
Today, we’re diving into an enlightening episode about three key principles for building lasting wealth: patience, survival, and rare opportunities. This episode, inspired by Morgan Housel’s book “The Psychology of Money,” offers crucial insights for law firm owners aiming to transform their business success into financial freedom. Let’s break down these powerful lessons.
The Magic of Compounding: Start Early and Stay Consistent
One of the episode’s most compelling discussions revolves around compounding—a concept championed by legendary investor Warren Buffett. Did you know that over 90% of Buffett’s wealth came after his 65th birthday? The secret to his extraordinary success is not a hidden investment strategy but the power of compounding over time.
Buffett’s journey illustrates the significance of starting early and staying consistent. By investing a little bit early and allowing it to grow, you can achieve impressive long-term results. For example, if you invest $100 a month from age 20 to 65 with an average annual return of 10%, you could amass nearly a million dollars. Delaying your start by just five years could cost you almost 40% of those potential gains.
The takeaway? Don’t wait for the perfect time to start investing. Begin now, no matter how small the amount. Patience and consistency are your best allies in wealth building.
Getting Wealthy vs. Staying Wealthy: A Shift in Mindset
Another vital lesson from the episode is understanding the difference between getting wealthy and staying wealthy. As a law firm owner, achieving success often involves taking risks and making bold moves. However, maintaining your wealth requires a different approach—one that emphasizes caution, humility, and sustainability.
Darren Wurz highlights that many law firm owners live on the edge, with their businesses just one bad month away from financial trouble. To avoid such precarious situations, it’s crucial to build an emergency fund, have adequate insurance, and be cautious about over-leveraging. Protecting your wealth is just as important as building it.
Winning with Tails: Embrace Rare Opportunities
The final lesson focuses on tail events—unexpected outliers that can significantly impact your financial future. These rare opportunities can make or break your success. In investing, for instance, a few big winners in your portfolio often drive most of the returns.
Wurz emphasizes the importance of staying diversified and being open to these rare opportunities. Whether it’s a breakthrough case for your law firm or an investment opportunity, recognizing and seizing these moments can lead to extraordinary outcomes.
Actionable Steps for Law Firm Owners
Now that we’ve covered the principles, let’s translate them into actionable steps:
- Start Investing Early: Set up a monthly investment plan, no matter how small the amount.
- Build an Emergency Fund: Ensure you have a financial cushion for unexpected events.
- Diversify Your Portfolio: Avoid putting all your eggs in one basket. Spread your investments to mitigate risks.
- Stay Consistent: Make regular contributions to your investment and savings plans.
- Embrace Opportunities: Be open to rare, high-impact opportunities that align with your goals.
- Review Your Safety Nets: Regularly check your insurance and financial protections to ensure they are adequate.
Conclusion
Building lasting wealth is about more than just earning a high income. It involves starting early, being patient, protecting what you’ve built, and staying open to rare opportunities. These principles, when applied consistently, can transform your financial future.
For law firm owners seeking personalized guidance, Wirtz Financial Services is here to help. We offer tailored financial planning services to help you maximize your wealth and achieve financial independence.
Resources:
- Schedule a Call with Darren
- Wurz Financial Services
- The Lawyer Millionaire: The Complete Guide for Attorneys on Maximizing Wealth, Minimizing Taxes, and Retiring with Confidence by Darren Wurz
- LinkedIn: Darren P. Wurz
- Join The Lawyer Millionaire Founders Network and Book Club for Free
- Book – The Psychology of Money: Timeless lessons on wealth, greed and happiness
Transcript:
Darren Wurz [00:00:00]:
Patience builds wealth, survival protects it. And rare opportunities supercharge it. Are you ready to master all three? Welcome to the Lawyer Millionaire. Helping law firm owners transform law firm success into financial freedom. What’s the secret to building wealth that lasts? For most law firm owners, it’s not just about making more money. It’s about understanding how time, protection and rare opportunities work together. In this episode, we’ll explore these three powerful lessons from the psychology of money to help you rethink your approach to wealth building and staying in the game.
Intro [00:00:40]:
We are on a mission to help lawyers and law firm owners maximize wealth and achieve financial independence. Welcome to the Lawyer Millionaire with Darren Wirtz from Wirtz Financial Services.
