How Difficult is it to Save and Accumulate Wealth?


Saving and accumulating wealth does not have to be difficult. It is a mindset. The key is to start early, whether it be right from your first allowance or the first job that provides you with a paycheque.


The standard rule is to PAY YOURSELF FIRST. This means that at least 10% of whatever you receive goes to a separate account that you do not draw from. How do you do that? By simply opening such an account with your local bank, and instructing them to take that money right out of the account that your income is deposited into the minute that it is deposited. For example, if you are making $5,000 per month (net after taxes), the bank will automatically take $500 from your payroll deposit and put it into your new savings account. If you do this from the day you collect your first paycheque you will realize that you can live quite easily without it because it was never there to begin with. If you have not been doing this and start doing it, you will find for a month or two that you may notice it, but interestingly you do adjust rather quickly.


There are often many excuses made for why one does not make enough money to save: there is rent, food, work clothes and taxes. All very valid reasons. However, the choice to rent a more expensive place is often bound by items we choose such as wanting a smaller commute. The choice of food is also a choice of what you want to spend: eat out or eat in, cheap restaurants or expensive ones. Taxes, we have no control over (except when we vote so it does matter to do that). How about those daily habits? That daily beverage from Starbucks that can cost as much as $6.00! Multiply that times roughly 250 work days per year and you have $1,500 a year that you could be saving. That’s a lot of money. In fact, if you invest that $1,500 each year at an average of just 4%, over 10 years it will be worth $18,000. The point is you have more choices than you think, and making just one smart choice a day could change your life down the road. Living below your means when you are in the accumulating phase is always a smart financial decision. It is easier when you are young to tolerate small apartments and less expensive clothes.


When you are starting out, this is the time to accumulate assets that will give you the independent freedom to enjoy yourself down the road. This does not mean you have to be cheap. That is not a good quality to have and can often destroy relationships. But it does mean that you should think before you spend. Just ask yourself this question: do I want it or do I need it? More often than not, the answer will be I want it. Once in a while it is ok to splurge and spend on something that you want, rather than what you need. But if you truly want to create wealth, then focusing on need versus want will be a tremendous help. By the time you are 30, it is a lot more empowering to have enough money in the bank for a down payment on your first home (usually one’s first big asset) than it is too have a closet full of expensive clothes you no longer wear. The goal should be to spend wisely until you are around 45-50 years of age and accumulate as much wealth as you can.


Once you have accumulated wealth, having money should not be something to apologize for. Money allows you to buy material things or have (often expensive) unique experiences which do provide pleasure. At the very least it does provide more comfort in your life, if not fun. Whether it is inherited or earned, once it has been accumulated it is well worth enjoying it. So how does one do that best?


It is important to remember that the overall amount that you have accumulated is your investable capital. If you spend that, you will be back to your most poor days. So the key is to have the most fun with your money, yet maintain your same level of wealth and allow it to keep growing.


Assume for example that you are now 45 and have managed to pay off your house, have no debts and you have a million dollars in the bank free and clear to invest. The key is to focus on what that million dollars can generate for you to use and enjoy, while it remains invested safely so that it can continue to grow. This way you can have two million in the bank by the time you are 55 without having to save much more.


So what does a million dollars generate? If you buy the safest of government bonds, today you would be hard pressed to get much more than $20,000 (pre-tax) to spend. But if you invest it with a few dividend paying stocks you could perhaps move closer to $30,000-$40,000. But remember: the actual capital of the original one million dollars is not being touched and if invested wisely, the power of compounding will work in your favour and each year you will have more to spend!

So, start saving! It is never too early or too late to begin generating wealth!

The Summerhill Team

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