“It is not necessary to do extraordinary things to get extraordinary results.”
–Warren Buffett
I was shocked to learn that my family will probably reach a major net worth threshold within one to four years. When that happens, we will have achieved a financial status gained by just over a million of the 330 million people who live in the US.
But I am stunned. You see, while we made reasonable salaries, most of the time my spouse was working part-time. So even combined, the family salary totals were nothing special. They were nowhere near that of the “one-percenters” who dominate the financial headlines.
All of this made me wonder about what we did that was different. More to the point, I started to think about how I could help readers.
How do you become a financial overachiever? And how do you become efficient as you amass wealth?
A GOOD MEASURE OF FINANCIAL OVERACHIEVEMENT—NET WORTH
First, let’s talk about how to measure financial overachievement.
Several methods measure financial strength. One of the most common is annual income. For instance, the national “one percent” income is $538,926 per year, according to information from USA Today.
If you make that much per year, your income tops ninety-nine percent of everyone else in the country.
But that is still not very satisfactory as a financial measure. Mere income or a high salary is not a great way to assess someone’s overall financial health. After all, what if you had a good income, but also had:
- A massive debt—having a big salary does not guarantee much if you have high debt. Celebrities who have gone broke include Nicholas Cage and Chris Tucker. So, a high income does not always indicate tangible wealth or even the ability to pay your bills.
- A situation where your salary could end suddenly. For instance, this happens with professional athletes who become injured.
That is why most financial experts use net worth to better measure wealth. Net worth is the difference between what you own and your debts. So, for example, if you sold everything and paid all your debts, a positive net worth means you would have money and not debt at the end of the sale process.
So, while net worth may be a better indication of financial strength, it does not help determine whether you are an overachiever or not. For instance, if you inherit two million dollars and end up having a net worth of one million, you are not an overachiever. (But you may have had a good time spending your inheritance).
OVERACHIEVEMENT AND EFFICIENCY
Instead, many experts compare income to net worth to determine if people use their income efficiently. One of the best resources for determining whether you are an overachiever using this method is from this entertaining post here.
The idea is that if you have earned a small amount of money and have ended up with a high net worth, you are an overachiever. And maybe you might be marriageable too, at least according to the post’s author.
However, it is not easy to figure out where efficient performance starts and where it ends. Much of that depends upon your age and income.
MILESTONE MEASUREMENT
Other financial professionals have tried different approaches.
For instance, one of my favorite bloggers tried to adjust for age and income. He then calculated the expected net worth of financial overachievers at every age. To see the targets he came up with, see here.
For whatever it is worth, by his calculation my family are overachievers.
MY STORY: THE OBSTACLES TO FINANCIAL OVERACHIEVEMENT
I have included this section to let you know that this process is not always easy. And overachievement is hard to calculate. Everyone’s situation is different.
The first caution I must note is that, in general, restricted income and high family costs make it hard to overachieve.
Here are a few of the real-world obstacles we faced. Many people face similar situations that can end up restricting their net worth. Here are a few of ours:
- Modest income—we have never been over about 80 percent of the countywide median income anyplace we have lived. Put differently, at least 20 percent of the population where I live had a better chance to achieve a higher net worth. We never came anywhwere close to a top one percent annual income, and that made it harder to amass wealth.
- Limited income duration—I worked full time for 25 years—not exactly the kind of track record you should expect for somone of a high net worth. The longer you work, the more you earn, and the longer your income duration is. People with a long work durations, like 40 years, become rich. For short-timers like me, that occurs far less often.
- Overall talent but not an earth-shaking skill that translated to income—we have done well but nothing near the one percent of achievement in ANY endeavor I have tried or been involved in.
- Family obligations and costs—yes, we have them, and they are far higher than most people’s.
- We are salaried—owning a business is nearly always a key to wealth creation, but that was never us. We own businesses in our rentals and stock equities–but have no conventional business.
- Health—we have had very high expenses but have managed.
LEARNING THE PROCESS OF OVERACHIEVEMENT
Massive gains in the housing and stock markets have helped us achieve our financial goals. But just expecting that sort of value expansion is hardly a strategy.
Our longer-term strategy has been to work to achieve financial efficiency instead. Financial overachievement comes from a process–not extraordinary talent, monetary compensation, or intelligence. It is the process of using your resources effectively and efficiently.
The idea is to use your opportunities in a way that pays off best. Some of the basics are to:
• Dedicate enough time to your money–to gain some expertise in its management;
• Save money efficiently–and expand income too;
• Understand your financial decisions–especially the “stealth” ones—the ones that appear to have nearly no impact at the time but matter over a lifetime. Those “tiny” decisions can make the difference between overachieving and not;
• Push an advantage and maintain it–once you have found a savings or an investment advantage, either 1) bank the savings or 2) understand and repeat the advantage;
• Do the little things to advance your family and family finances.
I will also discuss investing in real estate. Done properly, it can be an efficient way to increase your net worth. I will set aside a section devoted to that subject. For instance, see here.
CONCLUSION
The wealthiest individuals believe that their fate is in their hands and act accordingly. What will follow in the subsequent posts may help write your own script, and help you become a financial overachiever.
Disclaimer: consult with a financial fiduciary before taking any steps outlined here. Not all advice may be suitable for your circumstances or investment style
Photo credit: Japheth Mast
License: Unsplash