Glenn Fisher, publisher, Agora Financial UK: Mark, it might seem like a blunt place to start—and people might think it’s a no-brainer—but I actually think people don’t give this enough thought: Why do you think people should aim to “become wealthy” at all?
From Mark Ford, founder, Palm Beach Research Group: Good question!
Here’s the thing: Smart people understand that wealth—financial wealth—doesn’t bring happiness. As someone who knows a lot of financially wealthy people, I can attest to that.
I lived in Chad, Africa, for two years and got to know dozens of very poor people. On average, they were happier than the average Americans I knew who were 100 times richer.
So if wealth (I’ll stop saying financial wealth for efficiency because your smart readers know there are many other kinds of wealth that are just as valuable—and, in fact, some that are much more valuable) won’t buy you happiness, what will it buy you?
It’ll buy you security. And by that, I mean relief from worrying about how you’re going to pay your bills—now and when you retire. That’s NOT an insignificant thing.
We’re all born into this world without any actual entitlements. We may believe we’re entitled to certain things such as freedom and health care and so on, but, in fact, Mother Nature (put God in there, if you prefer) never promised us that. So we’re entitled to nothing.
If we come to rely on others (our parents, our friends, our bosses, our community, or our government) to give us any of the things we want, we’re foolish and will ultimately be disappointed. Financial security is a good, but it’s a good we must, as individuals, secure for ourselves (and those we want to include, such as family, friends, or even a larger population of people we care about).
The most important thing to understand about financial security is that it is not an absolute thing. It is not a certain number. It is not $1 million or $10 million. Or $1 billion. We each can choose our number, but the number must be big enough to take care of our financial needs.
Our financial needs, for most people—except my friends in Africa and certain parts of the Third World—are 90% wants, not needs. That means you can achieve financial security by lowering your number, which means lowering your desires for expensive baubles and toys. That, anyone can do.
So that’s why I believe people should aim to become wealthy—not for the sake of accumulating things, but for the sake of being comfortable and secure enough to reduce stress and anxiety about money. And of course, lowering your expectations of what you truly “need” goes a long way to achieving that.
But I want to draw out a key point for the beginner wealth builder who’s setting his sights on a retirement number…
You should know increasing your net investible income is critical. Your net investible income is how much money you have available each month or each year for investment.
That’s something the financial industry doesn’t talk about. They want their customers to think about ROI—return on investment. Which is just to say, “I give you X, and after so many months or years, you return Y for a Z% annual return on investment.”
They focus on ROI because it induces their customers to keep focusing on ROI, which makes them susceptible to spending more on financial products and services. When you can dangle an enticing return in front of people, it’s very attractive. You can sell a lot of worthless financial bunk that way.
The true, prudent wealth builder ignores that. He understands he needs to increase his net investible income (i.e., cold, hard cash) to a point that he can achieve the number he needs to meet in order to retire. If he’s smart, he has lowered that to a realistic level… and also knows what it truly takes to be happy in his financial life.
He doesn’t chase glamorous returns that usually come with risky investments. And he focuses more on investments that will continually churn out cash, giving him even more net investible income.
So everyone should keep this in mind when striving to become wealthy.
Now, something I haven’t mentioned yet—but hinted to—is…
Yes, the other thing wealth can give you is prestige. And prestige, like security, is relative. It’s also ephemeral and illusive.
Smart people know that. They know that having the most expensive house or car will bring them prestige—but at a cost.
For everyone who admires you, there will be 10 people who are jealous or resentful of you. So prestige is a bogus goal at the end of the day.
That said, we’re all susceptible to the lure of prestige. You can, if you want, try to eliminate it from your consciousness. But that’s a hard and tough road to take. What I do is make friends with this false god. I do that by recognizing I can have all the prestige I want by living among good people who care about me for other, better reasons. It turns out those people tend to be your old and good friends.
You can have both financial security and prestige by resisting the urge to always move up on the prestige ladder. Find a house that you love and keep it. Don’t keep jumping from one house to a more expensive one, simply because you qualify for a higher mortgage. Do the same with your car purchases. And with everything else.
By the way, if you want a book that explains all this, read Living Rich.
Glenn: Interesting. You’ve covered many thoughtful ideas I’d like to dig into. I’m intrigued by your thoughts about prestige, which I agree with and have some interesting experience with here in the U.K.
But before discussing that, I think it would be useful for readers if we explore the idea of lowering the amount of money you need to achieve financial security and, in turn, increasing your net investible income.
For someone who’s on a fixed salary job or on a fixed pension, how would you recommend they achieve a lower financial-security threshold and a higher net investible income? I know entrepreneurship is something you believe strongly in—is that the only option? You’re not a big fan of stocks and fixed income (bonds) as a way of growing wealth, right?
Mark: I hate the word “fixed” as applied to income. And I want to encourage our members to hate it also. There should be no limit to your income except the one you choose.
Okay, that’s the psychology lesson. Let’s get to the nitty-gritty.
There are two paths, both of which anyone can take simultaneously:
- Increase your income as an employee. I’ve written reams on this, but I’ll give you the extremely short version. Become a more valuable employee by becoming the most caring, hardest working employee in your office.
Next, become an invaluable employee by developing a financially valuable skill and taking on the most important moneymaking challenges of your business. In other words, take the fast track to becoming CEO. If you work for a business that won’t let you do that (usually a smaller but fast-growing company with a very horizontal power structure), then quit your crummy job and find one that will.
- Create additional income on the side by working nights and weekends. I know this is going to be difficult for some people. As a new father, I found it tough to work three jobs and take care of my family. But in most cases, it can be done. And it doesn’t have to be a drudge.
Now here’s the thing: If you do these two things, your income will grow. But you may be tempted to spend more as you make more. This is true for most people. You must resist that urge and devote 80% of that extra money to saving. Spend the other 20% on yourself because you deserve it.