“Save X% of your income and invest it into passive ETFs to slowly build up your portfolio.”
The common recommendation is to set an automatic contribution to your investments and slowly build it up over time. If every paycheck you take 20%+ and contribute it to your investment accounts, then you will slowly accumulate wealth. Depending on your income and how the markets do, you may get to a considerable amount of wealth, but more likely you will get enough for a comfortable retirement living a similar lifestyle as you did when working.
This is good. We should all aim to do this.
However, there is a way to jump ahead on your wealth journey and level up your finances. And it is the real way to get rich.
Every once in a while, you get an opportunity to cash out in 1 big windfall year. For most people, this happens about 1 time a decade.
These years are the ones where you get a nice opportunity to make multiple years of savings all at once. And they can be as valuable as decades of working and saving.
What are some examples of windfall years?
You sell a business
You sell a property - whether an investment property that you cashed out or a primary home where you move to a less expensive place and take money out
You get an inheritance
You get a big earn out in company stock (think stock option grant that vested over last 5 years and the company stock ripped)
Or dozens of other opportunities of the sort.
This topic is top of mind as downsizing is occurring all over the financial industry. Many people are seeing their jobs getting eliminated and are getting severance checks. Getting your job eliminated is certainly a difficult time, but if you can find a similar paying job that starts right away, it can be a major windfall.
Yet, a lot of the time, people don’t take advantage of these opportunities.
Take for instance, someone who owns a rental property who:
Purchased the property for $50k down
Saw the property value double from $250k to $500k while the cashflow only went up from $1,000 a year to $1,500 a year
In this case you can make over $250k gain on selling the property (ignoring the amortization and taxes to keep it simple) vs an extra $500 a year in cashflow. Or put another way, it would take over 150 years of the $1,500 annual cashflow before you made back $250k.
Sure, there can be some reasons people don’t want to sell a property (maybe their entire income is from owning rentals)…but getting a quarter million windfall is big and goes a long way to stepping up your wealth vs a $1,500 cashflow stream.
[Note - not a RE guy, so read into the overall message instead of nitpicking details like “well ackshually a $1k cashflowing property is below market soo…..” At some level, the price appreciation on the home may significantly outpace the growth in cashflow and you can sell the house for a ‘risk-free’-esque cap rate.]
So how does the math on a windfall year look and why do you need to be on the lookout for these opportunities?
And more importantly, wtf is a “Win Surface”? (don’t bother googling, I made the the word up I think)