Methodical Wealth-Building Tips & Practices
Methodical wealth building (MWB) may be defined as the accumulation of wealth, or net worth, at a pace faster than inflation. It is a Biblical concept, a practical endeavor, and a noble enterprise, as the effort of one invariably blesses the lives of many. MWB prioritizes not the accumulation of money, but good stewardship, and often chooses a course with slower accumulations due to principle. The only reliable means of MWB is the consistent application of financial principles over time, as a manner of living; the tortoise beat the hare because it stuck to the plan, and the hare lost because it didn’t! While persistent high inflation makes MWB elusive, the means, as a rule, prevail, giving every partaker a high probability of success.
The practices of methodical wealth builders are simple, but often defy both the natural appetite and our profligate culture, so don’t confuse ‘simple’ for ‘easy’:
Methodical wealth builders work hard and live simple, frugal lives. They spend less than take home pay each month, saving and investing the difference. While a miser forsakes all for more gain, wealth builders enjoy the fruits of their labor, but with discretion. A fancy automobile is viewed not as a status symbol, but as an imprudent disposition of capital. The dispensation of every resource is weighed on a scale of prudence and scarcity, as with accountability.
“Aspire to live quietly, and to mind your own affairs, and to work with your own hands, so that you may be dependent on no one.” ~1Thessalonians 4:11-12
Methodical wealth builders manage debt with scrutiny. They understand the danger of debt in certain circumstances, that leveraged investments do not match unleveraged investments in profitability, and that debt only makes financial sense when the borrowed money is invested productively (net of interest paid, after tax return exceeds inflation). They always carry a miniscule debt/equity ratio, and never fully retire with any debt at all. “The borrower is the slave of the lender.” ~Proverbs 22:7
Methodical wealth builders dispense capital carefully and productively. They understand prices are negotiable, and consider the value of a thing before tendering an offer. They know a company’s reported revenues and earnings can deceive investors, and that dividends and free cash flow can’t. They invest primarily in boring businesses which dominate their respective industry, have a moat of protection against competition, earn steady cash flows, and pay (and increase) dividends systematically. They speculate sparingly with minimal capital, and keep individual position sizes small. They are judicious in the deployment of their hard-earned capital. ”Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.” ~Proverbs 21:20
Methodical wealth builders are generous, and give freely to those in need, understanding this is the one instance where returns are non-financial. They give not to enable, but to empower and bless, and that “you give a child enough to do something, but not enough to do nothing”. They seek to forget every gift immediately. “God loves a cheerful giver.” ~2Corinthians 9:7
May these principles and practices be a blessing to you and others, Shaun.
The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.
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