A Brief Discussion: The Greatest Wealth Builder Concept

by Jeff Keill CFP, CIM, FMA, Portfolio Manager and Senior Wealth Advisor Keill & Associates- Advisory Team

We live in a commercially driven society with advertisements built upon satisfying our need for immediate gratification. They make you believe satisfaction comes with purchasing things such as travel, cars, houses, home furnishings, tools, subscriptions, memberships, and a whole host of other conceivable items. This propaganda creates a consumer itch that compels us to want immediate gratification. The problem with scratching this itch too often, it makes achieving financial independence almost impossible. Over 30 years one thing stands out in our experience with trying to achieve sustainable wealth: People spend too much and invest too little.

At Keill and Associates, we believe that sticking to simple wealth building concepts will allow our clients to achieve their goal of achieving financial independence and avoid the trap of wasteful spending. The basic rule is: Spend less. Invest more. To be successful you need to have an ongoing and systemized approach to buy appreciating assets.

Buy More Appreciating Assets

The first part of the concept is simply to buy more assets that appreciate in value while buying fewer items that depreciate in value. Allow me to explain this in two parts.

In life, we are bombarded with choices between stuff we want and stuff we need. The purchases of many items are done on a want basis rather than a need basis. We often rationalize the item from the want category to the need category. For example, we probably need a car to get from point A to point B. Does this mean we need a high-end luxury car or a brand new car? We need affordable and efficient transportation but any expense above achieving that basic level of usage moves the vehicle from ‘need ‘ to ‘want’. If a reliable car that we ‘need’ can be had for $20,000 but choosing a better car or newer model for $30,000 requires a $10,000 ‘want’ to be satisfied. The same can be said for lesser items. In today’s world of communications we may need a cell phone. Maybe our basic needs can be met with a $200 phone and a $50 monthly plan. If we choose to have a $500 phone with a $100 monthly plan we have added on a ‘want’ expense above the ‘need’.

What about all these items and their effects on long term financial health? First we can see that almost all things we buy based on ‘want’ will have eventually become worthless if we use them. In other words, their value depreciates, It does not appreciate. Over time, that car we bought will become part of the junk pile, regardless of the price we paid. Within a few short years, the ’must have’ cell phone will become useless and will have no value. If we have amassed most of our wealth in assets like these we will eventually have no assets unless we can continually replace them.

Let’s look at the car purchase as a great example of how depreciating assets can hamper our long term wealth when compared to appreciating assets. If we decided to buy the $20,000 car (instead of the $30,000) and invested the $10,000 in appreciating assets, what would the end result be in 15 years? In other words, if we elected to avoid the immediate gratification of $10,000 excess spending on transportation and elected delayed gratification, what would happen? In 15 years the car would have a residual value of $0 if you wanted to sell it, and it would be the time to buy another one certainly. On the other hand if you had chosen to use the excess $10,000 and bought appreciating assets such as real estate, bonds, stocks, mutual funds, etc. and you achieved a 5% appreciation rate you would have a value of $20,789! That is $10,789 more in assets than we started with. On one hand... car is junk. On the other hand... you have built your long term wealth.

Of course, this first concept is not about curbing our wishes to scratch our ‘want’ itch. It is merely that we must understand the ramifications on our long term financial picture when we choose to purchase depreciating assets.

Systemized Success: Pay Yourself First

How do we ensure we accumulate appreciating assets? Everyone must adhere the principle of Pay Yourself First, regardless of income and expenses one might have. This is the most important part in wealth building.

Many Canadians have a mortgage and we know that we owe money to the bank who lent us the money. Over time this debt will be paid off. Maybe we are doing monthly payments over 25 years to pay this off. Once paid off, we will then own the house freely without any charge against it. Most people understand, to pay off the debt to the bank, they stick to a payment plan that over a period of time will pay off the loan. The same can be applied to accumulating wealth. In our bid to accumulate appreciating assets, we must understand the reason for doing so is to build a pot of capital that will allow us to live free of the need for cash flow to sustain our essential and lifestyle costs. This is the very heart of financial security.

In building this pot of capital we must concentrate a certain amount of our current cash flow to the acquisition of appreciating assets as discussed above. The pot of capital can be a predetermined amount based on an individual’s financial goals. Once this future pot of capital amount is determined, it is really a case of systemizing the payment of this amount much like any debt payment. If we need to pay off a future debt to ourselves over the next 20 years, we can determine the monthly payment needed to pay it off over that time (car loan, mortgage, student loan are good examples).

Once you appreciate the fact that we owe money to our future selves before any immediate ‘want’ itch is scratched, we can start to build wealth systematically. The idea of Pay Yourself First is the second part of the Greatest Wealth Builder Concept. Simply assign a monthly payment to your future self and treat it no differently as you would your mortgage payment, your cell phone bill, or any other expense. Very quickly this amount, unlike any immediate gratification expense, will start to reap the rewards both financial and emotionally. You will build real wealth and start to feel good about your financial future. Another result from taking this approach happens when you do make some ‘want’ purchases. The purchase will be with less anxiety or guilt because you are confident you are building towards your long term wealth goal.

Summary

The key to achieving long term sustainable wealth and the financial freedom that comes from it is simple. You simply need to start monthly wealth building strategy and buy long term appreciating assets... and stick to it.

Disclaimer and Notice to Reader: This Discussion Paper should not be construed as legal or tax advice but rather only as a general statement and explanation of the topic matter. Professional tax and legal advice should be obtained for the readers own personal situation. For more information on this topic or how it applies to your family, please contact our Wealth Advisory team.

Last Edit Jan 29, 2025