Wealth Creation is no rocket science. It is possible for anybody & everybody – irrespective of how little resources one is starting out with. Wealth gets created by consistent application of few proven financial processes over a length of time. It is time-tested certainty. Of course, for creating the kind of wealth that gets one into exclusive club of super-rich, these financial processes need the acceleration of financial, knowledge, time, network & technology leverage.
Wealth is a natural by-product of spending less than one’s earning, investing the savings as per time tested principles & letting returns compound over time. Yet, very few succeed at what is simple, achievable & sought after. The question is
- why is it that so few actually manage to become wealthy?
- what is it that prevents more people from realising a goal, the plan of action of which is public knowledge?
This ‘hiding in the plain sight’ puzzle suggests that wealth & financial freedom would remain an unattainable dream, unless the core reasons of such mass failure are addressed.
The abysmally low success rate of wealth creation is not without reason.
Desire for wealth is somehow, not getting followed up by action necessary to fulfil it. The disconnect occurs because of the direct conflict between requirement of ‘persistence over time’ for wealth creation & ‘human desire for instant gratification’. It makes following up on these simple rules, a much tougher ask. The only solution to this conundrum is to purposefully align these opposing tendencies by a more deliberate & thoughtful approach to life.
The irony of wealth is that everybody considers it to be important but very few deem it so urgent that it be prioritized above all else. The default mode is short-term thinking, preferring immediate pleasures of consumption over long term desirability of wealth. As long-term vision will not happen on its own, one has to proactively balance long-term needs with the urgent day-to-day ones. Once long-term financial health is prioritized over everything else, the patterns of spending, saving & investment change to fit the altered framework. The solution is to emphasize important, long-term goal in each of the numerous daily decisions that have to be made. So much so that long term thinking becomes a habit.
How to solve the problem of short-term thinking?
Long-term thinking can be inculcated by a deliberate, habitual process of making a financial choice. Focus should be on impact of the financial decision over next 20-30 years & on the fact that long-term effect of poor financial decisions is poverty. Once long-term approach becomes a default response, then each act of saving would generate sense of satisfaction at building wealth rather than the negativity that accompanies when consumption is sacrificed. The solution lies in making long-term thinking desirable by a change of perspective & priorities so that a person’s short-term actions no longer hinder wealth creation.
Why is the change in perspective going to be such a hard work?
Avoiding pain provides greater motivation to act than pleasure. Wealth creation is a (unknown, & long into future) pleasure goal that demands sacrifices (known & in short term). The pleasure pull of wealth creation is weak & postponement of the process too does not cause any pain. One merrily carries on with status-quo until it is too late to recover. All wealth creation knowledge is a call for action only if one realizes that status-quo has pain waiting in future. Otherwise, it is just shouting at the deaf. The solution to wealth creation is to remain highly motivated towards it. Motivation for wealth comes only when the pain of impending financial insecurity is felt even more intensely than the pain of foregone consumption (savings).
How to stay motivated for wealth creation?
One would want to save if focus is on potential of wealth, rather than on foregoing consumption, just as a smoker will quit only if he acknowledges long-term health damage more than satisfaction of smoking. Not-saving is the smoking away of one’s financial health. If the focus shifts to obvious benefits of short-term regular actions (saving) & their long-term context (compounding of returns), the inconvenience turns into desire. There would then be no need for forcing discipline on oneself as one would only be doing what the heart wants. The solution is in loving the result of one’s action rather than action itself.
You are already in 1 of these 3 scenarios. Which one?
Each day in every financial or non-financial decision, one either moves towards wealth or away from it. The decision making could be deliberate or as per habit hard-wired into the brain.
No priority to wealth & financial security – You are doing nothing now & most likely would not be able to much in future because what is difficult now will get even more out of reach, as time window starts closing. The likely outcome is that of dependency on others – who may or may not love you. Either way, you are putting yourself in line of fire.
Realize the need but not started yet – You are either complacent or are unable to figure out the way to squeeze out savings & start investing. Procrastination is wealth suicide in instalments. As years pass on, you miss out on juicy part of wealth creation i.e., compounding of returns. You are then forced into chasing higher return to make up for lost time & make tougher choices – choices involving higher risk & lesser assurance of outcome.
Postponing the gratification – You pay out to your future self by foregoing current consumption so as to be financially independent. The sacrifice slowly turns into satisfaction, as you see your wealth grow. As efforts at wealth creation get validated, future looks more promising & you find joy in continuing the habits that are paying dividends. The growing wealth not only presents potential for much more, it also gives you satisfaction at having acted responsibly.
There are 3 possible life scenarios & every person is already living 1 of the 3. A quick status check will reveal the future that you are headed towards. Do a course correction, if you feel that outcome of current habits is not matching up to vision that you have for yourself.