Are you questioning how you can build wealth right now?

COVID-19 has thrown everything into turmoil—politics, public health, and especially the economy.

Everything seems transient now. Just reading the news can make you feel uncertain about what’s going on, out in the world, outside your doorstep and in your bank account.

Against this constantly-shifting backdrop, building wealth that will endure throughout your life may seem to be too much to think about, let alone tackle.

But it doesn’t have to be overwhelming. If we understand (or surround ourselves with those who do) economic and market history, we can be better positioned for building wealth, now and into the future.

Information vs. Knowledge

When building wealth you have to understand that there is a difference between information and knowledge.

The implications of confusing these two ideas can be lifestyle-threatening.

I recently read a statistic that showed it took years for a substantial percentage of individual investors to re-enter the stock market after the 2008 market swoon and some of them never did.

The long-term lifestyle adjustments that these investors must have undergone would have been significant. Yet, it is likely that a lot of them believed they were making smart choices for building wealth.

Take a look at this short YouTube video (created by Loring Ward, a West Coast advisory firm) on the history of the market and outside events if you still have doubts.

Imagination Capital

Building wealth can seem unattainable, especially during times of uncertainty.

University of Chicago professor Gary Becker coined the phrase “imagination capital”. This means in order to bring the rewards of saving and investing closer to us in our minds, we should imagine the future pleasure of those rewards in order to make them seem less remote.

I think this may be a key component in building wealth that endures.

We have to be able to “see” the future benefits or we can’t manage to make the commitment to save today. Saving is the first step and then investing with a sense of purpose comes next.

You Can’t Build a House Without a Foundation

I use the verb “building” purposefully in the title as this is a process that requires active and ongoing effort. It might be helpful to think of this “building” process in stages, like constructing a house.

  1. The framing or foundation stage of building wealth might be termed “financial peace”. This is where we become very clear about what we want money to do for us.
  2. The next stage, built upon that foundation of clarity, is financial security. This is where we start to see returns on our investments, and obtain the confidence that our resources are invested properly and securely for the long term.
  3. Finally, financial freedom. The end goal that every investor is aiming for. This is where we have “enough” money to endure and to fund our ideal lifestyles for the rest of our lives.

Building Wealth—Foundation Up

Like a house, each phase depends upon the previous stage being completed.

If the foundations and framing haven’t been completed, there’s nothing to hang the sheetrock on. And, we can’t put on the roof until the walls are up. Building wealth is exactly the same.

Often clients want to jump to the end—the freedom—without laying the foundation. We need to invest in the beginning. We need to proceed in proper order.

Money has meaning and that meaning is different for all of us. Our financial futures depend largely on the choices and decisions we make in the present.

Regardless of what today looks like, the fact is, it is the most important day of your life.

Ready to find out more? Click here to start a real conversation.

 

Enjoyed this article? Here are three more you might find helpful:

What’s for breakfast? The link between investment risk and your brain.

Why is it important to think differently about money?

Four ways to find the “best” investments.

 

This article was originally published on July 16, 2013 and has been updated.

 

 

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