Simple, Not Easy

By Mike Jensen, CPA, CFP®

The other day my wife called and said the car wouldn’t start; the battery was dead. The car had made it to the store, but it was not going to make the trip home. The next morning, we set out to jump-start the car and get the battery replaced. The task seemed simple enough. Bring a set of jumper cables, connect the two batteries, and we’re off and running.

We couldn’t find a set of jumper cables around the house, so we went to the store and bought some. We drove to the parking lot where the car sat overnight and aligned the vehicles to attach the cables. We opened the hoods to try and locate the battery terminals, but covering the batteries is a long plastic engine cover and in order to remove it, you need a Phillips screwdriver. We didn’t have one with us, so I walked across the parking lot towards a group of concrete contractors and asked if they had one I could borrow. They said they didn’t. Luckily a hardware store was across the street, so we went and bought one to use. Now with the engine covers removed, we had access to the battery terminals.

Which cable do you hook up first? The positive or the negative terminals? The red or the black cable? In what order? We read the instructions in the owner’s manual and finally connected the cables as instructed and were able to successfully get the car started. Jump starting a car battery seems so simple, but the process took much longer and involved many more steps than we thought it would. It was not easy.

Want to build wealth? Pay attention to your finances, build up an emergency fund, pay down debt, automate your savings and consistently invest in the market over a long-time horizon and you’re on your way. Seems simple enough, but it’s not easy.

I googled “How to build wealth” and the search returned over 400 million results. Everyone has an opinion on what you should do or what the magic formula is. The link to an opinion piece from a 35-year-old who retired early following a few simple steps caught my eye. Turns out all it takes is an inheritance, and a 6-figure job coupled with not buying lattes every day. I’m not a coffee drinker, so I have that going for me.

One reason why it is difficult to build wealth is that wealth is what you don’t see or spend. We tend to judge someone’s wealth by what we see because that’s all we know. Morgan Housel writes: “Someone driving a $100,000 car might be wealthy. But the only data point you have about their wealth is that they have $100,000 less than they did before they bought it, or $100,000 more in debt.” All we see are the things people chose to buy, not what they could have bought instead. It’s difficult to learn from something that you can’t see.

I graduated college with a Master of Accounting degree. Out of the 4 ½ years of coursework, I only had one class that covered personal finance and it was an elective (not required) course. Although I think personal finance and money lessons are best learned from experience, some training and support from others could help us all.

Right after college I financed a new $40,000 car because I thought I deserved it and could afford the monthly payment. After-all it was a 0% loan, free money right? I was also making minimum student loan payments and didn’t pay attention to the repayment terms or how much interest I was paying. I wasn’t saving for retirement nor did I have any cash cushion in the bank. In addition to the car, I financed TVs, video game systems, and some furniture. I used my credit card for all monthly purchases and paid off that balance when my paycheck hit the bank. My net worth was a negative $60,000. This was mostly from student loans, but the new car that depreciating faster than the loan balance wasn’t helping.

I was making around the US median household income at the time, but I was broke and living paycheck to paycheck. I wasn’t paying attention to my finances or planning for my future. I can remember asking the apartment complex to please wait until the following week to cash my deposit check when my paycheck would clear, or else it would bounce. Not a proud moment for me. Luckily this is the past and I’ve learned from these experiences.

Despite being a complete fool with money, my wife agreed to marry me. A few months into our marriage we decided we were through with living paycheck to paycheck and set out on a path of taking control over our money with the goal of building wealth. We started budgeting each month and telling our income where to go instead of wondering where it went. We’ve set goals, spending each month striving to reach them. We monitor our progress and adjust them as our life has changed. Our goals and strategy work for us, it may not work for others. There are always opportunity costs involved in all of life’s decisions.

You may want to become a net worth millionaire, or to be financially independent and retire early. You may want control over your time, to take more vacations or to spend more time with family and be there for important milestones and events instead of being stuck at the office. You may want to fund some or all your children’s college costs. You may want to volunteer more of your time or financially support your favorite charity. Specific goals and the “why” behind them will be different for everyone.

Building wealth and taking control of your finances seems simple, but it’s not easy. In the book The Next Millionaire Next Door, Sarah Stanley Fallaw writes: “Many of us simply accept our current habits, or refuse to do the hard work to change them, all the while complaining and often giving in to a life of dependency and worry.”

The good news is you are in control of your finances. Hard work, planning, being intentional and self-discipline are the ingredients to building wealth. You decide where you want to be and how to get there. It is simple – just not easy.

Mike Jensen, CPA, CFP® | Manager