Seven Steps for Building Wealth: Step #1

Written by Dave Young, President of Paragon

Many people believe that accumulating wealth is a random event. Or it is pure luck that determines who is wealthy and who isn't.

It is true that occasionally someone wins the lottery or receives an inheritance and becomes wealthy, but usually immediate wealth is temporary. Studies have shown repeatedly that most widows who receive a life insurance death settlement either spend, loan out or lose the money they receive within three years of receiving it.

In order to build wealth, you must follow certain rules. In order to keep wealth, you must follow those same rules. If you never learn the rules or don't have the discipline to follow them, you will not build or keep wealth.

I'd like to offer you seven sound steps for building wealth.

Step #1—Start Now

Albert Einstein said, “The most powerful force in the universe is compound interest.” For compound interest to be truly powerful, it must have the benefit of time. The more time the better.

For example, compare two investors who each put away $2,000 a year and earn 10% annually. The first investor starts at age 19 and puts away $2,000 per year for eight years in a row and then holds it there. The second investor waits eight years before investing $2,000 per year for 38 years. At the end of the 38 years, the first investor’s account will have grown to $941,054. The second investor’s account will be at $800,896. The first investor invested $60,000 less but ended up with $140,158 more.

The other factor affecting compound interest is the rate of return. Everyone knows that a higher rate is better than a lower rate. What most people don’t realize is that the benefit is exponential. A 15% rate of return is not merely three times more than a 5% rate of return. It can actually be anywhere from seven times to seventy times more depending on how long you’re investing it for. Small increases in rates of return make an enormous difference in the long run.

There will always be reasons to begin saving later, but as you can see, holding out for the perfect circumstances can be very costly. The sooner you start, the greater the effect of compound interest.

To be continued...