Note: This post was first published in December 2020 and updated in April 2022.
Nothing in life is easy. But it’s fair to say that building wealth has got to be one of the most challenging tasks you can set for yourself.
A big underlying issue here is incentives.
Think about losing weight or learning a new language. Unless you are a naturally gifted athlete or a born polyglot, neither of those will be easy.
But if you were to set your sights on one of them, chances are you would find a host of cheerleaders to help you along the way.
For example, your gym’s incentives are aligned with your own here. They are keen for you to become a loyal member and keep coming back for years on end.
Similarly, your personal trainer would also want to help you along.
Yes, partially because he is getting paid for it. But also because (hopefully!) he actually cares about making a positive impact in your life.
Even strangers could act as unwitting allies, what with their subtle once-overs and not-so-subtle compliments. I’m sure it could get annoying as well, but sadly I’m not speaking from experience here.
When it comes to building wealth, you’ve got no allies.
As a matter of fact, the only person who stands to benefit from your efforts is your future self.
Alas, that future self exists many years, if not decades, out. There’s only so much encouragement he or she can give you.
And in the meantime, everyone around you is actively disincentivized to help you.
Businesses large and small are constantly trying to sell you things you don’t really need. There’s also an army of savvy marketers helping them along – and taking a cut in the process.
Your employer certainly doesn’t want you to reach financial independence. God forbid you actually have options and become less motivated as a result!
Friends and acquaintances are quick to compliment you for that flashy car you shouldn’t have bought (on credit, no less). Tell them you’ve saved/invested the money and the most you’ll elicit is a yawn.
Upon closer examination, it turns out to be an act of cold self-interest.
The more money you have, the less likely you are to need support in retirement.
The cynic in me argues that the government likes to reserve the option to raid your hard-earned savings to plug yet another budget hole.
In other words, building wealth is not a team sport. On the contrary, it feels like single-handed combat most (if not all) of the time.
Compare And Contrast
So why is it that some people are successful at building wealth – and (most) others aren’t?
One big difference separating the haves from the have-nots (or the still-to-haves, if you want to be optimistic), is the focus on process versus goals.
For example, anyone can set a goal to become a millionaire.
But let’s be honest with ourselves: the reason some people actually become millionaires (and most others don’t) isn’t that they have set a better goal for themselves.
Everyone starts out with the same objectives in mind.
What differentiates successful people is backing up their goals with the right processes, such as:
- Maximizing earnings
- Spending less than you earn
- Investing in low-cost index trackers
- Letting those investments compound
But even if you put the right process in place, your job is far from done.
I’ve previously laid out a detailed step-by-step plan to get to £1m in net worth – on an average salary.
The wrinkle? It takes twenty-five years to get there – and a decade before you notice any meaningful momentum:
The only way you will ever make it to the finish line is if you enjoy the process.
And in this case, enjoying the process has very little to do with learning about index trackers. It’s not a particularly exciting subject, even for finance professionals like me.
Rather, enjoying the process has to do with your identity. And if your identity is at odds with the process you’ve put in, you’ll either give up – or have a very unhappy journey.
The Money Identity
For example, if you are constantly looking to make a quick buck, the long-term approach will not feel natural for you.
As a result, you’ll spend the next twenty years looking (and failing) to get rich quick – all while you could have been getting rich slowly.
The same goes for hard work. No, you don’t need to work a hundred hours a week to be successful.
Equally, you’ll rarely meet someone who got rich while lounging around on their couch all day. Success requires consistent effort.
You are also in for a struggle if you determine your self-worth by the things you own – or judge others by their spending habits.
Doing so is the perfect antithesis to building wealth. After all, real wealth is what you don’t see.
Most importantly, if you equate wealth with happiness, you are in for a shock. No, reaching financial independence won’t make you happy.
Give yourself permission to be happy today, not when you finally hit your number.
And as it happens, the alignment between your goals, processes, and identity can be a major source of happiness in itself.
There’s nothing quite like the knowledge that the way you are going about your life is in line with your entire system of values, beliefs, and judgments.
Let’s go back to the example of losing weight for a moment.
The reason so many people manage to lose weight – only to gain all of it back isn’t because they have the wrong process. Ultimately, healthy eating and exercising will help you shed the pounds.
The problem is that the process is not aligned with their identity. Thus, it feels like a constant struggle and sacrifice – and they ultimately end up back at square one.
By definition, changing your money identity is not easy. But if you are truly serious about building wealth, it’s a pre-requisite.
As always, thank you for reading – and good luck on your journey!
About Banker On Fire
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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