How to Build Real Wealth (and Why That Path Can Be a Difficult Journey)

The path to real wealth is a difficult journey. That’s why most people don’t make it.

Like any difficult project, it pays to build a plan before you start. If you want to climb Mt. Everest, you plan your route, your supplies, and your timing with your guide. If you build a house, you plan the project, the timeline, and the budget with your general contractor. Unfortunately, most people spend more time planning their next vacation than they do their financial life.

If you want to know how to build real wealth, the first thing to realize is, it doesn’t happen by accident. You have to be intentional. You have to decide it matters to you and commit to making the decisions and taking the steps necessary to get there.

Not everyone wants real wealth (at least based on how they behave when investing money or saving money). That’s ok. You don’t have to. But real wealth can improve the lives of the people you love. It can enable you to benefit the causes you care most deeply about. It allows you to pursue the projects you’re most passionate about. It allows you to spend time in the places that feed your soul.

But you won’t get there unless you decide to do it on purpose.

Building a Plan is the First Way You Show Commitment to Your Goals

For many people, the idea of building a financial plan conjures up images of rifling through years of old tax returns, scrutinizing the minutiae of their spending activity, and carefully studying interest rates and stock market behavior…much more detail than they really want to slog through.

Good.

It’s the first opportunity we have to demonstrate our commitment to the goals we say we care so much about. Nothing worthwhile in life is easy.

You want a good marriage? Great! Put in the work.

You want kids that you’d actually enjoy hanging out with? Wonderful! Put in the work.

You want to reach meaningful financial goals? I love it! But it’s going to take work.

The good news is, a caring financial advisor can guide you every step of the way and, as with most things, once you get started, it’s actually pretty rewarding. Oh, by the way, it also doesn’t require sifting through old tax docs or becoming an expert on Roth IRAs. A good financial advisor can handle that for you.

Building a Plan Helps You Understand Exactly What It Takes to Reach Your Goals While Keeping You Motivated

When you build a financial plan, you have to find out exactly how much you’ll need to save each year, for how long, and what rate of return you’ll need to achieve the goals you’ve set. That process and those results can be intimidating, but at least you’ll know! Knowing what you’re getting yourself into ahead of time can help motivate you, especially through the hard times.

When my baseball coach in college was mad, he’d make us just start running. No time limit. No prescribed number of laps. No goal. I couldn’t stand it. The questions kept running through my head.

Why am I running? What is all of this for? When will it end?

Without a goal in mind, my motivation was non-existent. I sure didn’t want to run like we were only going for 5 minutes if we were actually going to go for 30. Without knowing what we were trying to accomplish, my team got tired faster and lost motivation sooner. Without a plan, we never feel a sense of direction.

The same is true for your financial life.

Building a Plan is the Foundation of Your Portfolio Strategy

Without a financial plan, how can we know the best investment vehicle to take you there? It’s a bit like asking a travel agent to arrange your travel when you don’t know where you want to go.

You: “I’d like to go somewhere really nice.”

Travel Agent: “That’s great! We’d love to help you get there. Where did you have in mind?”

You: “I’m not exactly sure but I read the prospectus for this particular type of airplane and I’m sure I’d like to travel on one of those.”

Travel Agent: “Well…we can definitely get you on one of those airplanes, but it may not take you where you actually want to go.”

Seems a bit silly doesn’t it? But people do this in their financial lives all the time! They’ll have a friend or family member get really excited about some investment (a particular stock, flipping houses, private equity funds, hedge funds, Bitcoin, gold, etc.), or they’ll read an article about the returns some investment got over the last 6 months (or even 6 weeks!) and decide that investment must be a part of their portfolio.

Notice, I said “part of their portfolio”, not “part of their plan” because if they had a plan it would have settled them on an investment strategy from the outset and not allowed the poor soul to be tempted by the latest, greatest investment idea they came across.

In your financial life, particular investments are the vehicles to get you where you want to go. Building a plan identifies where you want to go first so you can use the right planes, trains, and automobiles to get there.

Without a Plan You Will Lack Focus and Discipline

In many (maybe even most) businesses, when the key leaders get together to decide on their most important objectives, they end up with a giant list of things to do, opportunities to pursue and processes to improve. The businesses that refuse to thin their list are doomed to mediocrity. Those that will narrow their focus to the 3-5 most important items and discipline themselves to actively avoid working on the rest of the items are the ones that have breakout successes.

The same is true of our personal finances. We must be intentional. We must be focused on the most important goals we set. We must consciously avoid shiny object syndrome which dooms us to make an inch of progress in a host of different directions. Only then will we be able to make massive progress in a very few directions.

A financial plan provides that focus.

To build wealth, your plan should start by listing out the most important things you want to achieve in your financial life — complete financial independence, a lifetime income you can’t outlive, multi-generational wealth, business continuity, paying off student loans, generating a passive income — and those become the 3-5 areas of focus in our financial lives. We then have to realize that anything that takes away our focus, that draws away money, time, or energy from the pursuit of those goals is a distraction and we have to actively avoid pursuing it.

The plan keeps us on track. The plan guides us to ignore the exciting investment opportunity our cousin wants us to get in on or the new investment scheme from Wall Street or the new Tesla that is such an incredible piece of engineering and technology. There may not be anything wrong with those things in and of themselves, but to the extent they impair your ability to reach your goals, they are detrimental to your life.

The plan makes that clear and forces us to consciously decide what we care about most.

It forces us to live our lives on purpose.

A Plan Gives You a Yardstick to Measure Your Progress

Any plan worthy of the name lists out your goals in dollar-specific, date-specific terms.  As you work your plan through the years, you then have a way to measure your progress that actually applies to your life.

Many people mistakenly measure their financial success by comparing how their investment portfolio performed versus some arbitrary benchmark index. They’ll only be happy with their progress if they beat the S&P 500 for example. But to illustrate what actually matters, would you rather underperform the S&P 500 for 20 years straight but still reach all of your financial goals, or beat the S&P 500 every year and not achieve any of your financial goals?

Certainly, they don’t have to be mutually exclusive and I don’t want to imply that investment performance doesn’t matter. But the reality is, the most important thing in your financial life is whether or not you are making steady progress toward the long-term goals you’ve set.

When you have a plan, you can compare against that every step of the way.

A Plan Gives You a Framework to Adjust to the Curveballs Life Throws Your Way

Life is going to push you off course. Sometimes in a good way – the sale of a business or an inheritance – and sometimes in a bad way – the loss of a job or an illness. Your financial plan guides you how to get back on track.

You re-run the numbers to determine what changes you need to make (saving and investing more now or down the road, retire later, spend less in retirement, change the portfolio to aim for a higher rate of return, etc.) to get you back on course over time.

Life never goes exactly as we plan, or as we’d like. We have to have a way to roll with the punches and the financial planning process gives us that. To learn more about how to build real wealth and get started creating your own retirement plan, download a free copy of our eBook, “How to Retire with Confidence and Clarity” and join our Retirement Income Academy course!