Let’s go over the top five best daily acts to build wealth.
Building wealth is a lifelong process. It’s essential to focus on long-term goals and needs, which can make it difficult to keep up with daily acts to build wealth. But to achieve your long-term goals, you first need to meet your short-term goals.
Why Focus on Daily Acts?
On this blog and most peoples’ blogs, long-term impacts are focused on more than short-term. It’s more impactful to tell someone they could be a millionaire if they saved $500 / month for 30 years. It’s less exciting to say you could have that $500 that month if you do blank.
To remedy this situation, think about the long-term impact of a given short-term financial success. For example, think of saving $300 / month on rent as $200,000 in 20 years when invested in the stock market. This is called “opportunity cost“. Think of opportunity cost as the amount of money you are giving up in the future by spending a given amount of money today. This mindset will help you appreciate the long-term gravity of a short-term financial decision.
Be careful though. It’s easy to take this mindset too far and stop yourself from enjoying anything. That burger could be $40 eventually. Don’t forget to factor happiness and value into this equation. If an item will bring your life value, then it’s likely worth it. After all, we are all so interested in earning money to spend it, not just watch it grow.
What Does it Mean to “Build Wealth”
“Building wealth” goes far beyond just saving money now to have more in the future. Of course, that is part of it, but that is just the tip of the iceberg.
The real wealth-building potential is in growing your money and learning to earn more money in the future. You could make a decent salary and good benefits, and struggle to retire if all you do is save. I have seen it myself with many people before. Not sure if they can retire at 65 after making good money their entire lives, but all they did was save. Save money for the sake of letting the pile of cash underneath their mattress grow.
In my opinion, saving is one of the biggest lies we are told. Again, yes yes saving is important. But, all of that BS about quitting your lattes to get rich is laughable. None of those people got rich by quitting their lattes. They got rich through some combination of luck, hard work, and privilege, just like everyone else.
So instead, think of “opportunity cost” in relation to earning money. If you can make $100 more today (the cost of a burger. At least at Wendy’s) you could eventually have $700 when invested. This will shift your mindset from “Oh I shouldn’t buy that” to “Oh I should do that to make money”.
This Post will Present 5 Daily Acts to Build Wealth
1. Spend on Value, Save on Excess
I spoke about this a bit above, but value is what truly drives what you should save vs. spend on. To bring it back to the latte and speak from my personal experience, for many people a latte brings value. It can bring hours of comfort and enjoyment when sipping it, has little impact on health, brightens your day, and provides motivation, all for a few bucks. I would call this a solid return on investment.
Not every quick and easy food item is valuable though. A daily burger for example. Though it may be fun for 10 minutes, after that you’ve got nothing left except for bloating and regret. Not to mention the impact on your health. To me, this would be an example of a cheap excess that doesn’t provide a great amount of value.
Scale It Up
We can scale this theory up, too. Spending an extra $200 / month may get you a nice patio, but will you derive value from it? If you are such a hopeless romantic that you spend every morning sipping coffee while the sun rises, maybe it is. That hour of enjoyment every single morning may be worth it. But if you prefer to be inside with air conditioning and fewer blood-sucking mosquitoes, maybe not.
When you spend money on something, you are trading money for something that you believe has the same monetary value as you put in. Thus, it is the same for investments. For example, in the stock market, you are trading money for a share of a stock valued at that same amount. This brings value to your life because you expect that stock to rise in value over time, eventually bringing you returns when you sell.
Lastly, think about spending money to better yourself. Purchasing a gym membership or taking a course related to your side hustle are examples of this. Both of them require you to put in decent sums of money, but both of them are investing in your biggest asset: yourself. You are your single biggest money-making tool, making you the most important asset to grow and invest in.
Framing your mindset in this way will make it easier to decide to invest as you don’t just see it as saving, you see it as spending money on something that will bring you immense value in the future.
For a solid framework of spending on needs vs wants vs savings, I tend to recommend the 50-30-20 rule as a good starting point. I have an automated worksheet that can help guide you to your desired expense ratios. Download it below, or here.
