Success in life is considered the result of a mixture of skill and luck, both relevant, however, the second is capricious and does not necessarily depend on what we do. It is true, we can try to reduce the relevance of luck by focusing on our skills, which we will exemplify on this occasion with perseverance.
If I asked for the formula to calculate the area of a triangle, most people would probably answer: base times height divided by two. Let us unfold this concept a little further, and define that our area of well-being will be represented by a triangle, which we are able to represent graphically. Thanks Descartes.
We will define that the “ base” will represent “time”, and the “height” the balance of our “wealth”. Now, if we wanted to maximize this area of well-being we have several options, increase the base, the height, or both.
Returning to the premise where success is impacted by luck and skill, let’s focus on what we can control, perseverance.
By this I mean, the sooner we start and become more consistent, we will be able to lay the groundwork to maximize our wealth. The rate at which this will grow may depend on several factors, such as, market performance, asset allocation, or your own portfolio, but it will be of little use to run with lots of luck, if the bases are not set.
A couple of tips
“If a $4,000 a month salary is not enough for your expenses, a $20,000 probably will not be enough either.” Those who fail to stick to a budget tend to maintain this bad practice despite achieving relevant increases in their income. And usually, this deficit also compounds in magnitude.
Experts suggest to start by following small rules of thumb, like getting used to saving 10% of your salary as soon as you join the workforce. Now, if you manage to subsist on a defined salary for 12 or 18 months, it is likely that by month 13 or 19 you can keep your lifestyle unchanged, despite having achieved an increase. Here it is recommended to maintain the rhythm of 10%, and, additionally, allocate half of said increase to your savings goiung forward.
If you had a $4,000 monthly salary, and managed to save $400 a month, by the time you got a rise to $5,000, this would add $1,000 to your income. Out of those $1,000, the 10% amounts to $100, and from the remaining $900, it would be wise to add $450 to your recurring savings. As such, out if your $5,000 monthly income, you should be saving $400 + $100 + $450, adding up to $950.
Now, taking into account that the power of compounding strengthens as time goes by, we are setting the perfect stage for our wealth “area” to bloom, aided by a lengthier base, and a higher height.
Let’s bear in mind that, compound interest does not only mean that our money works for us, but the accrued gains, as well, will eventually add up to this “workforce” hailing for our success, grinding to maximize our net worth. Eventually, monthly accrued earnings could, and should, outpace the size of our contributions.
We should rely on available tools, automation is currently the easiest way to fulfill this endeavor. As a matter of fact, automating savings can double your odds of achieving your financial goals.
“Experience keeps a dear school, but fools will learn in no other, and scarce in that.” Ben Franklin tried to emphasize that lessons learned by hard experience, usually charge a higher toll on people. In this case, following wise advice can save you a lot of money on tuition.
Increase the lenght of your basis, in order to elevate your wealth, and maximize your area of well-being.