Erik Smolinski
Part 2: Take action in 3 steps
Keeping the wealth levers in mind, here are three steps Smolinski took that anyone can replicate to hit their money goals.
1. Just start: Open a brokerage account and contribute what you can
To pull on the second wealth lever, you’ll need a place to invest your money. A simple solution is to open a brokerage account.
“Any reputable broker is fine. Google search ‘top brokerage accounts,’ maybe watch a YouTube video where somebody compares them, and pick one that you like,” said Smolinski. Next, link your bank account to your brokerage account and initiate your first transfer. “Move money over — $25, $50, $100 — whatever you can possibly move over at that exact point, do it.”
You’ll want to spend some time thinking about how to invest your money. While Smolinski is an active trader, experts typically recommend that the everyday investor should stick with passive investing as a long-term, wealth-building strategy. Smolinski agrees: “I genuinely believe for the vast majority of people that’s probably the right answer.”
With passive investing, the goal is to match, not beat, the market. While it likely will not result in big short-term gains, it’s lower-risk and less volatile than active investing. One of the most popular passive investing approaches is to buy index funds.
Note that you can also invest in diverse funds in retirement-specific accounts like IRAs and 401(k) plans, which offer excellent tax advantages and, therefore, have annual contribution limits.
2. Don’t stop: Invest consistently
Now that you’ve started the process of investing your money and taking advantage of compound interest, “maintain the momentum,” said Smolinski.
The simplest way to force yourself to invest consistently is to set up automatic contributions. Over time, you’ll learn to live without the chunk of money you’re setting aside for your future.
“It gets real when you’re moving money away from yourself. It’s weird in the beginning because you’re sacrificing the ability to use that money for some sort of near-term gratification,” he noted, but that’s where step three comes in.
3. Build a vision
Saving aggressively to invest the excess will be easier if you have a specific goal, such as early retirement or buying your first home.
Smolinski’s goal was to become a millionaire by 30. He says he did some reverse engineering using an Excel spreadsheet: “I looked at different scenarios and I said, ‘OK, if I save this much, starting with this much money at these different returns, this is how much I’ll have in five years, this is how much I’ll have in 10 years.'”
It helped him visualize just how significant an extra couple hundred dollars a month could be, which changed his spending habits.
“When I was making these near-term trade-offs, it was always in the context of, ‘OK, if I go out, I’m going to grab dinner, I’m going to have drinks, that’ll probably be about 100 bucks. That 100 bucks can get me through this entire month for what I’m supposed to save,'” he said. “And then what ends up happening as you get into this mindset is that it starts to become addictive. You’re like, ‘If I do $100 a month, it gets me here. What if I actually did $200? How much faster could I get to where I’m trying to go?'”
The last step on Smolinski’s wealth-building ladder is “slow is fast,” he added. “By starting slow and building the habit, you’ll get to your end destination light years faster than you probably would ever expect.”