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Welcome to the 30th edition of the Tech Financial Planning (TFP) newsletter.
Whenever we hear about wealth, we mostly think about the uber wealthy and the overnight successes.
If you're looking for a magic formula for getting rich quick, you're in the wrong place.
But if you're ready to learn the secrets of building wealth slowly and steadily, read on.
TL;DR
Consistent investing over long periods of time is a superpower
A few financial mistakes can erase decades of hard work
Secret 1: Doing average things over a long period of time
Let’s say you graduated college at 22 and started investing $1,000 / month.
You did that for the next 40 years, never increasing the amount, and to keep it easy, had an 8% return each year.
At 62, you would have $3,221,079.35.
Now let’s say you didn’t get an early start.
Let’s say you waited until you were 32.
Same scenario.
At 62, you would have $1,408,550.59
By starting 10 years earlier, you would have an extra $1,812,528.76.
And yes, you would have invested an extra $120,000, but that’s massive growth just by starting earlier!
Similarly, Warren Buffett is regarded as one of the greatest investors of all time.
His big secret?
Time
He’s made 90% of his wealth since age 65.
I see this with our clients too.
Our most successful clients have one thing in common.
And no, it's not that they make the most money.
It's this:
They make consistent investments over a long period of time.
Most of them started early in their working careers and continue to do so.
Each month, they contribute to their retirement accounts and brokerage accounts.
The big keys
They make it automatic.
They don't wait for market conditions to be "just right."
They don't invest when they feel like it.
They do it like clockwork.
It's easy to get lost in what accounts and what investments.
Those things matter, but not nearly as much as putting money away.
It's like rolling a snowball down a hill.
At first, it picks up steam slowly.
But over time, it can't be stopped.
Secret 2: Avoiding Big Mistakes
My great uncle had a farm in central Illinois, and he worked it for decades.
He built barns and sheds and acquired all sorts of tools, tractors, and equipment.
And sadly one day a tornado came through.
I remember him saying “what took me 60 years to build up, a tornado destroyed in 60 seconds.”
Now obviously he can’t control the weather, but if we remove the uncontrollable, a few ill timed mistakes can erase decades of hard work.
Big financial mistakes like:
Having too much wealth in your company stock if it tanks
Too much debt / leverage (hello 2008)
Having investments in cash
Selling / buying out of fear / greed
Not having the right insurance, or enough of it.:
Putting it all together
If your goal is to become the next Elon Musk or Jeff Bezos, you should probably look elsewhere.
But if you want to create financial independence, retire earlier, buy a vacation home, spend more time with kids, etc, this is the way.
It’s not glamorous.
And it will pale in comparison to the person who hits it big on the next Gamestop or Bitcoin.
You will question it when others make bigger, sexier moves.
But it works.
Doing average things over long periods of time and avoiding big mistakes.
If you can do that, you will be successful.
WANT TO WORK 1:1 WITH ME?
If you're a tech employee feeling stuck and want to work on:
Building a systematic approach to building wealth
Making the most of your equity compensation (stock options, RSUs, etc)
Maximizing your cashflow
I only take on 1-2 clients each month.