2. Think Long-Term
It’s important to be honest with yourself when trying to achieve a goal. It’s not really about skipping out on that one Philly cheesesteak or not buying that new pair of shoes. It’s about what you could be doing with that money in the long run.
Think back to above when I talked about opportunity cost, the long-term cost of missed opportunities due to short-term spending. Opportunity cost exists with absolutely every purchase you make, good or bad.
Ideally, your spending provides equal value (monetarily or personally) to its opportunity cost. This would be something like investing excess funds or reinvesting them into the business. This is the best-case scenario for these funds, with the highest returns you could hope for. Thus, the opportunity cost is equal to your real cost. Or, spending reasonable money on rent, allowing you to have a safe place to live.
Other times, your spending provides lesser value than its opportunity cost. This doesn’t mean a bad decision was made though. We all have to use money once in a while to stay sane. No one is a robot (yet). Spending on a new pair of shoes that bring you enjoyment for years may not result in a zero opportunity cost, but we all need shoes.
Shift Your Mindset
The important thing is having a long-term mindset. I would say at minimum five years into the future. I don’t mean have the next five years of your life planned out, just recognize the ripple effects of your decisions today.
Think of the butterfly effect. This theory is based on the idea that a butterfly flapping its wings on one side of the world can cause a hurricane on the other. The extra wind provided by that butterfly was just the amount of force needed to begin the storm.
I know, a very dramatic analogy, but a useful one regardless. Every financial decision you make now, even seemingly small ones, will have a disproportionately large long-term effect. Even effects that you don’t see coming. Maybe saving that extra $100 allows you to jump on an opportunity to invest in a friend’s startup six years from now that wouldn’t have been accessible otherwise. Or maybe investing that $200/month now will allow you to retire when you wouldn’t have otherwise been able to.
3. Saving Isn’t Enough
I have seen far too many people fall into the trap of saving everything they can and not getting where they want to go. I don’t want you to be one of those people.
It makes logical sense. The less you spend, the more you save, and the more that is leftover to cover you for retirement and/or emergencies. But sadly, unless you are making boo-koo bucks, this won’t cover the kind of life you want in retirement. Let’s say you save 20% of your paycheck which is often recommended. For every four years you work, you have saved enough to cover one year of expenses. This would mean thttps://www.investopedia.com/articles/investing/093015/why-saving-10-isnt-enough-get-you-through-retirement.asphat after working for 40 years until retirement, you would only have 10 years of expenses saved.
Of course, if you are able to boost your savings rate to 50, 60, or 70%, it will be more favorable. You may be able to cover 45 years of expenses after saving for only 30. However, this is not feasible for most people. Most people make what they need, have some leftovers for saving and fun spending, and that’s it.
Let’s Make Money
Instead, I find it more powerful to focus on the other side of the equation: income. You are only ever able to save as much as you make. But you can make a theoretically infinite amount of money.
Most people’s moneymaker will be their day job. It is completely understandable for it to stay that way. For a lot of people, it isn’t realistic to quit your day job and focus on something else. This would likely result in far less stability and income, at least in the beginning.
Instead, I strongly advocate for having some kind of side hustle. Understand I don’t mean you have to “rise and grind”, spending every spare minute in your day working on your side hustle. Having a side hustle is one of the most powerful daily acts to build wealth.
This side hustle can be something as simple as setting up a brokerage account and beginning to invest. Literally only put in enough time to open an account and set up automatic investments in a fund that follows the overall market. I cover the overall basics of the stock market in my post on the basics of the stock market.
If you are interested in starting investing as a side hustle, I have an entire post on passively investing in the stock market. That post goes over generating passive income through the stock market with very minimal input. It is far more passive than any other side hustle I am aware of.
A side hustle could also be something you are passionate about. It doesn’t have to be something that will make you rich. Just something that can earn you additional income and more importantly, open you up to more opportunities. Opportunities are what lead to true wealth.
You very rarely hear of anyone getting rich off of strictly saving. It practically doesn’t happen. So work to break that pattern by furthering your income in some way.
