Building Wealth Over Time

The critical element to building wealth is leverage.

But not the leverage you may be thinking about. Heavens no.

A lever “amplifies an input force to provide a greater output force.” (Thank you Wikipedia.) I can’t lift a piano for very long if I just squat down and give it the ol’ heave-ho, but if I lift it using a lever, I expend a lot less energy, and get the exact same output. The lever is a simple machine that makes your life easier.dollar-163473_1280

In the traditional sense, leverage means that you’re borrowing money, investing that money, and earning a return on your investment greater than the cost of borrowing. That’s not at all how I operate, and you won’t hear another word about “other people’s money” for the rest of this course, unless I see an opportunity to mock it.

Most of you are familiar with Rule One of the YNAB Method: Give Every Dollar a Job. Some of those dollars go off and buy groceries, some feed your hobby of artistic blacksmithing, and some… some of those dollars are your levers.

When you invest, you’re leveraging your money. Your money basically goes out and does work for you. It’s beautiful. They’re the easiest employees to manage. They never talk back. They always stay on task. And they recruit other employees to keep doing the same thing. When you build wealth, you are leveraging your money. Period. There’s no other way around it.

The end goal is to have so many little dollars out there, recruiting other dollars, that you just sit around in your underwear watching your soaps. Or something else. But at least you have the option. 😉

Wealth is a super-boring motivator.

I mean, snooze alert.

Normal Person: “Hey, what drives you? What gets you up in the morning?”

Boring Person: “Money.”

Normal Person: “I see…” [looks off and to the left, suddenly remembering something very important that must be taken care of this instant.]

I think I used to be motivated purely by money. I would plan, scheme, and project how I could retire before I turn 45. It was all about the nest egg.

That was all fine and good until my first child. The lesson was reinforced with the subsequent four children thereafter.

Wealth just doesn’t bring joy. Beyond the levels necessary to survive, and live comfortably (I recognize the wide definitional chasm that word introduces, but choose to pass…), wealth is not directly correlated to happiness. In fact, researchers at Princeton studied just that. While the “comfort level” was dependent on the survey respondent’s location, when it all shook out, it turns out that beyond about $75,000 we just don’t find much more happiness.

I don’t say this to drive you completely away from using raw wealth as your motivator–only to perhaps give you some food for thought.

What could your wealth do? That is an exciting question.

What could you DO with your wealth?


The obvious one is that you could retire. Make sure you define your retirement beyond a simple amount, or an age. You’ll want to retire with purpose, and that purpose will be realized because you’re independently wealthy.

Just this morning I was reading job applications for a Quality Assurance position on the YNAB Team. One of our standard interview questions is to ask, “What do you want to learn next? And what do you want to learn after that?”

Reading these job applications is quite time-consuming, because I’m constantly sent off on informational treasure-hunting tangents. “Wait, what is that they want to learn? I want to learn that!” This happens to me again, and again. We have aspiring woodworkers, linguists, mechanics, blacksmiths, gardeners, musicians… One of the reasons I invest for my future is so I can have more time to pursue my own educational endeavors. I find that motivating.

The same researchers at Princeton that settled on the $75,000 “happiness number”, recommended that we spend less on material items (which don’t increase our happiness), and more on experiences, which do. What experiences could you have, or share, with your wealth? I find that question motivating.


Some Investment Reasons You Can Think Of

You’re ready to take action.

This course is for you if you’re ready to take action. Action in this case, means you’ll have set up an investment account, and will have put it on autopilot.

Some of you aren’t doing any investing at all, and we’ll change that. You’ll be informed, you’ll understand what it is that you’re doing, and you’ll understand why you’re doing it.

The rest of you are already doing some investing, but you want to make sure you’re doing so correctly. You’ll benefit from this course very much as well.

Day 2: Why Should You Invest?

We’re going to spend eight more fun-filled days talking about the ins and outs of investing. Putting yourself through this course begs the question:piggy-bank-850607_1280

“Why should you invest?”

I mean, honestly, is it just because your dad, or uncle, told you that investing is the way to go? Is it because you’re on the elliptical at the gym and your eyes meander over to your neighbor’s TV where the talk is stocks, P/E ratios, markets, and ETFs…and you wonder if you’re not missing something important (or sexy?!)

What you’ll learn in this course won’t impress anyone anyway. Imagine this conversation between you and your friend (that thinks investing is sexy and sophisticated):

Friend: “So, do you invest?”