Darren Wurz [00:00:54]:
Hey, guys, Darren Wurz here. Thank you so much for joining me today. Let’s start with one of the most famous examples of compounding. Warren Buffett. Yes. Now, did you know Warren Buffett is a billionaire? Yes. But let me tell you a couple of interesting things. Did you know that over 90% of his wealth came after his 65th birthday? That’s right.
Darren Wurz [00:01:20]:
80 some billion dollars of his wealth happened after his 65th birthday. He was a millionaire by age 30. You know, his success is not because, you know, so many people want to be like Warren Buffett, but we have to understand something. His success is mostly not because he discovered some secret investment strategy, but because he started early and he stayed consistent. And it’s due to the magical transformative power of compounding. That’s right. Compounding interest. Compounding is so powerful.
Darren Wurz [00:02:08]:
And in chapter four of Morgan Housel’s book, the Psychology of Money, he talks about the magic of compounding. Warren Buffett, yes, was a very legendary investor, but part of Warren Buffett’s secret to success is that he started so, so, so early. In fact, as I said before, he was a millionaire by age 30 because he had started investing as a teenager. Compounding seems so simple, right? You earn a little bit of interest this year, and then next year you earn interest on your principal plus your interest. That’s the concept of compounding. Let’s say you have a 10% rate of return. You invest a dollar. So this year you’re going to earn 10 cents on that dollar.
Darren Wurz [00:03:01]:
You’ll have $1.10 next year. If you keep it invested, you’ll earn 10% on the $1.10. So you will earn 11 cents interest and you will have $1.21. You see, compounding starts very slowly. And so that’s why it’s difficult for people to really wrap their heads around it. It starts slowly. It doesn’t seem like it’s making much of a difference, but it slowly builds and builds and builds like a snowball running, rolling downhill. And the longer you stay invested, the more exponential the growth is.
Darren Wurz [00:03:44]:
The challenge is time. The challenge is time. Compounding works best when it’s not interrupted. And that’s where I see so many people go wrong. Most people either start too late or they interrupt the process of compounding. You have to let it compound impatience, fear, greed. These things can get in the way of just letting the compounding do the work. And here’s the moral of the story, folks.
Darren Wurz [00:04:23]:
You don’t have to be a legendary investor to have Warren Buffett like results. You just have to be consistent and let the market do the compounding. Let me share with you an example. Okay, let’s say you’re going to invest $100 a month, right? Okay, you’re going to invest $100 a month. You’re going to start investing at age 20, okay. And you’re going to be done investing at age 65. Okay? So from age 20 to age 65, that’s 45 years. And I’m just going to do the calculation right here.
Darren Wurz [00:05:01]:
45 years. Now this is a rough calculation because I’m saying 1200 a year compounded at a 10% interest rate. So you know the stock market’s long term average return somewhere around 10%, right? 45 years, 10% interest rate. You’re just putting in $100 a month, right? Let’s calculate that at age 65, you would have $948,000, almost a million dollars over a 45 year time frame. Wow, $100 a month. Now imagine so many people could be millionaires. You don’t have to make a lot of money to become a millionaire. In fact, this has been one of the craziest things for me to understand and find out as a financial planner, having worked with so many people, some of the wealthiest people I’ve known are not the people who have made lots of money in their lives.
Darren Wurz [00:06:02]:
They’re the people who invested. They’re the people who saved. Great example. I’ll, I’ll share with you husband and wife that I knew some time ago. They both worked, but they only needed one salary. They both worked, but they only needed to live off of one of their incomes. And so the other income, they saved the entire income. Neither of them had spectacular jobs.
Darren Wurz [00:06:29]:
One was a teacher. I think they were both teachers for a long time. I mean, neither one ever made six Figures. They retired multi, multimillionaires simply because they were able to save and invest. Wow. That’s the power, folks. That is the deceptively simple but incredibly powerful power of compounding. Now, let’s look at our example, right? You know, $100 a month, right? You started at age 20 to 65.
Darren Wurz [00:07:05]:
You had $948,000 at the end of that timeframe. Let’s say you just waited to age 25 to get started, right? So you lop off five years. So instead of starting at 20, you’re going to start at 25 and then you’re going to invest. You would have $584,000, 40% less. You would have $400,000 less. You just lopped off five years. You got started five years late. You would have $400,0000 less.