If you are unsure how to go about starting a side hustle, check out my post on how to start a digital side hustle. There are innumerable resources out there on side hustle ideas, so instead, I focus on the actual hurdles and important mindsets to start a successful side hustle.
4. Be Ready for Opportunities
Some people are able to get rich simply by saving their high wages for decades and decades, or others invest enough to help them grow towards retirement. But if you are serious about building wealth, as I would guess you are based on your reading this, then there are infinitely more powerful and exciting options than these.
I love the concept of increasing your surface area to opportunities. Opportunities are flitting by every single second of your life, you just don’t have the surface area pointing in just the right direction to catch it. At any given moment, some company is quadrupling its value, someone is looking to employ someone with your skillset, or someone is hunting for the services your side hustle provides but can’t find you.
Any action you take that exposes you to a new situation (BETTER WORDING?) is increasing your surface area. Something I talk about constantly here is the stock market. The stock market gives you additional surface area related to company growth. Depending on who you decide to invest in, you are now able to benefit from the growth of a company you own part of. Previously, that company would have grown with or without you. But now, you are there to ride the wave.
Another example is a side hustle. Starting a side hustle in making online crafts on Etsy for example opens you up to the opportunity of rising demand during certain holidays. Or the possible future success of Etsy. There is no guarantee that this rise will happen, but having a foot in the door ensures that if it does, you can benefit from it.
Be Able to Accept Opportunities
Being ready for opportunities also includes being willing and able to jump on them when they appear. A big reason why people can’t take advantage of opportunities is short-term financial risk. This can be alleviated by something I strongly advocate for which is a rainy day fund.
I discuss a rainy day fund in more detail in step two of my three steps to build wealth. For now, just think of it as money that is available to help you bridge that gap in income.
Now, if someone comes to you with a business opportunity, you will be able to put your all into it without worrying as much about money. You have now increased your surface area to accept those kinds of opportunities.
5. Find Something to Satisfy You
Ok, so this is a weird one.
Focusing less on specific financial decisions, I think it’s important to recognize the other parts of your life that affect your ability to focus on your finances. Unless you are superhuman, you won’t be able to subsist on nothing but work all day long.
Something that has worked very effectively for me is generating a source of self-satisfaction from another source. This could be anything. Something like a sport, playing a musical instrument, or working on a craft like art.
For a lot of people, excess spending comes from seeking a new source of satisfaction. Spending time learning a new device or picking out outfits feels satisfying in the short term. I have found that having something more productive to focus on alleviates that nagging feeling of getting something new for fun.
If you want, this could be combined with the last step as your side hustle. I would only caution that this could make it easy to get burnt out by becoming too absorbed by working all the time. If you are able to control your impulses to work and take time to relax, and if your side hustle isn’t too stressful, this is a fantastic option.
An even better option in my personal opinion is to separate this source of satisfaction from work of any kind. The effect clearing your mind has on your productivity is underrated as it seems from the outside that you aren’t focusing as much on work as you could otherwise.
To speak from my experience, basketball is this for me. I will never be good enough to earn any money or “further” my life in any way. But, when I am playing, I think about absolutely nothing else but the moment in front of me. I come home physically exhausted but emotionally motivated to work my ass off and achieve what I set out to achieve.
Building wealth is all about taking action to set up your future to be as full of success as possible. A lot of what holds us back in the present are relatively unimportant issues that get stuck in our heads. An outside source of satisfaction can give you a blank slate to focus on your goals with renewed vigor.
I’m gonna guess that these daily acts to build wealth weren’t what you expected. I’m sure you were thinking more along the lines of don’t buy that latte and boom you’re rich. But that’s not how I think.
Instead, I feel that so much of growing financially is linked to mindsets and the actions that impact those mindsets. Having the right mindset is vital to set you up to succeed in any way you want, including financially.
In the short term, I would recommend working on how you think about money and making money before you hone in on just “making money”. Making money is about setting up systems and mindsets and letting those systems and mindsets do their damage in the long run.
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