Part 1 of 4

Many people believe that accumulating wealth is a random event. Or it is pure luck that determines who is wealthy and who isn’t.
It is true that occasionally someone wins the lottery or receives an inheritance and becomes wealthy. Usually immediate wealth is temporary, however. Studies have shown repeatedly that most widows who receive a life insurance death settlement either spend, loan out, or lose the money they receive within three years of receiving it.
In order to build wealth you must follow certain rules. In order to keep wealth you must follow those same rules. If you never learn the rules or don’t have the discipline to follow them, you will not build or keep wealth.
I’d like to offer you seven sound steps for building wealth:

Step 1- Start now
Step 2- Spend less than you earn
Step 3- Hire a competent financial adviser
Step 4- Avoid unnecessary debt
Step 5- Follow a sound, long-term strategy
Step 6- Avoid large losses
Step 7- Be patient

This is the first of four articles about these steps. I will explain the first two steps now and go into detail on the others in future articles.

Start Now
Albert Einstein said, “The most powerful force in the universe is compound interest.” For compound interest to be truly powerful, it must have the benefit of time. The more time the better.
For example, compare two investors who each put away $2,000 a year and earn 10 percent annually. The first investor starts at age 19 and puts away $2,000 per year for eight years in a row and then holds it there. The second investor waits eight years before investing $2,000 per year for 38 years. At the end of the 46 years, the first investor’s account will have grown to $941,054. The second investor’s account will be at $800,896. The first investor invested $60,000 less but ended up with $140,158 more.
The other factor affecting compound interest is the rate of return. Everyone knows that a higher rate is better than a lower rate. What most people don’t realize is that the benefit is exponential.
A 15 percent rate of return is not merely three times more than a 5 percent rate of return. It can actually be anywhere from seven times to 70 times more depending on how long you’re investing it. Small increases in rates of return make an enormous difference in the long run.
There will always be reasons to begin saving later, but as you can see, holding out for the perfect circumstances can be very costly. The sooner you start, the greater the effect of compound interest.

Spend Less than You Earn
This seems like obvious advice, but it is often ignored. According to a recent article in Smart Money, Americans collectively spent more than they earned after taxes for the past two years in row. This bad habit afflicts people at all income levels — those with less may feel as if the extra expenses are a necessary evil, while those with more may assume their high income protects them from any future financial trouble. This mentality must be changed in order to build wealth.
I’ve personally met individuals who earn $40,000 a year but save $5,000 of that for the future. Although it may seem like a small annual amount, that money adds up to future wealth and security. In contrast, I have met others who earn $200,000 a year and spend $220,000. This type of plan will never allow you to build wealth. While it may sound simplistic, in order to build wealth you must spend less than you earn.
These steps apply whether you have a large or small amount of money. Building wealth is possible — if you follow the rules.
To be continued …

About the Author
Dave Young, president of Paragon Wealth Management, has helped his clients enhance their financial well-being since he began managing money in 1986. He was his first client after he sold his 12 franchise businesses and couldn’t find a traditional brokerage firm to meet his needs. From his personal investment experience, he knew there was a better option to managing money. Later that year, he started his own money management firm, and has been managing money ever since.
He is originally from New Mexico. He enjoys spending time with his family, the outdoors, hunting, fishing, camping, sports and exercising. To learn more about Dave Young or Paragon Wealth Management visit www.paragonwealth.com.

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