Automate & Autopilot: Build Wealth Systematically
Most people think building wealth is complex. You need to start your own business and make it big or be a super investor, Warren Buffet, genius. Both are myths and sometimes hold us back from taking simple steps to build wealth.
Building wealth is boring and easy if you follow a simple plan.
Pay Yourself First
The concept of Pay Yourself First is to first put away your savings from your monthly income into a savings account before you pay anything else. If you move the money from your daily checking account to a savings account, you don’t see the money.
First determine a monthly amount you want to save. If you receive two paychecks per month divide that by two. Set up automatic bank transfers on each day of your monthly paycheck to move that set amount from your general checking to a savings account. Done, you have paid yourself first. Consider it the slow cooker method of savings; set it and forget it.
You might already be using this method with your 401(k) and not even know it. Every paycheck, your HR department takes your 401(k) contribution from your gross pay and moves it to your investment account with your retirement provider. As part of your monthly budget you are likely focused on the net pay which already includes the subtraction for your retirement. Presto you are already saving!
Emotional Financial Roller-Coaster
Financial emotions can run very much like Leonardo DiCaprio in the Wolf of Wall Street and sometimes are heavily influenced by the news of the day. You do need to be informed of general financial markets, but don’t let your emotions get carried away.
In 2007 investors started panicking and we saw people lose lots of money. Some individuals even went so far as to take all their money out of the stock market in order to protect their nest egg. This has two inherent problems:
- If you are well diversified, you are naturally hedged against big swings in the market. Yes, you may experience losses, but remember, you are a long-term investor.
Much of the market panic and commentary is focused on banks, traders, and single stock swings. This type of news is not for you based on your investment strategy.
- Taking out all your money from the stock market means you need a crystal ball to know when to put it back in at just the right time. Typically, there is never a right time, just like so many other things in life.
Taking your money out or stopping your regular investment means you lose out on buying investments in a down market. Since you don’t know when to jump back in the market, you might buy too high when everyone is feeling more confident. And let’s not forget, you are not making money with the money you take out.
The path to building wealth is working with an advisor that acts like an educator, building a long-term strategy, and being boring. Set up monthly automatic draws and don’t let your emotions dictate your investment strategy.
Views expressed are not necessarily those of Raymond James & Associates and are subject to change without notice. Information provided is general in nature and is not a complete statement of all information necessary for making an investment decision and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Dollar cost averaging involves continuous investment regardless of fluctuating price levels of such securities. Investors should consider their financial ability to continue purchases through periods of low price levels. Diversification and dollar cost averaging do not assure a profit and or protect against loss. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed web sites or their respective sponsors. Raymond James is not responsible for the content of any web site or the collection or use of information regarding any web site’s users and/or members. Article provided by Brandon Chase, First Vice President, Investments, 817-871-4614, 420 Throckmorton Street, Suite 830, Fort Worth, TX 76102, Raymond James & Associates, Inc., Member New York Stock Exchange/SIPC.