The Key to Surviving and Thriving in an Economic Winter
(Lesson #1 – Understanding the Process of Wealth)
Let me begin by saying that it is my belief that we are in a long economic winter which will be different than any of us have faced in our lifetimes. At the core we will see the greatest global de-leveraging in the history of society. My goal is not to debate or explain my conclusions in this blog. If you think differently, then I respect your opinions and whatever choices you feel are best for your future. However, history teaches us a very important lesson – adversity and chaos are often a catalyst to opportunity. We just need to understand how to play the game.
The question I’d like to address is this: How do I win the game in an Economic Winter? In particular, how do I win the economic game? This blog is only part one in answering those questions. First, to win any game, you need to understand how it works, so let’s begin by looking at how we accumulate wealth.
Step #1 – We have to have a source (or sources) of income. It is hard to pay the bills when you don’t have money coming in.
Step #2 – We have to be able to live under our means. No matter how much you make in life, you have to spend less. That is 101 of Wealth Accumulation.
Step #3 – We have to be able to accumulate wealth. The ultimate goal is to have your investments and assets work for you so that you have more choices and time freedom in life.
Income - For most people, income is generated from working a job. For about 28 million Americans, they own their own business. Then there are the fortunate few who have enough money/investments, and can live from the income produced from those investments. So what are the primary goals when it comes to income? First, try to maximize it. Maybe that is having your own business. Maybe that is focusing your time better on activities that drive income. Maybe that is getting paid better for your value in the marketplace. The strategies vary but the main goal is to make more money regardless of your strategy. Second, try to take control of your own destiny. To many, a bad economy is often a sad reminder of the consequences of dependency (whether on a job or a relationship). Any strategy that gives you more control of the income creation process will likely provide financial momentum.
Living Below One’s Means - In my opinion, this is a simple concept to understand but apparently a hard one to practice in real life. Very few people live under their means. Before 2008, the average American consumer spent 6% more than they earned for the six prior years. In just one year that changed to the average American saving 3%. Why such a big swing? The reality and severity of the economy caused change in consumer behavior. For the first time in years, consumers are now trying to live under their means. They are moving away from debt (de-leveraging). For many this is a very painful process because the debts of the past have become an anchor to surviving in today’s economy and thriving in the future. Some believe that consumers will eventually return to living over their means. I tend to believe that this economic downturn is different, and we will see a paradigm shift in consumer behavior. I also believe this is a global change, not just a shift in American behavior.
Wealth Accumulation – I have lost track of how many failures I have seen in this area of the process. First, people fail to understand the core principle of Accumulating Wealth – Risk Management. Here is a simple way to understand risk management. If you avoid mistakes, the rest takes care of itself. In other words, you don’t want to dig a hole that is too big to dig out of in the future. Second, people fail to learn that your two biggest risks in the wealth accumulation process are (1) a lack of education and (2) people. Almost without exception, every investment mistake I have seen in life was due to a poor relationship selection. Equally, those choices were made because (1) the investor didn’t have enough knowledge to understand the character and value of the investment professional, and/or (2) greed took priority over risk management.
The simple path to accumulating wealth can be summarized as follows: Maximize income, live below your means, and avoid mistakes so your money can support the income process (and elevate lifestyle) over time. Understanding this process is important as I expand upon the concept of Surviving and Thriving in an Economic Winter.
Next Lesson: The Key to surviving and thriving in the future is CREATING MORE INCOME. My next blog will explain how I came to this conclusion. It will look at the limitations of budgeting as a means to drive the wealth accumulation process. It will discuss how things out of your control (taxes, fees, inflation, etc.) will create the biggest money grab in the history of society. In the end, it will help you understand that if you really want to create financial momentum, your best chance is to drive the income process.
This is Your Wake Up Call – Part I
(Lesson #1 – Understanding the Process of Wealth)
Let me begin by saying that it is my belief that we are in a long economic winter which will be different than any of us have faced in our lifetimes. At the core we will see the greatest global de-leveraging in the history of society. My goal is not to debate or explain my conclusions in this blog. If you think differently, then I respect your opinions and whatever choices you feel are best for your future. However, history teaches us a very important lesson – adversity and chaos are often a catalyst to opportunity. We just need to understand how to play the game.
The question I’d like to address is this: How do I win the game in an Economic Winter? In particular, how do I win the economic game? This blog is only part one in answering those questions. First, to win any game, you need to understand how it works, so let’s begin by looking at how we accumulate wealth.
Step #1 – We have to have a source (or sources) of income. It is hard to pay the bills when you don’t have money coming in.
Step #2 – We have to be able to live under our means. No matter how much you make in life, you have to spend less. That is 101 of Wealth Accumulation.
Step #3 – We have to be able to accumulate wealth. The ultimate goal is to have your investments and assets work for you so that you have more choices and time freedom in life.
Income - For most people, income is generated from working a job. For about 28 million Americans, they own their own business. Then there are the fortunate few who have enough money/investments, and can live from the income produced from those investments. So what are the primary goals when it comes to income? First, try to maximize it. Maybe that is having your own business. Maybe that is focusing your time better on activities that drive income. Maybe that is getting paid better for your value in the marketplace. The strategies vary but the main goal is to make more money regardless of your strategy. Second, try to take control of your own destiny. To many, a bad economy is often a sad reminder of the consequences of dependency (whether on a job or a relationship). Any strategy that gives you more control of the income creation process will likely provide financial momentum.
Living Below One’s Means - In my opinion, this is a simple concept to understand but apparently a hard one to practice in real life. Very few people live under their means. Before 2008, the average American consumer spent 6% more than they earned for the six prior years. In just one year that changed to the average American saving 3%. Why such a big swing? The reality and severity of the economy caused change in consumer behavior. For the first time in years, consumers are now trying to live under their means. They are moving away from debt (de-leveraging). For many this is a very painful process because the debts of the past have become an anchor to surviving in today’s economy and thriving in the future. Some believe that consumers will eventually return to living over their means. I tend to believe that this economic downturn is different, and we will see a paradigm shift in consumer behavior. I also believe this is a global change, not just a shift in American behavior.
Wealth Accumulation – I have lost track of how many failures I have seen in this area of the process. First, people fail to understand the core principle of Accumulating Wealth – Risk Management. Here is a simple way to understand risk management. If you avoid mistakes, the rest takes care of itself. In other words, you don’t want to dig a hole that is too big to dig out of in the future. Second, people fail to learn that your two biggest risks in the wealth accumulation process are (1) a lack of education and (2) people. Almost without exception, every investment mistake I have seen in life was due to a poor relationship selection. Equally, those choices were made because (1) the investor didn’t have enough knowledge to understand the character and value of the investment professional, and/or (2) greed took priority over risk management.
The simple path to accumulating wealth can be summarized as follows: Maximize income, live below your means, and avoid mistakes so your money can support the income process (and elevate lifestyle) over time. Understanding this process is important as I expand upon the concept of Surviving and Thriving in an Economic Winter.
Next Lesson: The Key to surviving and thriving in the future is CREATING MORE INCOME. My next blog will explain how I came to this conclusion. It will look at the limitations of budgeting as a means to drive the wealth accumulation process. It will discuss how things out of your control (taxes, fees, inflation, etc.) will create the biggest money grab in the history of society. In the end, it will help you understand that if you really want to create financial momentum, your best chance is to drive the income process.
Until Next time, keep moving forward.