Simple Wealth Building

Wealth Building Made Simple: Make Sure You Get A Little Richer Every day

In Financial Analysis, Financial Freedom by Gen Y Finance Guy10 Comments

Note: Just to clear up any confusion, although I say “get a little richer every day,” I don’t mean this in the literal sense. The idea is to get a little richer every day on average. Personally I calculate this by taking my total savings for the year dividing by 365 days.

I have known since I was a little kid that I wanted to be rich. It wasn’t until I got to college that I knew I was going to be rich. As you can imagine, I started reading all the books, filled with all sorts of strategies to accumulate wealth. It was very stimulating to fill my head with all these clever ideas on building wealth. Every day was filled with a new fantasy on how I would build my fortune.

But deep down, I knew these complicated strategies were not the only way to wealth, it could be simplified. That is when it hit me, the simplest strategy would be to make sure you get a little richer every day. I have to admit that this was not an original idea, I had read it from a newsletter, but it immediately resonated with me. I have adopted that simple philosophy/discipline ever since (this was back in 2011 sometime).

If you have followed along with my detailed financial reports, you will begin to see that this simple discipline is at the cornerstone of my streak of 24 consecutive months of positive gains to net worth (as of December 2016). Of course you can’t control what the market brings in terms of investment returns (or declines for that matter), but you can control your savings rate and your income growth. With a high enough savings rate and a relentless effort to increase your income, I believe it is possible to increase your wealth every year (if not every month) regardless of market declines. And so far I have proven this to be true with my own finances.

PeerStreet

Think about how simple this discipline is for a moment. Let’s say your goal is to be richer by $20 each day, that is only $600 a month (or about $7,300/year). If you compound that at 5% over 30 years, you will have $485,000. And at 8% that would be worth $827,000 over 30 years.

20 per day

Note: CAGR is short for Compound Annual Growth Rate.

Or, what if you were able to save $100/day, over 30 years that would be $2,425,000 at 5% or $4,135,000 at 8%. These were the types of mental calculations I would do (okay, spreadsheet calculations), and they motivated me to increase my daily savings as much as possible.

100 per day

Let’s Play With Some Real Numbers

In 2015, my wife and I were able to save $94,774 before any sort of investment gains. That is an average daily savings of approximately $260. Over 30 years that would be $6,305,000 at 5% or $10,750,000 at 8%.

260 per day

You may be wondering why I use both a 5% and 8% compounded growth rate. That is because I am rather risk averse and because of that I accept that I may earn lower returns over time. However, I have a plan to continue to compensate for the lower ROI by continually increasing my income so that my average daily savings goes up. In my blueprint to $10M I projected our top income at $600,000 per year, which converts to an average daily savings rate of approximately $800 per day (assumes achieving a 50% of gross income savings rate).

Our income has been growing at a much faster clip then we had originally planned. We are currently 6 years ahead of schedule and instead of taking 20 years to reach $600K, it is looking like that could happen within the next couple of years.

So far in 2016 we are on track to save $116,550, which increases our daily savings to $319 from $260 last year (a 23% YoY increase). Without any investment gains, in 30 years a daily savings rate of $319/day amounts to $3,493,050 in accumulated capital.

319 per day

Circling back to the $800/day savings, that would be $8,760,000 before any investment gains. And at 5% over 30 years, this grows to $19,400,000.

800 per day

With this simple, but disciplined approach, I don’t see how we won’t be RICH.

How awesome would you feel if you woke up every day richer than the day before? If you adopt this simple discipline into your own financial life, you will look at building wealth through a completely different lens. You will also realize that it doesn’t require you to gamble with your money by taking ridiculous risk.

You will also become an income addict, which is what makes this whole thing work so beautifully.

Warning: You may have to start attending meetings and following a 12-step program…or you can just embrace your addiction like I have 🙂

I personally like control, and in my opinion it is this strategy that gives you the most control over your future and your finances.

Have you ever thought of wealth building in this way? Do you have an average daily savings goal? Are you as addicted to increasing your income as you should be?

-Gen Y Finance Guy



Personal Capital allows you to aggregate your entire financial life into one account. All you need to do to see all your accounts in one place is log in to Personal Capital and voila! But it doesn’t stop there. They even automatically classify all your income and expenses for you. You get a FREE and fully AUTOMATED tracking system!

Comments

  1. Dom,

    While I believe daily savings are a good way to think about savings, I think monthly savings is more appropriate. Most people get paid bi-weekly and as a result, you only have money coming in a few times a month, vs. 28/30/31 times a month.

    In addition, some days I don’t spend money while other days I might spend a couple hundred dollars. Would I take Salary/12/30 to get a rough estimate to apply as the denominator?

    Just some thoughts, I definitely like the concept, however, believe monthly savings may be more appropriate to think about!

    Happy New Year’s and hope you are having an enjoyable vacation!

    Erik

    1. Author

      Totally agree Erik!

      When I said to get “a little richer everyday,” I didn’t mean it literally to be each day. Rather I was referring to your average daily savings, which I calculate by taking my annual savings divided by 365.

      Like you mention people are either paid once a month, every two weeks, bi-monthly, among others. Then there are some like myself that have huge bonus months twice a year. Or those that are paid on commission.

      Sorry if I wasn’t clear on this concept in the post.

  2. Ahhh, this is a good point, actually. Mr. Picky Pincher and I have monthly savings goals, but I’ve never approached it from a daily standpoint. It’s a great way to combat little daily temptations like eating out or picking up a cup of coffee. Or if you’re able to cut out driving to work and taking public transportation or packing your lunch instead of eating out–these little savings can really add up!

  3. I don’t have daily savings goals (although could probably calculate them if I wanted). Rather, I set a fixed percentage of Net income I want to save (50% for 2017) and then set up automatic deposits to savings/investment accounts. this automates the whole thing and makes it almost an automatic that I’ll succeed. Baring major catastrophic events of course.

    Your last question – “Are you as addicted to increasing your income as you should be?” This is definitely something I need to focus on more this year. I’m a great saver, but you can only save so much. That said – I’m also looking at a career change, where I would throttle down on the hours a bit. It’s hard to imagine I could find a place that would pay me more to do less – but I guess you don’t know until you try!

    1. Author

      Hey Freedom 40 – Yeah, I guess my writing came across as a literal daily savings, but in my mind I was referring to your average daily savings for the year (taking annual savings divided by 365).

      Like you, we set an annual savings rate goal (50% in 2016 & 63% in 2017). But I also like to look at the average daily savings amount, because it forces me to think through ways to increase our income, so that I can continue to see that number grow.

      Good luck on the career change, like you said, you might surprise yourself by finding something that pays you more for less hours. Or maybe you can find a new position that would be less time for the same amount of money??? You could then decide if you want to invest that time on something on the side like growing your blog income or something like that.

      Cheers!

  4. GYFG,

    I love the “Slight Edge looking” graphs bud! I am really looking forward to big things this year! It’s time to up our games and kick some ass in 2017! Empires will continue to be built!!

    MDP

  5. I LOVE the concept of small progress every day over a long period of time adds up to big change.

    It applies to everything — business, health, and, of course, money.

    Here’s wishing you a prosperous 2017!

    1. Author

      ESI – It’s the entire concept behind the Slight Edge. After reading that book for the first time in 2011, it is a philosophy that I have ingrained into my DNA. It is small disciplines done consistently over time that lead to massive results.

Leave a Comment