You: “Yeah. I set up an account and have $125 auto-invested each month.”

Friend: “Yeah!? What stocks are in your gameplan?”

You: “All of them.”

Friend: “Yeah, yeah I get it. Diversify. Where do you think the market’s headed?”

You: “I’m pretty sure the market will move either up or down.”

Friend: “Ha! Yeah, totally… right… I read ya…”

At that point your friend will choose another topic of stimulating conversation.

The following are all reasons NOT to invest. If your primary reason is any of these, re-evaluate your reasoning. You should NOT invest if:

You want to make quick buck.

You think the market’s going to “make a move.”

Your uncle/aunt/dad/brother/neighbor has been talking up some opportunity that won’t be around much longer.

You don’t understand what you’re investing in.

You don’t have a clear goal, with a firm timeline.

You are afraid (this course will help that).

Those are all reasons NOT to invest. But what is a great reason TO invest?

In the end, there’s only one reason to invest: to build wealth.

You can cut it any way you like. You can say that you want to invest to support socially-responsible companies, or to fund your children’s education, or just to be able to retire and not worry about money. But the root of the idea, the real goal of investing, is to build wealth.

You greedy Rich-Dad-Poor-Dad-Reading, Scrooge-McDuck-Swimming-in-Money, Daddy Warbucks wanna-be!

Nah, I’m just sort of kidding. The type of wealthy person I’m talking about, and I’m sure the type of wealthy person you and I aspire to be, is the one that lives next door. The one that goes about living their life, and being an excellent steward of their many blessings.

But understand that wealthy people, by definition, are investors. There are no exceptions to that rule. If you want to be wealthy, you need to be investing. (Where the wealthy invest is another topic entirely, but not because it’s secret, only because it’s so diverse. Their wealth is doing something, and that something is their investment. Every time.)

Speaking of wealthy people living next door, in Thomas Stanley’s The Millionaire Next Door, he writes that the average millionaire invests almost 20% of their income. What percentage of your income are you investing? That number is pretty important (though it’s not the most important, as we’ll find out.)

An Investment Course

You might already know me as “the guy that thinks everyone needs a budget.” Or, “that really good-looking guy.”

Just in case you don’t yet know me, a brief introduction.

In 2003 I was newly-married and broke. My wife and I didn’t own a car, or computer. I had three years of schooling left to obtain my Masters in Accountancy (yes, you can achieve a Master Level of education in things that boring).

I knew my wife and I needed a budget.dollar-213619_1280

We set one up, I learned from some early mistakes, and about a year later realized that I was onto something. In September of 2004 I launched (YNAB, for short), where we teach the best way to to think about and manage your money (and we sell cool software to boot). We’re now a household name (at my house). Even my neighbors have heard of it.

No, seriously, the YNAB movement has actually grown into something worldwide, with thousands upon thousands of users all over the world. We’ve experienced rapid growth, with a fantastic tribe of happy customers. As a team, we are spread all over the world, delivering superb customer service, and high-quality software and instruction to anyone that will let us tell them over and over again that they…need a budget.

I used to be a CPA, so I used to know what I was talking about 😉 I’m passionate about personal finance because it affects every other aspect of your life. I have a wife (same one I mentioned above), and five children. If you have any ideas on how I could fill my spare time, I’d love to hear it, because man, I’m really struggling with that. Kidding. But when I do have spare time, I’m learning the piano, making divot-art on the golf course, gardening, and treating my body as a work of art, by doing some CrossFit.

Why an Investing course?

Because you think it’s a lot harder than it actually is. Because investing scares you, and it shouldn’t. Because you should be investing and you aren’t. Because you’re investing incorrectly and it’s costing you a lot of money.

Because the average savings of a 50-year old is $43,000.

Because 80% of people ages 30-54 believe they will not have enough money to retire.

This Course is For You if:

You’re a “YNABer.”

I’ve created this course for you. I’m operating under the assumption that you subscribe to the “You Need A Budget” (YNAB) way of managing their money. In a word, you:

•Give every dollar a job. You spend intentionally, without guilt, and according to your values.

•Save for a rainy day. You look ahead and anticipate larger, less-frequent expenses. You break those up into smaller, manageable, monthly chunks. Holiday spending doesn’t sneak up on you.

