Sunday, August 13, 2006

Saving is the Starting Point

Saving was the first thing I needed to do to create wealth. Sure, there are many stories of creating great wealth via new ideas and businesses. And these are valid ways. However, this was not the way for me, an average person.

First, what is wealth? Some define it as your assets, that is , what you own. Thus, if you have a $300,000 dollars in cars, houses, cash and property, your wealth is $300,000. I think it should be your net worth (assets minus debts). So if you own a million dollars $300,000 of assets with a $150,000 mortgage and $50,000 other debts, your wealth is only $100,000.

However, in this example, you also owe about $1000 per month in mortgage payments. So your wealth could quickly be eliminated if you miss a few mortgage payment. Therefore, I refine the definition of wealth to be my net worth which is constantly being adjusted by the net inflow/outflow of funds. To create wealth, I needed to create a net positive inflow of funds.

For me, that meant saving part of what I earned each month. The more I saved the wealthier I became. This was different than just owning more.

How much should one save? Depends on how fast you want your wealth to grow. I started at just 5% ( before taxes) and have raised it to around 25% today. Here is a quote from an article titled "Taking the Mystery Out of Retirement" by Laura Rowley. "One of the niftiest methods I've seen comes from Charles J. Farrell, a financial consultant and former tax attorney in Medina, Ohio. His bottom line? For a comfortable retirement, you need to save 12 percent of your annual pay starting at age 30 and pay off all your debts by age 65."

This is not financial advice. Please consult a professional advisor.

Copyright © 2006 Achievement Catalyst, LLC


Anonymous said...

$1,000,000 - $150,000 - $50,000 = $800,000. Am I missing something ior is that a type for your wealth = networth formula?

Super Saver said...


It is a typo error. Thanks for catching the mistake. The sentence should read "So if you own $300,000 of assets with a $150,000 mortgage ..."

I have corrected the error in the post.