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Money is a tricky thing. When it is worshipped, it causes destruction. When money is the only thing that matters in one’s life, that person will go to great lengths to obtain it. Many times, that means turning down a wicked path to get there, even if it means hurting others around them. When it is not accumulated properly it doesn’t get handled properly. When it is not accumulated properly it gets wasted quickly. If money is the object of our desires because we think it will bring us peace and a better life…well…it becomes fool’s gold very quickly.
One of the things that I think about as a perfect example of this is winning the lottery. I have heard, read about, or personally seen countless stories when winning a windfall of money in the lottery brought nothing but problems and utter ruin to the winner. They had no idea how to handle it. They had no idea all the problems that would come with it. And when those problems arose, there was no healthy way of dealing with them. From endless wants to thinking the money will never run out, to family and friends who come out of the woodwork with their hands out, to evil people looking to do harm to steal…the problems can come from all directions. It can be like throwing a helpless insect into a bee’s nest and the one winning the lottery is the insect. We reason that if we just had enough money all our problems would go away, yet in many situations like this, the problems just get ten times worse. We end up with problems we didn’t even have when the money wasn’t there.
Another example is fame. We have all seen many celebrities or professional athletes get a windfall of money, and by the time their careers are over they have squandered it. They had no upbringing foundation that prepared them for it. They had no plan in place to handle the superstardom that would bring all the wants in the world and all the “friends” and “family” that would want a piece of the action. Instead, they might think the money will never stop coming in so no need to responsibly save any of it. When it’s all said and done and they are broke, they are left with thoughts of “What I should have done, could have done, or why didn’t I do this with the money I had?” It really can be a sad thing to hear about.
When parents pass away and leave a nest egg of money to their heirs, I’ve seen those same things happen here as well. It doesn’t matter how much money is left behind to take care of their children. If the children aren’t responsible, they won’t be responsible with this money either. Again, a sad state of affairs unfolds.
However, the story on money doesn’t have to end here. Money, when handled responsibly and with well-thought-out planning, can do great things. When built properly it can provide some luxuries in this life that we all aspire for. These are healthy luxuries that come from the reward for our hard work and planning. Keeping money in its proper lane in our lives can help build up families, help others, provide resources that might not be available otherwise, and help in accomplishing financial freedom. With wisdom, money can be a good thing.
So, how does this happen and how do we do this? There is a fun thing many of us used to do when we were kids on a snowy day. And if you’re an adult with young kids and live in an area that snows in the winter you might do this with your kids now. We went out and built a snowman. And in building a snowman, a healthy financial lesson is in the details! I explained this to my kids and I will lay it out here for you now.
My kids are now all adults in their 20’s and 30’s. I have three kids, two daughters, and a son. Here is how I explained building wealth to them. I would say this to them: “Think of building wealth in your life like this. When we built a snowman what did we have to do? We would start in the front of the yard. We would make a little snowball as small as one you would throw at each other. We would then drop it on the ground in the snow and start to roll it. We would roll it to the backyard to the spot where we wanted our snowman to be. As we rolled it in the front yard, the little snowball accumulated more and more snow and as we got to the backyard the ball was so big that we couldn’t pick it up. Instead, we had to just keep rolling it. Once it got so big that we couldn’t even get it to budge, well that is where the snowman would be built. The big snowball would be the base and then we would start making the rest of the snowman from there, but the base was the hardest and heaviest part to make. Building financial wealth is no different. The snowman is the final result of where your financial wealth will end up. How big of a snowball you end up with for a base will determine how much wealth you end up with, but without the yard, it won’t be big. The yard is the most important because it represents TIME. You see, without the yard, your little snowball cannot accumulate enough snow to become a big ball. Without time, your little savings will not be allowed to grow into a great savings nest egg. The most important thing in building wealth in a healthy way that will last is TIME.”
Once the time has been put in to build the large base, then less time is needed to build the rest of the snowman. Once the time has been put in to build a great savings nest egg a whole lot less time is needed for that to double into something greater.
I showed my oldest daughter this to show her what I meant using the illustration of a 401k plan being offered by a person’s employer. I started it off with $10,000 accumulated in the 401k. I then used an average rate of return of 10% on investment coupled with a small percentage the employee was contributing each paycheck plus the small employer contribution match. I projected this out year over year for the next 30 years. The results were this: It took 23 years for the 401k account to get up over $500,000, but then it took only 7 more years to get the account up over $1 million dollars. The 23 years of TIME were needed (the hardest part of building the base) to get to the first half of the accumulation, but then only the last 7 years (the easiest part of finishing the job) were needed to double it!
The rule of 72 is an important tool to note. The rule of 72 in finance means that if you take the number 72 and divide it by a rate of return percentage it will tell you when your money will approximately be doubled. For example, if you’re getting a rate of return of 10% on your investment then your money will double roughly every 7.2 years (72/10=7.2 years). This tool has come in handy over my working years as I planned for my financial goals.