•Roll with the punches. You recognize that a budget isn’t set in stone. You are flexible, and adjust your budget as needed (and wanted!) in order to reach your goals.

•Live on last month’s income. Or you’re working toward it.

If those four bullets describe you, or the aspirational you, then YOU are my target audience. You have the “budgeting thing” down, and you’d like to expand your financial knowledge to other aspects of the personal finance realm.

You want to invest correctly (and enough!), but have ZERO interest in the complex stuff.

This course is for you if you want to make sure you are investing enough, and investing correctly, but you have no desire whatsoever to delve into the complex stuff.

You and I are both on the same page then. If there’s a topic that’s getting a little hairy, I may even warn you beforehand, letting you know you can skip it. All in all though, I’m going to filter out all of the complex stuff. Complexity in the investing world serves one evil purpose: it paralyzes you. The complexity kills your momentum, suffocates your confidence, and adds no value whatsoever when it comes to the performance of your investments.

[Enter record-stopping screeching sound here.]

Did you catch that last sentence? Your level of investment knowledge, once beyond the levels we’ll discuss in this course, will not help your investment performance. Warren Buffet, the greatest investor of all time, said it best:

“..the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group – the ‘know-nothings’ – must win.

I’m a “know-nothing”, and I want you to join me! When you discover the amount of time I spend managing my investing (a few hours per year), you’ll want to be a know-nothing as well.

Learning More about Precious Metals

Advantages of investing in ETFs

The advantage of an ETF is that, they have low expense ratios as compared to traditional mutual funds. Mutual funds are not ideal for low investors because of their high expense ratios and so, they opt for exchange transfer funds instead. These are highly liquid and you do not have to wait for the end of the day to calculate its net asset value. gold-513062_1280They are traded all through the day at the stock exchange. There is lesser tax liability as trading in ETFs will not invite capital gains tax. You also have the option of trading them like stocks which gives them far more flexibility.

Disadvantages of investing in ETFs

The disadvantage of ETFs is that, the securities that ETFs track are always fixed. So if someone wishes to manage their ETF and try and mix up the portfolio, then it won’t be possible. The dividends that an investor avails from ETF investments will not be as high as high yielding stocks. In fact, a person might have to invest for 10 to 15 years and patiently wait for the overall value to grow, which is not feasible for intraday traders.

What are precious metals?

As we know, gold and silver have been regarded as some of the most precious metals in the world and still hold their position to this day. Although their value fluctuates all through the year, they will never become useless or obsolete.

There are a few precious metals that regular investors invest in to increase the scope of their portfolios. These include gold, silver and platinum. Although there are other metals that are available for trade including copper, zinc and lead, these are not necessarily precious and are suited for intraday trading.

Unlike stocks and other securities, it is impossible to predict how the market will perceive the value of these precious metals. There are no companies involved to base the value of these metals on their performance. So it becomes extremely tough to say when and why people will start buying and hoarding them or start selling them.

Precious metals are traded on the bullion market.

However, based on experience, it is safe to assume that the following factors will impact the value of precious metals.

When there is rampant instability in bank rates and the political scenario is changing the face of the government constantly, then it will be difficult for you to trust these institutions with your money and so, precious metals will make for safe bets.

When there is instability in the stock market and stock prices are plummeting then people will turn to precious metals to help safeguard their monetary investments.

Remember that this investment is specifically for gold and silver bars and coins and not necessarily the jewelry made out of it (although that is also an option). Jewelry will be marked up owing to making costs and wastages and people will get lesser precious metal for the same price.

Advantages of investing in precious metals

The advantage of investing in precious metals is that, they are not affected by inflation. So if stocks and other securities are going down owing to inflation, metal value will not plummet and remain stable. The value of precious metals will be universal in nature. That is, they will have a global value which is universal and can be flexibly traded across the globe. Unlike other forms of securities, you become the full and final owner of these metals once you buy them. Remember, the gold, silver or platinum you have today will always have a higher value tomorrow. If you buy it at rate X today and it is valued at rate Y tomorrow then Y will always be greater than X. However, this tomorrow might be a couple to a several years later.

Disadvantages of investing in precious metals

The major disadvantage of this type of investment is that, the initial investment will be quite large. You cannot buy a gold biscuit by having a small budget. You will need a substantial amount to buy a substantial amount of gold. You will also not receive any regular returns on your investments like dividends or interests on your precious metals.