You can fill a bucket with holes one of two ways. You can add more water to it, faster than it loses it, or you can plug the holes, add the water, and watch it overflow. Which does your financial advisor have you employing in your financial plan?
What would you consider to be the biggest factor in creating wealth?
Many would have 3 words in mind, rate of return. I would disagree.
The biggest culprits to not creating wealth come in the form of the following:
- Opportunity Cost
The amount of money that flows away from your circle of wealth is immensely larger than the amount you will ever flow into it by focusing on rate of return.
The average American spends 34 cents of every dollar on interest alone, another undetermined, yet substantial amount on taxes, and saves less than 1. But generously we will take an unaverage American and say he saves 10 cents on the dollar. If he makes 100,000 per year, invests 10,000 and is able to come out with 8% (not calculating taxes), he will have grown an additional 800 dollars. Great, right? Not fully, he is still losing 34,000 dollars to interest alone, making his gains seem insignificant, he has a bucket with holes in it. So what does he do? Does he put more water in? or does he fix the holes first? Is your financial advisor telling you to add more money to your investment pool by reducing your lifestyle, or is he finding money that you would have otherwise lost to contribute to your investment pool? If our unaverage American were able to save merely 1% of his income he would have increased his wealth much more than the rate of return produced, and he would have taken no risk to do so. It would be the easiest money he ever made. What if he could recover 2%, or 3%? What effect would that have in his financial situation?
Patching the holes is the part most advisors miss. By using different techniques and strategies to patch these holes, you could learn how to redirect all the interest back to your circle of wealth by paying yourself that interest, save thousands on taxes, put yourself in control, absolutely eliminate risk, and leave a legacy to pass on to future generations.
So now what if we fill the bucket while the holes are plugged? We are going to need a lot more buckets! Becoming wealthy is not a product, is not based on rate of return, but it is a process, based on controlling the most money you can within your circle of wealth.