🧠 The Most Important Number for Building Wealth
Friends,
In the 1920s, Italian economist Vilfredo Pareto noticed something in his garden: 80% of his peas came from just 20% of his plants.
Before long, he saw the same in his job: 80% of the land was owned by just 20% of the people.
The “Pareto Principle”, or the “80/20 Prinicple”, was born.
It’s since become a powerful tool that helps to separate “signal” from “noise”. By zeroing in on the small – but impactful – inputs, you can gain incredible leverage.
The Pareto Principle also applies to building wealth. Most people assume reaching financial independence hinges on two variables: income and investment return.
We disagree.
Those two factors are important, but they are more “noise” than “signal.”
The most important variable to building wealth is your savings rate as a percentage of take-home pay.
Now, a high income is hugely helpful for building wealth, but it’s not a cure-all. Just ask some of the highly-paid celebrities and athletes who ending up filing for bankruptcy protection (Mike Tyson, Nicholas Cage, Lindsay Lohan).
High investment returns can also be incredibly useful for building wealth, but they won’t lead to financial independence if your savings rate is 0.1%s.
This is why your savings rate is so important. It’s the small input that can reliable predict your ability to become wealthy.
Focusing on your saving rate might not be exciting. But over the long run, you have far more control over it than your salary or investment returns.
Zero in on that one variable, and it will be hard not to become wealthy with time.
– Brian Feroldi, Brian Stoffel & Brian Withers
PS – We’ll be hosting a FREE introduction to accounting webinar next Wednesday (December 7th). Click here to register for the event.
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More From Us:
👨🎓 Cohort 3 of our financial statements course launches on January 9th, 2023. (NPS 92). Click here to be notified when enrollment opens.
👨🎓 NEW! Our Financial Wellness Course has launched! This email-based course covers the step-by-step process we each follow to make our financial lives rock-solid. This could make for a great holiday gift for your loved ones.
📗 Brian Feroldi’s book is now available as an audiobook.
