This is a guest post by Robert, who lives in Calgary and
works as a financial advisor retired at 34. He is married, has three kids. Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.
News Flash: “High net worth linked to how you manage money”. It might be difficult to believe that someone would consider this news. But last week, the Calgary Herald printed an article with exactly that headline. Here are some things a reader might learn from the article.
Be frugal. To my mind, this doesn’t mean “be cheap.” The difference can be significant. A person who is cheap will still buy all the stuff they want, but they will buy low quality in order to spend less. The person who is frugal will restrain their spending, but will still buy quality. As an example, being cheap might mean buying a pair of shoes (regardless of need) at Wal-Mart; being frugal means buying a pair of shoes (only if they’re needed) in the clearance section of a high quality shoe store.
Control debt. Debt is dangerous because it saps future resources that could otherwise be used to pay accumulate wealth. Interest costs must be paid from current income, reducing the amount that can be saved. Debt can be profitably used for investment, if it builds capacity for future income. But because debt can be used for any purpose, it must be controlled.
Have a plan and monitor it regularly. It is quite possible to succeed by accident, but it’s not likely. I find that having a goal, something to work toward, is motivating. A goal to accumulate a certain amount of money by a specific date makes it clear how much needs to be saved, but also why you’re making this difficult choice. It’s also easy to get off track, or for outside circumstances to change. For this reason, monitoring your progress can provide a chance to correct course or to adjust the plan..
Don’t divorce. This seems more like an aside of the article. I doubt anyone marries with the intention to divorce. And finances aren’t enough reason to stay together if a marriage is just not right. But divorce is costly and destabilizing, and could very easily jeopardize most financial plans.
Many millionaires didn’t grow up rich. In fact, they probably learned the habits they needed to accumulate wealth: frugality and an aversion to debt, because they grew up in humble circumstances. But there’s a saying: “From rags to riches to rags in three generations”, which illustrates the difficulty of the wealthy to pass on both wealth and good financial habits. Being rich doesn’t require a greater than average intellect; it only requires being able to take the actions that lead to accumulating wealth.
What actions do you take regularly to accumulate wealth? What else do you still need to do? Which actions take you further from your goal?