The Secret to Building Wealth is Simpler Than You Think
A Few Thing I Am Teaching My Teenaged Daughter
I am teaching my teenaged daughter some things about “adulting,” and one of the most important is about finances. Listen in if you want to hear what I am telling her…
Want to know something most adults wish they'd learned in high school? The path to building wealth isn't about getting lucky with crypto or starting the next big tech company. It's about understanding a few simple rules about money that nobody bothers to teach you – rules that become incredibly powerful when you start following them at your age.
Most high school students aren't taught the basics of managing money. You'll learn calculus, but not how compound interest works. You'll study historical battles, but not how to avoid the credit card debt trap that ensnares millions of Americans.
Let's fix that.
Why Financial Literacy Matters Now
Understanding money early in life is like having a superpower. It helps you avoid the financial mistakes that keep many people working well into their 60s and 70s.
Trust me. I know.
The decisions you make in your late teens and early 20s can literally determine whether you'll struggle with money for decades or build lasting wealth.
The Basics: Your Money's Journey
Think of money management like a game. You have incoming resources (your income from jobs, gifts, etc.) and various ways to use them (spending, saving, investing). The key to winning? Understanding where your money goes and making intentional choices about its destination.
One popular framework is the 50/30/20 rule. It suggests allocating 50% of your income to needs (housing, food, basic utilities), 30% to wants (entertainment, eating out, new clothes), and 20% to savings and investing.
While these percentages might shift based on your situation, the principle remains: be deliberate about how you use your money.
Credit Cards: The Double-Edged Sword
Let's demystify credit cards, starting with the most important truth: they are not free money. Think of them as a very expensive loan that you carry in your pocket. While they can be useful tools for building credit and handling emergencies, they can also become financial quicksand if misused.
Here's a sobering example: if you charge $500 on a credit card with an 18% interest rate and only make minimum payments, you could be paying off that purchase for years, ultimately spending hundreds more than the original amount. The solution? Only charge what you can pay off in full each month.
The Magic of Compound Interest
Einstein allegedly called compound interest the eighth wonder of the world, and for good reason. Unlike simple interest, which only earns returns on your initial investment, compound interest earns interest on both your original money and all the interest it has already earned.
Let's make this concrete: if you invest $100 every month starting at age 18, earning an average return of 7% (typical for long-term stock market investments), you could have over $250,000 by age 60. Start at 28 instead of 18, and you'll have less than half that amount.
Time truly is your best friend when it comes to building wealth.
One Thing That Can Make You Wealthy
Want to know the secret to building wealth? It's not about making brilliant investment picks or starting the next Facebook. It's much simpler: invest early and consistently in low-cost index funds, and let compound interest work its magic over decades.
This isn't exciting advice. It won't make you rich quickly. But it works with almost mathematical certainty over long periods.
A Roth IRA or 401(k) filled with boring index funds, consistently funded month after month, year after year, is how ordinary people build extraordinary wealth.
Building Good Habits Now
Start with these fundamental practices:
First, pay yourself first. Before spending on wants, automatically direct money to savings and investments. This single habit can transform your financial future.
Second, live below your means. As your income grows, resist the urge to spend more. The gap between what you earn and what you spend is where wealth builds.
Third, build an emergency fund. Having 3-6 months of living expenses saved can prevent a surprise expense from derailing your financial progress or forcing you into debt.
Your Future Self Will Thank You
The financial decisions you make as a teenager and young adult will echo through decades of your life. Starting early gives you an enormous advantage — one that can literally be worth hundreds of thousands of dollars.
Your 60-year-old self will either thank you for reading this and taking action, or wish desperately that you had. The choice is yours.
Remember: becoming wealthy isn't about being a genius — it's about starting early, being consistent, and letting compound interest work its magic over time. Forty or so years might seem like forever, but your future self is counting on you to make smart choices today.
A Note to Parents…
Parents worried about their children's financial literacy can take active steps to help. Model healthy financial behavior by discussing money decisions openly. Create hands-on learning experiences by helping your teen open and manage investment accounts.
Consider matching their savings or investments to incentivize good habits—I do that with my daughter, aged sixteen. I tell her she has to put away in savings a minimum of $5 per paycheck, and every dollar above $5 she puts in, I will match. Try it…it works and will help your kid build good saving habits.
Use everyday situations as teaching moments. Grocery shopping becomes a lesson in comparing prices and distinguishing needs from wants. Tax season becomes an opportunity to explain withholding and retirement accounts.