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Friday, 29 April 2016

There Is Only One Way to Generate Wealth

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An almost relevant picture on generating
wealth. 
Much like Highlander, there can be only one, and in this case only one way to generate wealth. But this is in fact a good thing. You see, especially when it comes to money, simple is better, and because there is no other way to generate wealth, we can just knuckle down and get cracking. And the sooner you start, the sooner you you can achieve early retirement! So how do you generate wealth?

Note that there is a difference between generating wealth and getting rich. For me generating wealth means creating more money for yourself in order to achieve a realistic end goal, whilst getting rich is more materialistic and to me means accumulating unnecessary possessions and "stuff". Now we should also think about the reason why you want to generate wealth and it is important to be realistic. I know that I will never own a Clifton beach front property or drive a Ferrari - well firstly because it is unrealistic, and secondly I am not stupid enough to blow money on totally unnecessary and materialistic possessions. For me my realistic end goal is to be able to retire early - by 2030. This is so I can do the things I love, and spend more time with my family (which for me is pretty much one and the same thing). Early retirement for the win!

Right, so now we've got that out the way, I bet you are waiting for the secret formula to make all your dreams come true! What life changing wise words am I about to spew onto your screen.... Well here it is, in one simple awe inspiring sentence! Try not to wet your pants....

The secret for generating wealth:
Spend less than what you earn, invest the difference, and wait.
And that is really all there is to it. Now this has been discussed by numerous other people (like over at the shareforum blog and on Just One Lap) so I am not going to claim it.

If we break this down, we can see there are a number of factors we can control:
  1. Spend less
  2. What you earn
  3. Invest the Difference
  4. Wait
I will do some detailed blog posts on each of these going forward, but let me touch on them briefly:

Spend less: This is by far the single most important thing you can do on your way to generating wealth. And for me this one is doubly good, because by spending less not only will I have more to invest, allowing me to achieve my early retirement goal faster, but I will also need less money to retire because my monthly costs will be lower. So by spending less, my target amount is lower, and I can get there faster. I will be attacking my goal from both ends. Also by spending less it allows you to focus and prioritise your goals - if you are trying to generate wealth because you would like to own a Ferrari, then I am sure you can see the massive contradiction - "Ok I want to own a Ferrari, so I need to generate wealth. So to generate wealth Stealthy Wealth says I need to spend less - so I will spend less so that I can get a Ferrari and spend more" (I can't imagine the insurance on one of those!1

What you earn: This is a slighter harder one to have an influence on. You are pretty much capped by your skill set and your qualification. Sure you can do some moonlighting or ask for a raise, but in the greater scheme of things you will soon learn that this will not have as profound an effect as spending less.

Invest the Difference: This is important, and everyone has their own views on what to invest in. However what is most important is that you invest in something that is going to beat inflation - this is how you "generate" wealth. If your return is less than inflation, you are slowly getting poorer!

Wait: This is another massive factor - time. Compound interest is amazing! That is all! This is not an overnight process, and you are going to need heaps of patience. But believe me the reward is going to be worth it!

I will go over all of these in more detail in future posts so be sure to look out for those.

And that concludes what I hope will be the first of many posts, thanks for reading!



Till next time, Stay Stealthy!

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Make absolutely no mistake, I Love Ferraris! Oh man check it out! And in fact it was a boyhood dream of mine to own one (not a Porsche, not a Lamborghini, a Ferrari!). They are simply beautiful. However as I got older my priorities and my goals have shifted, and I now have no desire to own one. "Drive a Ferrari" is still on my bucket list, but you see there are many other ways to get it done - I am thinking befriend someone who owns one (any volunteers? :)), or as a last resort rent one for a day - although that does seem a little wasteful and anti-Stealth.