The title of this post seems too good to be true! But through various investing and lifestyle tactics, some people are able to keep every dollar they ever earned. That is right, after 20, 30 or 40 years of working and paying for life, they can have accumulated more in assets than they ever earned.
Seems impossible right? Rent, mortgage, taxes, childcare, food, insurance, etc. The demands on our resources seem never ending.
It’s true for all of us. But the botttomline is that if you save enough, early enough and manage debt, over the years you could wind up keeping all your money. Here are the tools and tactics to do the same.
Your money, your time, your life
Money can provide a certain amount of true freedom. Or it can create a life of a kind of prison, the choice is ours to make. We all know the many basic tenents of building wealth: securing good employment, living within our means and automating investing habits, etc. At each age in life we should ideally have a certain amount of money working for us in our investment accounts. The general guidelines are outlined in my Money Viking cartoon:
Summary of earnings
Let’s say someone made the average below salaries over a course of 20 years working:
Year 1-3: $35,000/year (10% savings/investing rate = $10,500)
Year 4-7: $50,000/year (10% savings/investing rate = $20,000)
Year 8-12: $85,000/year (15% savings/investing rate = $63,750)
Year 13-20: $100,000/year (15% savings/investing rate = $120,000)
This person made approximately $1.5 million over the course of their working career so far. Using an approximate 15-17% tax rate, they made just over $1.2 million.
How much can you stash?
This very real world example illustrates why saving and investing are so critical for 95% of us. None of us will ever really make enough. We are not going to invent the next techno app, play professional sports, star in a movie or inherit a ton of money. We have to stash as much cash as early as possible.
By saving as much as possible early on in one’s career, they can harness the power of the Investing Trifecta to triple net worth.
Tactic #1, automate, pay yourself first $214,250
Over the course of working 20 years, the person was able to stash away approximately $214,250 of their money into broad investment vehicles.
Tactic #2, control lifestyle inflation
As a person’s salary goes up, often the lifestyle and cost of living also go up. This is often referred to as “lifestyle creep”. There is a powerful psychological component working against you.
First, we start to work harder and harder and invest more in our careers. This results in a feeling of wanting to enjoy some of the fruits of our labor. This makes sense, but can quickly become a trap.
Tactic #3, let time help you
Once automated investing is taking place, a person can harness the power of time. For more detail see how I tripled net worth using the Investing Trifecta. This powerful set of forces creates the winds in your sails on your journey to building wealth.
By using the investing trifecta, the initial $214k saved can become approximately $600k with dividends reinvested each and every year.
Tactic #4, Real Estate
Many experts say it proves valuable over time to diversify investment asset classes. One class to consider is real estate and owning your own home. I will explain how these add to net worth over time and further the goal of keeping every dollar ever earned.
As the years progress and you pay rent, that money goes to the landlord and helps support their assets. At the end of decades of renting, there is no underlying asset to draw upon. After years of owning and paying down a mortgage, you will have an asset worth hundreds of thousands of dollars. At that point you can sell or live in the house without the burden of a payment each month.
There is a huge caveat here though. In the short run, renting can make more sense. And when buying a house, it is important to not buy too much or get carried away with remodeling. This just sinks way more than required.
See related: Real Estate Investing – An Overview and Real Estate – Your Home
The bottom line
The bottom line here is literally the bottom line. At the end of a 20, 30, 40 year period of working and accumulating assets, you want to try and make it so the value of those assets is equal to or greater than all the money you have every earned. This is not that easy, but there are strategies that can work in our favor. Namely, compound interest, high and consistent savings rate and controlling lifestyle inflation.
A fun cartoon
The attached cartoon captures suggested savings amounts at various ages. This is just a rule of thumb and of course we should try and excel as much as possible beyond this.