Wealth is a Snowball, not a Progress Bar

Everyone knows the loading bar whether it be from video games, a video buffering or a loading screen on a website. They help to manage expectations while giving a visual update for the person waiting to help with patience. Along with the progress bar there is the ETA (estimate time of arrival) or how long the expected wait is to be. Now loading bars and ETAs don't move at a constant rate and they can be quite erratic, but we each have a progress bar in our lives whether we track it or not. Our wealth.  

Line Queues

There actually is a whole study on waiting and how to manage people's patience. Defunctland does a great video on line queues at Disneyland see here. Thinking of theme parks having a visual indicator of how long you will have to wait is a great way of keeping people happy. Imagine you think something will be a 10 minutes wait but you actually wait 1 hour. That last 50 minutes will be anguishing. But if you go into a wait expecting it to take 1 hour, you can mentally prepare for it. Bonus if you think you will be waiting an hour but it only takes 50 minutes. Then you have someone who is almost pleasant about waiting 50 minutes. Perception is everything in life and setting up good expectations is a fantastic way to shape our perception.   

Retirement Wait

Now the wait for wealth is a bit longer than an hour. Most people have to work till 65 before retiring, making working one of the longest "queues" we will have to wait for. Watching those older than us retiring just waiting for our time to enjoy financial freedom. Assuming we all start work around 22 that means on average we are working 43 years doing full time labour. Taking career gaps like child-rearing, education or health that is down to 38 - 40 years. Still a good chunk of time considering the average life expectancy is 81 (50% of our lives). 

Now it is not mandated in law that you have to work till you are 65. You can keep on working till your 80 if you wanted to, but ideally it would be nice if you didn't have to. Insert financial independence or, "when a person or household has enough financial resources to cover their living expenses without having to work for income". Now with independent wealth you can retire at 65 or 60 or even 50. You can retire whenever you would like when you have enough financial resources to sustain your desired lifestyle. Essentially you can say at any time, "that's it, I quit" without any fear of losing your house or being without food. Its complete freedom from the rat race, the corporate ladder. Freedom from financial burden. 

Financial Independence 

Financial independence is 25 times your annual expenses (which are always going up due to inflation, so you have to keep that in mind) and then 4% withdrawal rate. 

Now the nice thing about building wealth, is eventually your wealth starts to build its own wealth. Money begets money. Thinking of pushing a snowball down a hill. First you need to kneel down to build the initial snowball that will act as the core. You start pushing the ball around but it doesn't grow very much, it mostly just rolls around the snow. But eventually the snow starts to take hold and add to the initial snowball. Bit by bit it grows as you push it. Eventually it gets so big with so much mass you barely have to push it at all. The snowball has gained critical mass and is able to maintain or even accelerate in speed. It is much the same with saving. At first it feels like flakes of snow have been added to your little snowball. 

Million Dollar Snowball

Thinking of a million dollars, the first $100,000 is the most difficult to acquire. But the second $100,000 is faster, and the next is faster. The last $100,000 is the fastest growing mostly from initial investments. For example:

Say you invested $500 a month starting from $0 at 10% (S&P 500 historical returns). You would hit 

• $100,000 in 9 years and 10 months
• $200,000 in 4 years and 10 months 
• $300,000 in 3 years and 4 months
• $400,000 in 2 years and 5 months
• $500,000 in 2 years. 
• $600,000 in 1 year and 8 months
• $700,000 in 1 year and 5 months
• $800,000 in 1 year and 2 months
• $900,000 in 1 year and 2 months
• $1,000,000 in 1 year 

In total at this pace it would take 28 years to hit a million dollars. But you can see the first 100k is a much longer and more arduous taking almost 10 years vs the last 100k taking just a single year. The snowball is in full force at 900k almost forcing you to a million whether you like it or not. 

You may think, "This is taking forever, I only have $200,000. I am only 20% of the way to a million." You actually are 50% of the way on the 28 year journey, already tackling 14 and half years of saving. This seems counterintuitive, but it's true because of compound growth. When you hit $500,000 you actually are 80% of the way to a million with only 6 and half years left. As Scotiabank says, "You are richer than you think". Money is worth more, when it has more potential to compound.     

Running up Hill

We may look at saving like a progress bar slowly loading until we hit that financial freedom, but its like we are running uphill at the beginning, slow going and painful, but easier and faster as you go down the back side of the hill. The potential kinetic energy paying dividends on the downward slope. 

Going back to my queue list and waiting analogy. It is important to realize this to correct expectations. People want to get rich quick. Investing is not a get rich quick scheme. You will get rich slowly, and especially slow when you first start out. But like those waiting in line for a theme park rollercoaster, if you know the wait will be 10 years for that first 100k you will be pleasantly surprised if it takes 9. You will be checking your ETA or monthly report which will help to keep you motivated to stay steadfast on track. You won't get discouraged when the market has a downturn since you know investing is a long game. You are building a snowball that will eventually carry you, sometimes there will be bumps along the way. If saving was a progress bar, the first half would take 78% of the time and the second half would only take 22%. Be patient, good things come to those who wait.  

If you found this helpful and would like help budgeting or investing please email me at taylormckeecoaching@gmail.com