Building Wealth

Hello Aspiring Chillers,

Core Principles

1. Cash Management (Budgets & Expenses)

2. Debt & Credit Management

3. Saving & Investing

4. Goal Setting & Planning

5. Risk Management (Insurance)

6. Taxes

As we continue our journey through the core principles, this week we delve into everyone's favorite topic: Saving & Investing! If you've diligently applied the first two principles, you're now poised to reap significant rewards.

If you're new here, make sure to check out the previous articles on Cash Management and Debt & Credit Management to get up to speed.

Why You Should Invest

Investing is essential for several reasons. Firstly, it allows your money to grow through compound interest, where your earnings generate their own earnings. This growth can help you outpace inflation, ensuring your purchasing power doesn't erode over time. Additionally, investing can provide a source of passive income, reducing your reliance on active income and giving you more financial freedom.

Where Can You Invest?

There are numerous avenues for investment, including:

• Yourself: Investing in your education and skills can yield the highest returns.

• Stocks: Purchasing shares of a company gives you partial ownership and the opportunity to benefit from its growth.

• Real Estate: Property investment can offer rental income and capital appreciation.

• Bonds: Lending money to governments or corporations in exchange for regular interest payments.

• Small Businesses: Owning a small businesses can offer high returns if successful.

• Alternative Investments: This category includes commodities, art, and other non-traditional assets, which can diversify your portfolio and offer unique opportunities for growth.

Where Do I Start?

The best starting point depends on your current professional and financial situation. The most impactful investment you can make is in yourself. Enhancing your skills can significantly increase your earning potential. There is an example below. Note that you can do this for far cheaper and sometimes free with YouTube!

Example: Return on Investment from Education vs. Stock Market

Let's say you're considering investing $10,000. You have two options:

1. Investing in Education: You decide to use the $10,000 to enroll in a certification course that enhances your skills and makes you more valuable in the job market. As a result, you land a new job that pays $20,000 more per year than your previous job.

2. Investing in the Stock Market: You invest the $10,000 in a diversified stock market portfolio, which historically has an average annual return of about 7%.

Return on Investment from Education:

• Initial Investment: $10,000

• Annual Return: $20,000 (increase in salary)

• ROI after 1 Year: 200% ($20,000 / $10,000)

• 5-Year Return: $100,000 (5 years x $20,000 increase in salary)

Return on Investment from Stock Market:

• Initial Investment: $10,000

• Annual Return: 7% (average historical return)

• ROI after 1 Year: 7% ($700)

• 5-Year Return: $14,025 (using compound interest formula)

Conclusion

In this example, investing in education yields a significantly higher return than investing in the stock market. The $10,000 investment in education leads to a $100,000 return over 5 years, compared to a $14,025 return from the stock market. While stock market investments are important for long-term wealth building, investing in yourself can offer immediate and substantial returns in the form of higher income.

Now Let's Invest

Once you've maximized your earning potential, it's time to diversify your investments. This is where you can start exploring stocks, real estate, bonds, and other investment vehicles. I'll be sharing my personal FIRE (Financial Independence, Retire Early) game plan to give you some insights into how you can strategically allocate your resources for long-term growth.

Check out my FIRE GAME PLAN to get started on your journey!

Coming Up Next

In the upcoming articles, I'll take you through a deep dive into my investment journey over the last decade, covering:

1. Education (Amazing this came out the day I wrote this article! If you can’t wait. I agree with 98% of this video.)

2. Retirement Accounts

3. Stocks

4. Real Estate

5. Cryptocurrency

6. Buying a Small Business

7. Starting My Online Business

These insights will provide a glimpse into the possibilities and help you navigate your own investment decisions. And remember, when in doubt, investing in S&P 500 ETFs has historically been a reliable path to achieving financial goals. The other options are just ways to potentially get there faster!

Stay tuned, as this journey is about to get even more exciting!