My Friend Bestii’s Financial Journey: Why Early Investments Alone Don’t Guarantee Wealth ( Part 1)

My friend Bestii, aged 46, recently came to me, feeling anxious about his financial future.

He’s been diligent about saving and investing since his early twenties. But here’s the twist – despite starting early, he’s surprised that he doesn’t have much saved. 

It’s a common concern many people face as they approach middle age, wondering why their investments haven’t snowballed into the wealth they expected.

Let’s dive into Bestii’s story and see why things didn’t go as planned, and what lessons can be learned to avoid this common financial pitfall.

The Problem: Short-Term Investments and Frequent Withdrawals

Bestii didn’t just save; he invested. Sounds smart, right?

He’d invest for 1 to 3 years, then withdraw some of the money to use for personal needs. The leftover amount was reinvested. This cycle went on for years.

What Bestii didn’t realize was that his frequent withdrawals were undermining the true power of compound growth. Every time he withdrew money, he cut short the potential for his investments to grow.

The Power of Compound Interest – and Why It Needs Time

Here’s where Bestii’s strategy went wrong: Compound interest works best when you leave your money untouched for a long period.

It’s like planting a tree – the longer you let it grow, the bigger and stronger it becomes. But every time you chop off part of it, the tree needs time to heal before it starts growing again. And that healing takes time, and you can’t get back.

So even though Bestii was regularly investing, the short time frame of 1-3 years wasn’t enough for his investments to grow significantly. When he took out some of the money, it was like pressing the reset button.

Lesson 1: Patience is Key while Investing

Many of us get tempted to dip into our savings or investments for emergencies, vacations, or even home renovations.

While some situations may warrant withdrawals, it’s crucial to let your investments grow untouched for at least 5 to 10 years, if not more.

That’s when you’ll start to see the magic of compounding at work.

The Problem with Reinvesting “What’s Left”

Another issue Bestii faced was reinvesting what was left over. He reinvested the remainder after using part of his withdrawals for personal needs.

However, he wasn’t starting from the same amount each time, which meant the base for compounding kept shrinking. The more you withdraw, the smaller the remaining amount that continues to grow. In other words, he was giving away his long-term growth potential.

Lesson 2: Have a Separate Fund for Emergencies

One of the smartest moves you can make is to have an emergency fund. that’s separate from your investment portfolio. This way, you can dip into it for unexpected expenses without touching your long-term investments.

Think of it as a safety net for life’s unpredictable moments.

The Importance of a Financial Plan

Bestii didn’t have a structured plan. He was investing here and there, but without a clear goal or timeline.

A solid financial plan includes a clear understanding of your future needs – whether it’s retirement, a new home, or your children’s education – and a roadmap to get there.

Lesson 3: A Financial Planner Can Help

Working with a Certified Financial Planner can help you set clear goals, stick to them, and avoid the temptation to, frequently dip into your investments.

Bestii is now on track with a plan that suits his needs, so he won’t have to worry about his financial future anymore.

Conclusion

Bestii’s story is a reminder to all of us: Starting early is just part of the equation. What matters just as much, if not more, is having the discipline to leave your investments untouched, letting time do the heavy lifting.

By setting up an emergency fund and following a solid financial plan, you’ll be better equipped to achieve long-term financial success without the anxiety Bestii experienced.

If you’ve been saving for years but feel like you’re not getting the results you expected, it may be time to reassess your strategy. Stick with your investments for the long haul, and let compounding work its magic.

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