What’s the Key to Building Wealth?
At first glance, building wealth and finances can feel overwhelming. Depending on where you look, you’ll get conflicting advice. Banks will tell you to open up a savings account or get a new credit card. You deserve it. TV commercials will tell you to get a new truck or a fancy sports car and then you’ll feel rich. You deserve it! Financial advisors will tell you to give them your money and they’ll turn $1,000 into $1 Million, just trust them. They know best, right? The internet will tell you to just buy as much bitcoin as possible and you’ll be the next crypto-millionaire. The internet knows best, right?
No wonder many people hope to be wealthy one day, but just don’t know how to get there. It can be disheartening and isolating. It’s enough to make you want to ignore your finances and just go about your day to day life… bury your head in the sand, dare I say.
But it doesn’t have to be. Below is an easy way to think about your path to building wealth.
You can become wealthy!
Building wealth doesn’t have to be so complicated. In fact, we are going to make it so simple that even your kids will be able to understand the basic rules of wealth-building.
Let’s imagine we have a large bucket filled with water. This water represents money in your life – your “liquid wealth”, if you will! At the bottom of the bucket is a tap. This tap is always open and water is flowing out. This is the water that we drink to keep us happy and healthy, representing our expenses. Now every two weeks or perhaps twice a month we get a chance to replenish our bucket with more water. This is our income.
The aim is to never run out of water to drink and always have extra water in case our regularly scheduled refills don’t take place. That could be because there is either a planned drought or an unexpected naturally occurring drought. Either way we never want to have such a long dry spell that we run out of water to drink.
Simple enough to understand. Don’t run out of water!
In this example there are only two things that we can control:
- The tap and how much water we are letting out of our bucket;
- The frequency and size of inflows of water added to our buckets.
Controlling the tap
Let’s look at the open tap on our bucket. Now there is no way to permanently close the tap but we do have ways to limit how much water is flowing out at one time.
We can turn it off from time to time or when we aren’t particularly thirsty. We don’t always have to have it open 24 hours a day.
Another option is to turn the tap down to a drip versus fully open. This ensures we don’t waste water and only use what we truly need.
Often these two methods of controlling the tap can ensure that your bucket never runs out of water, and hopefully means you need to get a bigger bucket!
Unfortunately just controlling the tap is not enough. We have to drink water or else we’ll get dehydrated and our health will suffer. So there’s a limit to how much we can turn off or limit the water leaving the bucket through our tap.
That’s where refilling the bucket comes into play.
Refilling your bucket
Now the other way to ensure your bucket is always full of water is to increase how often your bucket is refilled, and how much water is in each refill.
Let’s take how often your bucket is filled. If you currently fill your bucket once or twice a month, you could either find a way to increase the number of refills you get per month or the number of people refilling your bucket. This is one way to ensure you are always adding more and more water to your bucket.
Another option is to increase the amount of water you get at each refill. If you only get one or two refills per month that’s okay. But is there a way for you to get more water in your bucket? Say you are able to double the amount of water you get at each refill – soon enough you’ll need to get a bigger bucket!
The name of the game is keep your bucket full!
It’s simple to understand that we want to be able to drink water any time, without having to worry about running out. We have the ability to increase how much and/or often our bucket gets filled and we can limit the amount of water that flows out of our bucket each month.
It’s pretty clear that if we spend more money than we earn we are going to get thirsty and end up in a dry spell.
This concept is the basis of building wealth and living a rich life. Follow Ostrich on Medium!
Now check out Investing Part 1: Retirement Accounts and Investing Part 2: Short-Term. As well as our other 101 guides such as financial goal setting, debt 101, giving guide, and saving & budgeting 101.
