Getting Rich vs Long Term Wealth

By Madison Hayden

A question I come across when my friends learn more about what I do for work is: "How do I 'get rich'?". The question is usually in jest, but there's also some genuine curiosity behind it, I mean who doesn't want to be rich right? Kidding or not, it's a pretty greedy, and typically short-sighted question, but not at all surprising given the financial climate we are in. If I had to sum up the investing year of 2017 in one word, greed might be it. We saw it in a nearly unstoppable climb in equities, a rush of opening Robinhood accounts to gamble on the market, people pouring money into bitcoin who have no idea of what a blockchain is, and the popularization of the acronym FOMO.

But back to the original question. You might say it's more complicated than that, you need a variety of factors to work out for you. Or you might take a simpler approach and tell me that's easy, you just need to earn more money. I think both of these responses miss the mark, and I want to suggest two realities. First, how much money you earn from your profession has a large correlation with being rich. Second, a high salary right now has a low causation for you being wealthy for the rest of your life. What does lead to long term wealth? Living within your means, or in other words, not falling susceptible to the greed that drives how many people operate financially.

The perfect case study of high earnings not leading to long term wealth is the well documented trials and tribulations of professional athletes managing their money in retirement. It's estimated that 80% of NFL players go broke in their first three years out of the league. The NBA does not fare much better, as 60% of their retired athletes are broke within five years from retirement. It's not a character flaw that leads these men into poverty years after making millions. The athletes who struggle financially after making eight or nine figures throughout their careers just do not have the proper skills to manage their money.

On the other side of the coin, I get to see the fruits of a modest salary coupled with smart financial planning on an almost daily basis. Gerber Kawasaki works with many people who are not high-income earners, but are able to build up a large amount of money heading into retirement by simply living within their means, and saving what they can. Knowing how to invest the money you are saving is also crucially important in order to get your money working for you, and realizing the greatest returns on your money that you can. Brett's article this week is a great starting block for forming your investment portfolio as a new investor.

This formula is simple, but it is not easy. It takes a lifetime of self-discipline, and the ability to always keep the big picture in mind. Of course, this means making sacrifices, and the more you earn, the less sacrifices you have to make, but the principal idea remains the same. There is a catch to this idea however; The younger you start the better off you will be. So, if you haven't started developing good money management skills start now! Make a budget for yourself, and dedicate yourself to some long term financial goals. Don't succumb to greed, or the hot new investment of the week. Be a disciplined in your savings, and disciplined in your investments, and over a lifetime of following these rules, I promise you that you will give yourself the opportunity to "get rich".

Securities offered through LPL Financial, Member FINRA/SIPC.
Investment advice offered through Gerber Kawasaki Inc, a registered investment advisor and separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Gerber Kawasaki, 2716 Ocean Park Blvd. #2022 Santa Monica, CA 90405. Contact us at (310) 441-9393.