(03) 9020 2905I’m doing my best to teach little DebtBoy to read. (Almost) every night, for 20 minutes in my study … well, it sounds like I’m pulling his teeth out with pliers.
He hates it. The frustration overflows, along with tears and shouting. He screams at me: “I don’t want to do this!” My response, without fail, is “I don’t care”.
And I don’t care that he doesn’t want to do it. I couldn’t give a toss. That’s parenting. Tantrums have got him out of, exactly, zero reading sessions with his dad.
He wants to read. Bad. He’s desperate to read chapter books in bed, at night, with a little light on. (I’ll have to dig out my “Hardy Boys” titles.) But the hard yards to get there? Not so much.
Situation vaguely familiar? The frustration doesn’t change with age, only the goal. Substitute DebtBoy and reading for yourself and wealth. (And you don’t get to sit on my lap.)
Everybody wants wealth, but few are prepared to do whatever it takes.
You neither magically learn to read, nor magically get rich. Both take untold hours of practice.
Like Bert Newton’s hair, “The Rules” for creating wealth never change. They’re constant and simple.
The main drawback of “The Rules’” is their “fun factor” rating. They score zero. They require some medium-term fun denial.
Delayed gratification
The golden rule of wealth creation means ripping out a little bit of fun immediately. There is no future wealth without what I call “delayed gratification”. Less fun now, for more fun later.
Some call it “paying yourself first”, a phrase credited to George S Clason in his investment classic “The Richest Man in Babylon”.
Simply, it’s about not spending and putting at least a little bit, every week or every month towards some form of investing – your personal wealth creation strategy. Investing that money is the most important part of your income. You should invest money, before you even pay your other bills.
By investing a little bit every week, you can grow a monstrous pile for more fun later.
Taking a risk
You cannot save yourself to a fortune. Nobody created humungous wealth in a bank account. Cash and bonds are for protecting wealth. No point if you have nothing to defend.
Fortunes are inevitably created by taking on calculated risks in shares and property or, potentially, successfully building your own business.
Hey, Warren Buffett, has just announced that when he carks it, his estate should invest predominantly in low-cost index funds. If the world’s smartest investor thinks index funds are good enough for the gazillions he’s made for his own family, it’s good enough for you.
Index funds come in all the colours of the investment rainbow, including shares and property. Explore a little (or talk to a financial adviser about them).
Compouding returns
Not only do you have to add to your share and property investments over time, but you have to hold them for long periods – preferably forever.
If an investment worth $10,000 grows by 10 per cent, you’ve made $1000. If an investment worth $1,000,000 grows by 10 per cent, you’ve made $100,000. You can only get there by continually adding to your investments and by letting the power of compounding work its magic to grow your investments over long periods.
For example, what did your parents pay for their first home? What’s that place worth now?
Almost more importantly, the longer you hold an investment, the bigger the income streams (dividends or rent) that they pay, giving you a growing income stream for life.
Buying your own home
Technically, you don’t have to buy your own home to become wealthy. But I’ve explained in recent columns that renting is a long-term losing game.
What many people don’t understand about home ownership is how it helps your wealth. Property prices rise in value? Well, sure. But that’s not the real reason why.
The real reason home ownership will make you wealthy is because you will eventually own it. Paying off the mortgage means you don’t have to pay (much) to live somewhere. While renters have a neverending, increasing, cost of putting a roof over their heads.
You want real wealth? Think it’s too hard? It’s actually simple. Suck it up. Get some willpower. Or I’ll come round to your place with some pliers.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au), a licensed financial adviser and mortgage broker. bruce@debtman.com.au.