Learning to Manage Money

Optimal Wealth Is A Narrow Range

There are many ways to build wealth, and they are all valid as long as they actually do generate wealth.  But even though there are many way to grow wealth, there is also optimal ways to grow wealth given the environment that you exist in.  That’s why I like to say that which it’s possible to grow money and wealth many ways, optimal wealth is a narrow range.

Let’s jump stream for a second and talk about an unlikely topic with respect to wealth, fast food cup dispensers.  If you think about it, the cups (the kind you get at Wendy’s) has a weak lip at the top that servers two purposes.  One is for the lid so that the top cap snaps over the tops to keep the drink from spilling, and secondly to keep the cup in the dispenser at the restaurant.

Getting Wealth

I don’t think anybody really think much about the mechanics with the cup dispenser at Wendy’s, but you push a bunch of cups in the dispenser and they come out in a LIFO (Last In First Out) fashion.  To say in the dispenser, the lip of the cup catches and it’s just strong enough so that it hold the rest of the cups in place.  Also note worthy is that the spring that pushes the cups so they are ready to be grabbed has just enough force to keep the cups tight and ready to be grabbed.  If the spring was too loose, the cups wouldn’t come forward and the mechanism would be worthless.  If the spring had too much strength, then the cups would keep flying out all over the floor.  All of those factors that keep the cup in place, and enable the next cup to be in the same state after the initial cup is pulled is also a narrow range of factors and force.

The same applies with wealth accumulation!  If the one factor is out of balance, then you have a system that doesn’t work.  So let’s say that you earn a lot of money, but you spend even more… Well, you’re not going to grow as much wealth as someone that only earns 40k a year, but live with their parents and doesn’t spend any of their take home pay.  In the past I knew of a friend that actually would live with her parents, eat at her boyfriend’s house, and held onto her money very tightly.  In ten years, she had saved enough money to buy her first house outright with cash (with money to spare).  How’s that for a shocker, I was amazed!  Her gain was impressive, but it’s still limited and not the optimal range that I’m trying to achieve.

So what is the narrow range that I’m taking about?  Leverage!  At one time in the past, I believed in the get rich slowly mentality and practiced it for ten years, but now I’ve moved onto a tighter range.  I believe it is possible to get rich more quickly, but that it requires limiting risk and using money to leverage the growth of money.  Perhaps real estate, using the bank’s money, or some smart investments.

Another example are the sports hero’s of yesteryear.  They thought the money would last forever and went through their money way to fast and foolishly.  Sports stars today are more wise around growing wealth, at least for the most part.

The key is to realize that to get wealthy, you need to operate in that narrow range so that you can build your wealth optimally.

 

 

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