06 Nov Sometimes You’re Richer Than You Think

Sometimes a person’s path to financial freedom isn’t easy, but having a goal and discipline can often outweigh a lower income or hiccups along the way.

Reading an overseas investment website recently, I came upon an advice column run by a financial adviser.

He’d received an email from a guy who’d battled illness into his mid 30’s, leaving him unable to work for long periods of time.

With better health he’d spent the last year working full time while paying down his $11k of debt.

After his expenses he now had $500 spare each month, in addition to $8,000 in his retirement account and $1,000 left to him in a will.

He was still stressing about his position and next move.

As the adviser said, he had extra cash, some savings and no debt; the adviser then contrasted him to a potential client who came to see him the week earlier.

The guy was in serious trouble; sure he had an income of $205k, but also a $1.25 million mortgage on a $1.3 million house with a wife and two babies to support.

Further, he had no savings or investments, a leased luxury car, debt on another luxury car, an outstanding tax bill of 50k and finally, cash flow of minus $2,800 every month.

As was pointed out, society would see one as wealthy and the other as poor, but running the numbers, the perceived wealthy guy had less than zero.

And for the first guy to grow his small savings, he didn’t have to do anything fancy, just be consistent.

Add that $500 spare a month to his existing $1,000 in a balanced portfolio.

Even if he achieved an average return of 7%, a figure below long term average for a similar portfolio, by the time he was 60 he’d have around $400,000.

As is evidenced, discipline is sometimes the difference between perceived wealth and actual wealth.