The Foundation, Formulae, and Fruit of Wealth-Building
Cultivating a vegetable garden is one of the most enjoyable and rewarding experiences I’ve had. Organically enriching the soil, rotating crops, companion planting cohabitant species, timing climatic growth and fruit-bearing cycles, and, of course, harvesting and enjoying the bounty is a truly enriching endeavor. Let’s consider the foundation, forms, and fruit of wealth-building, which can be equally rewarding.
A sturdy foundation is critical for the stability and resiliency of your estate, and it consists of:
Income, which is essential and requires work. Maximize income by using your God-given talents, with specialization in your field, and working hard. Think favorably about work, and never stop learning.
Positive cash flow, which requires income to exceed spending. Maintain a strict budget and live below your means.
Emergency savings equal nine months of total household spending.
Strict debt management. Avoid consumer debt, and do not attempt to retire while in debt.
The right amount of the right type of life insurance, so your estate can survive an untimely death.
While wealth-building comes in many forms, certain consistencies necessarily apply. Once the foundation is fully formed, invested capital must earn an average after-tax return greater than the rate of real inflation; otherwise, any perceived wealth-building is a mirage. Secondly, catastrophic risks must be identified and insured; otherwise, the estate is one calamity away from extinction. The following formulas may then be pursued:
Dollar-cost-averaging through systematic purchases into high-quality stock funds tends to lower the average cost per share and helps avoid a large purchase at peak prices.
Concentration of invested capital into assets which tend to appreciate during periods of high inflation, like real estate, capital-efficient stocks, and other real assets. That being said, understand and honor your personal risk tolerance at all times.
“Give to Caesar what is Caesar’s,” but have an intelligent tax plan and do not pay a penny more in taxes than is required.
Minimize investment expenses, which directly reduce returns, and then compound the reduction indefinitely.
Plan the funding of retirement income strategically, so no more capital is required to fund that need than is necessary, so that invested capital can resume wealth-building.
Think of the wealth-building process as a multi-generational effort, plan your estate wisely, and teach your children the same.
Finally, the fruits of wealth-building are mentionable:
Through your diligence and stewardship, it will prove to be God’s faithful provision for you and your family for generations.
It will incite a spirit of thanksgiving, which is proven to have profoundly positive effects on a person’s general health and happiness.
It will enable you to give generously to others in need, especially those who can’t repay you, which is a most fulfilling privilege.
It will provide opportunities for you to enjoy the fruits of your labor.
While these are great blessings, it’s also mentionable that wealth is a tool, not an identity, and is, therefore, not to be hugged and horded but held loosely and shared. Furthermore, it won’t shield you from the trials and hardships of life on earth, which are apportioned to us all. I hope your consideration of this perspective of wealth-building is a blessing to you, and happy Memorial Day.
Shaun
“What do you have that you did not receive?”~1 Corinthians 4:7
“Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.” ~Proverbs 21:20
“God loves a cheerful giver.”~2Corinthians 9:7
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not reflect the views of LPL Financial.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets.
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