of evidence saying I should get out – I’m just going to ride the storms. And mostly forget it’s even there. My portfolio is not nearly big enough to require rebalancing, but if that day ever gets here, I figure I’ll work on it once a year.
    Mel @ brokeGIRLrich recently posted: Travel Apps to Save Some CashMy Profile

    • Mr NYBudget February 18, 2014 at 4:43 pm

      I think that’s pretty much exactly the strategy John Bogle, founder of Vanguard suggests – put money in and don’t look at it until you are 60. Personally, I plan on retiring before that, but the idea remains the same.

  5. Phil March 3, 2014 at 3:35 pm

    I am lucky that I have my dad handle my investments and 401K. He did this for a living before he retired. It keeps me free to focus on my career and earnings. Some is in our control and some is not when it comes to it.
    Phil recently posted: Petite Abeille – a touch of Ooh La La in NYC.My Profile

    • Mr NYBudget March 3, 2014 at 3:53 pm

      That’s awesome – I am big believer in helping family out and using different skill sets to do so.

  6. Tom @ FinanceandFlipFlops March 22, 2014 at 5:07 pm

    Very succinct article and couldn’t agree more. People will talk about some of the trades they make in the market, getting fancy with options, derivatives, shorts, etc. and don’t seem to come ahead at all or if they do, it makes me wonder how much time and effort they put into doing their research on the market in the first place for slightly better than average returns (hopefully they don’t do worse, otherwise it would be a COMPLETE waste of money).

    I just invest in some mutual funds with low fees that cover the market and let them do their thing. If the market dips, I put even more money into my investments.

    • Mr NYBudget March 22, 2014 at 5:13 pm

      Absolutely – I think it would be interesting for those people to mark down the hours they spend in a year and their gains over a hypothetical index fund and see how much per hour their time is worth (in a lot of cases, I’m sure it’s negative).

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