At any point in your life, there are only two ways to build wealth and these are they:
- Earn More
- Spend Less
Boring, I know… But it’s the formula to learn the price of freedom.
And if you’re like me and in your 40s, hopefully in good health, knock wood, you really could have your whole life ahead of you.
In other words, you can pretend you’re just born today and get to live another life starting now. Another 40 or so years ahead of you.
Your 40s are where life gets pretty good, actually. You don’t really give a shit what people think about you so much anymore, and you’re probably pretty good at a few things by now.
The Math of Building Wealth In Your 40s
Multiply your life expectancy times your expected annual earnings. To calculate your life expectancy, use the life expectancy calculator on the U.S. Social Security Administration’s website here.
You’ll get three numbers. Each number shows the age you can expect to live to if you make it to a certain age. Mine says if I live to 70, I can expect to hit 86.6, so about 38 additional years for me. Not bad.
Multiply your remaining years by your annual income. This is the number that you want to work on by either earning more, or spending less.
1) Earn More
There are many ways to earn more money, from asking for a raise, to selling more if you’re in sales.
Or create your own 20% time project and start an online business as a side hustle.
You could also switch careers. One of the best roles for people who love being in control of their schedules is being in sales.
If you’re willing to work hard, insurance sales is terrific because of the recurring revenue potential.
Warren Buffett got started in insurance about 50 years ago with the acquisition of an insurance company.
Since then, he’s built a colossal empire based on rational investing and compound interest. His 2018 Berkshire Hathaway Letter to Investors is priceless, as usual. Filled with great investment advice.
Wealth takes time to build and patience is key.
Whatever money you have set aside, make sure it’s exposed to some long term dividend stocks with great fundamentals and a moat of protection.
You don’t need to know anything about stocks to invest like a pro… Index funds are easy and have low fees, which means they won’t eat into your returns over time.
Warren Buffett recently won a $1 million bet that a “boring” S&P 500 Index Fund would outperform experts managing a fund of hedge funds.
2) Spend Less
Spending less doesn’t just mean not maxing out your credit cards on fancy meals and driving a modest paid for car, instead of shiny new leased vehicle every other year.
Spending less also means sending less to Uncle Sam. As an employee, you are taxed first, then you get paid. A dollar less of tax paid is the same as an extra dollar earned.
Most American millionaires live very frugal lives.
They not only have modest spending habits, but they’re also usually business owners.
According to Thomas Stanley’s “The Millionaire Next Door” the typical American millionaire has never spent more than $399 on a suit (and who wears suits anymore anyway).
The most important thing Stanley found was perhaps that most millionaires were “self-made”.
And much like the boring cars they drive, most self-made millionaires make money in mundane ways.
About 10 years ago, the founder of Blue Buffalo pet food was inspired to create a healthier pet food after his dog died of cancer. Fast forward to last week, and he sold his Wilton, CT based company to General Mills for $8 billion.
In Warren Buffett’s annual shareholder letter to investors this year he describes one of his biggest acquisitions: Pilot Flying J.
But what they heck is Pilot Flying J… And what made this business so attractive that Berkshire Hathaway just had to buy it? They own and manage truck stops across the U.S.