The Art of Long-Term Thinking

Experience is a teacher all of us can learn from at any time in our lives. Young adults, especially those beginning careers, are often eager to learn about how best to get ahead quickly and skip the long wait for financial freedom. This is especially prevalent if one has wealthy parents/family. It can be easy to compare between the life you are establishing today and the life your parents have been establishing for the past 35 years. This comparison is detrimental to your own progress because it is like running a race against a car, you simply do not have the tools necessary to properly compete.

All is not lost, we have coached and advised many young individuals and families who come from wealth into taking advantage of the tools you do have in your toolbelt. Scott Galloway, a marketing professor and author, lays out a few key lessons in his book The Algebra of Wealth: the boring stuff gets you rich, your greatest advantage is time, and comparison is the thief of joy. None of these concepts are new or even novel, but they are all crucial building blocks for developing your own wealth over time.

The boring stuff makes you rich.

A groan erupts from the crowd. Yes, unfortunately there is no secret sauce to getting rich quick. . Fortunately for us, beauty is in the eye of the beholder, and the beauty is boring long-term growth leads to a better understanding of how to handle wealth once we have it. There are numerous ways to make this happen, the easiest of these methods is to force yourself into saving. Participating in an employer sponsored RRSP or TFSA contribution plan, setting up an automatic deposit into your investment account, or participating in a pension plan are all methods of forcing yourself to save real dollars and cents for the future. Working towards owning a home is another form of savings, as you pay down a mortgage, your home presumably appreciates in value and contributes to your net worth.

Over time, through the magic of compounding interest, small potatoes grow large. Consider the Olympics, not a single one of those athletes woke up one morning as a master of gymnastics, swimming, archery, judo, etc.. Instead over the course of years, they all spent time and energy making contributions to their development. The same is true of wealth. Occasionally we might make a big break through like getting a raise or receiving a windfall, but the truth of the matter is that wealth is built a little at a time over a long slow period.

Time is your greatest asset.

Compound interest is a concept often discussed but rarely explained. In short, compound interest is when your savings earn interest and in the future your savings plus the interest earn even more interest. This compounding factor allows your assets to grow more quickly. You can make this process even faster by continuing to contribute over time. These ongoing savings make your wealth grow and the growth of said wealth compounds upon that.

This simple, straightforward concept is easy to take advantage of and make this work for you! Putting money aside, investing it wisely, and giving it the time it needs to compound does not require much thought at all. The key word here is time - as a young person, your greatest asset is the time you have to let your savings grow undisturbed. The biggest trap one can fall into in this process is impatience. As one grows their wealth and watch the fruits of their labour come to fruition, they adjust their frame of reference to these new higher account balances and can become disheartened. Do not fall into this trap! Impatience leads to risky behavior which can lead to being worse off than where one started. Ultimately, this risk of making a bad choice or getting impatient may very well be the biggest risk we all face in managing our finances.

Comparison is the thief of joy.

This impatience is often caused by comparison. Today, it is so easy to look around at celebrities, friends, family, influencers, and other strangers doing and achieving things we often wish we could also do. Comparing our own financial capabilities to others is not only damaging to our self-perception, but also pointless. When we see another person posting online that they bought a new car, new house, or went on an elaborate vacation we are rarely seeing the full story. There could be significant loans taken out to afford these purchases, or over a long period this person has been saving for this purchase, or (in the case of celebrities or influencers) they have been gifted something for the purposes of publicity.

The best way to avoid this unwinnable race is to refuse to participate in the first place. In reality, it isn’t about how much you have, it is about how you manage it. If you received a large financial windfall and spent it all signaling wealth to others you end up back in the same spot you were before the windfall. It is true that “you only live once,” but you would probably end up enjoying that one life more if you spread the satisfaction and prosperity across that entire life rather than limiting the good times to a shorter window. You would find yourself more fulfilled and better off by investing your time, money, and energy in pursuing your hobbies or working on personal or professional development.

Long term, putting your money and time to work will get you ahead. If you can remain disciplined and avoid participating the wealth signaling race you will put yourself in a position to succeed far into the future. Occasionally, the children of wealthy families can lose sight of this, focusing instead on keeping up with their peers. This can lead to feeling we cannot keep up, or we are falling behind. You would probably be happier if you were focused on improving your own wellbeing both financially and personally. So why not have your slice of cake and eat it too? Enjoy a happy, well lived life, while also taking the steps necessary to secure your lifestyle for the long term. If you think you or your family could use some coaching or guidance on this topic, contact us: 403-260-0568.