Have you ever worked construction at the entry level? I spent part of a summer working for a general contractor, getting paid $8 per hour to pour concrete, hammer nails, and do whatever else they needed. That was hard work. I don’t regret my time working in construction, and the main reason is that it drove home on a profound level that hard work, value, and money are only vaguely related.
This brings us to one of the key themes of MightyInvestor.com. Strategic thinking is just as important as hard work. In fact, for building wealth, strategic thinking may be more important than hard work. We all know plenty of people who worked hard all their life and ended up broke, don’t we?
I have nothing against hard work. Indeed, I hope to never retire.
However, the truth is that building wealth and a flourishing life is a matter of making smart decisions combined with reasonably hard work.
Let me give you some examples:
- When you are 18, do you decide to go to college and get a valuable skill, or do you decide to go chill in some coastal beach town and work as a waiter?
- Let’s say you go to a community college for two years to save money, then transfer into the best state school you can get into, and then go on to become a lawyer, doctor, money manager, entrepreneur, computer programmer, whatever. Or, instead, you work at a restaurant from 18 to 25 (and by the way smoke pot five times a day during that whole period which saps your motivation). What’s the trajectory you are launched on with those different decisions?
- Or, when you get your first job, do you immediately max out your 401K contribution, max out a Roth, and save just enough for a down payment on a house? You then rent the extra bedroom in the house so that the home is no more expensive to you than a decent apartment.
- Maybe you even live with your parents for the first two years of that first job out of college just to massively save and get a jump start on everything.
- You buy a three-year-old used car with 22,000 miles for $13,500 rather than a brand new car with all the trim for $35,000. Then you drive that car for nine years and sell it for $7,500.
These key decisions, compounded over time, have a MASSIVE impact on your financial life. They allow you to quickly build an emergency fund and then a financial buffer. These results are frankly not so much a function of hard work, but of strategic thinking.
I used to have breakfast with a friend of mine every Sunday morning at a local café. We chatted about this and that, and he slowly learned the basics of using index funds to invest in IRAs and more broadly. My friend decided to make a subtle shift in how he handled the funds coming into his life. He opened a Roth IRA and also put an extra couple of thousands of dollars away every month in index funds outside of the IRA. This friend now has well into an extra six figures of wealth just from making a slight shift in what he was doing with his money–and then letting that compound over time. There was no work involved other than thinking things through and making a shift in financial flows.
Here are areas of your life where strategic thinking pays off the most:
- Education. Where do you go to school? What do you study? How much debt did you take on to get your education?
- Career choice. Does a computer programmer work harder than a ditch digger? No. So what career trajectory you pick will have a huge impact over time.
- Institution. The institution you work for has a massive impact on what you earn, the skills you learn, the network you develop, and the onward jobs you can get after working there.
- Spouse. This is probably the most important strategic decision, especially once you have children. Just to keep the focus here on finances, your spouse’s attitude towards money will have a massive impact on your life.
- Investing. Do you try to get rich quick, over and over and over? Do you just keep all your money in a savings account, never willing to slowly learn how to invest?
- Health (lifestyle). A life of sedentary living and poor eating habits may well cost you tens if not hundreds of thousands of dollars down the road.
If you look back on parts of your life and lament that you made poor decisions, don’t lose heart. We all make the decisions we make based on our life experiences, our level of maturity, and other factors. You know what? That’s life! It’s a learning process. So accept and embrace wherever you are and start making solid strategic decisions. You can move the dial on your life very quickly. Perhaps not in a matter of days or weeks, but definitely in a matter of months or a year or two. Remember, plant, cultivate, harvest.