I would also like to pass this thought on to you. I think that the best way to look at accumulating wealth for yourself is not to be rich. I surely don’t and I’ll tell you why. I have to be careful that I don’t become obsessed with money. If you get obsessed with money go back and read the first couple paragraphs of this blog that I started with. In many ways, I despise money and the destruction it can cause. Instead, I encourage you to NOT let money own you. Instead, I encourage you to look at accumulating wealth as a means to help you not have to work forever. So, I look at accumulating wealth as my way of building my own company that will pay me in my non-working years. I need to replace the employer I work for now and that replacement will be the wealth I have accumulated over TIME. From an employment standpoint, I am working my way to being my own boss without the risk and hard work involved in starting my own company. As my body and my mind wind down, I am not going to want to be in the grueling everyday challenging work I am doing in my prime working years. Instead, there will come a time when I want to walk away from it and be financially able to do so. Again, the hardest part of it all is the TIME needed to make it all happen. I hope that makes sense.
Years ago, when I was in my early twenties and finishing up college, I worked as a bank teller. There was this old guy who was retired and he would come in regularly. (I am not sure if I have told this story in earlier blogs, so forgive me if this is redundant). He would always come in with the biggest smile on his face and we looked forward to seeing him. This gentleman would come up to my teller window and call over my buddy who was also a bank teller and he would say, “Boys!!!! If you have money, you will make money in your sleep! Now, give me my $500 for the day!” I never told this man what kind of an impact he made on me that day as a young man just starting my career in finance, but this phrase stuck with me! He was telling us your money can make money for you, but you have to responsibly save it. I didn’t have a lot of money to invest, but not long after I started an investment account with the bank’s financial planner in the branch putting $50/month in an investment account. To this day, I still do that on top of everything else I have been blessed with to be able to do. And out of all the investing I do, that $50/month is the most important investment to me in my heart because that man passed on his knowledge to two young kids who didn’t know any better! Maybe it is in the memory of that old gentleman that I write this blog now. This was almost 30 years ago so I am sure he has long passed on. But his words to me that day have been passed down to my kids.
Now here is the sobering harsh part of this. Time is something none of us can get back! Once you lose it, it’s over. You can’t turn back the hands of time. That is why when TIME gets squandered the “woulda, shoulda, coulda” regrets will be what you’re dealing with and there is nothing you can do about it. Don’t let this happen to you!
Before I wrap this up, I want to speak about Financial Planning and the importance of getting lined up with a Financial Planner. Over the years, I have gotten the sense that some people won’t consult with a financial planner because they are intimidated by them or they don’t know enough to feel confident sitting down with one. Financial Planners are very important. If you find the right one, they will walk side by side with you making sure your money works for you. Yes, they make money off you. However, let me pitch this to you. If you can’t outperform them by handling your money on your own, then leave it to the professionals. If you, on your own, can only generate a 3-4% return and your financial planner who does this for a living can keep you making 10% plus but he takes a 1% or 2% off the top, are his fees worth it? Please understand, I don’t know what any financial planner makes so the numbers I just gave you are not exact numbers. The point I am making here is this: if the financial planner can help you get to returns greater than you would be able to do on your own, then the fees or commission they might make is well worth it. And you have peace of mind that your money is being managed by a professional who is in the market and does this type of work every day.
So let me leave you with a plan of action:
1.) If your company offers a 401k get in it the moment you can. Ask questions, get info, and make sure you are securing the company match. Your money will come out of your paycheck and as you adjust to your net take home, you will not miss this money!
2.) Consider sitting down with a Financial Advisor. Interview a couple. They should be willing to sit down with you and do a free consultation with you. After all, they have to earn your business just like anyone else does! They should listen to your goals, have ideas, and offer their professional expertise to get you where you want to be. You typically can start an investment account with a reasonable amount of money and then slowly add to each month if you don’t have a lot of money to work with.
3.) There are plenty of investment avenues you can take, but I always say this, “Investing 101 is to be INVESTING”. When you procrastinate in doing this you are losing money BIG!!!!! (Go back up in my 401k example….23 years to get to $500k, 7 years later to get to $1 million). The time lost now is so important! Don’t worry about all the investment avenues. Step #2 here will help you work through the options for you.
To wrap this up, I am sure many of you reading this might not even need this blog, but if you have kids or if you know someone who could use this, please pass this along to them. If you are a young person just starting your career or working life, I hope you find this helpful!
After all, “BOYS!!!!! If you have money, you will make money in your sleep! Now give me my $500 for the day!” Sir, the legacy of your phrase and simple life lesson lives on in me, and Lord willing, this knowledge gets passed on to someone here!
Have Character!
J. Noah Russell
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