Darren Wurz [00:07:45]:
That’s crazy. Let that inspire you. Let’s all go put some money in an investment tomorrow, right? Don’t wait for the perfect time to start. I say this so many times and no one listens to me. It doesn’t matter how much you start saving. Start saving now. $100 a month may not seem like much, but it’s something. Start saving now.
Darren Wurz [00:08:13]:
You cannot make up for lost time. Did you miss what the market did last year because you didn’t put any, but you didn’t invest. You won’t get that time back. It’s gone. Whether it’s Investing in your 401k, a brokerage account, the earlier you begin, the greater your results will be. But I also like to think about this in terms of life and compounding your life. Because it’s the small changes consistently over time that lead to major results. You might be really struggling in your business today.
Darren Wurz [00:08:50]:
You might be really struggling to get your law firm going. But know this, taking the small steps now is going to yield huge outcomes down the road. Consistently moving forward is going to yield great results for you. Okay, Some other, the other two lessons I want to talk about today in chapter five and six. Getting wealthy versus staying wealthy and winning with tails. You know, Warren Buffett not only got wealthy, but he stayed wealthy. You know, that’s a big problem for a lot of us business owners. Imagine this, you just had a record breaking year in your law firm.
Darren Wurz [00:09:37]:
Revenue is up, profits high. You’re feeling invincible. You go out and you buy that big boat you wanted. Now what happens if next, next year there’s a tank in revenue? Unexpected market crash, a lawsuit wipes out half your wealth. That’s the difference between getting wealthy and staying Wealthy. It’s one thing to make the money, it’s another thing to keep the money. And that is a challenging thing. And you know, the way we get wealthy isn’t often the same way that we stay wealthy, especially as business owners.
Darren Wurz [00:10:13]:
Because as business owners, getting wealthy often involves taking risk, making bold action, being optimistic, taking big steps. Right? You have to take on maybe some debt to become wealthy. But I’ve talked about this before. There comes a point at which you have to make a shift in your mindset from getting wealthy to staying wealthy, from growing the profit to keeping the profit right, from growing the revenue to maximizing the profitability. Staying wealthy requires a different skill set. It requires humility, caution, a focus on sustainability. That’s where it can be helpful to have a wealth manager, to have somebody to help you and guide you. It’s so easy to over leverage.
Darren Wurz [00:11:01]:
It’s so easy. There are so many law firms that are one client, one bad payroll, you know, one big bill away from bankruptcy that are one bad month away from bankruptcy. I see it all the time. So many law firms are on razor thin margins. Yes, the law firm owner is making 5, 6, $700,000 a year, but they are one bad month away from losing it all. Living on the edge. And you would think this wouldn’t be the case because lawyers are taught to evaluate risk carefully. But I see so much of the opposite happening when it comes to being a business owner.
Darren Wurz [00:11:48]:
So many people are living right on the edge. In wealth building survival is key. Avoiding catastrophic loss by being prepared for worst case scenarios. Now I tend to be passionate about this because as I mentioned in the previous episode, I am a bit more risk averse. So I’m a bit more attuned to risk. But it’s important to make sure you have an emergency fund. There’s nothing sexy about having an emergency fund or having adequate insurance. There’s nothing terribly sexy about having bonds in your portfolio.
Darren Wurz [00:12:25]:
But when 2008 happens, you’re glad you had them, right? It’s about survival, it’s about staying wealthy. And that is a little bit different. So we need to be prepared for the unexpected. You know, it’s so, you know, when the market is doing really well, it’s so easy to take risk. Everybody’s very comfortable with risk. Everybody wants to invest and people are 100% invested in stocks and they’re over leveraging. They’re triple leveraging, they’re double leveraging, right? But be careful because things happen and they’re unexpected. Prepare for those events.
Darren Wurz [00:13:12]:
Be prepared for Those events. Know that your portfolio will survive if something crazy happens, because crazy stuff does happen. Look at the last hundred years. I mean, there have been some wild things that have happened in our history. Now, you know, in the United States, we’ve been fairly lucky, but some, you know, many countries have had their stock markets wiped out entirely throughout some of the brutal events that have occurred in the last 100 years on planet Earth. So protecting wealth is critical. Think about this. What’s one area of your business, business or finance, that feels vulnerable? Take a small step today to protect it.
Darren Wurz [00:14:02]:
And you know, along that same theme, as we move into chapter six of the Psychology of Money, Morgan Housel talks about winning with tails, winning with tails, tail events. And this is really what we’re talking about here. The unexpected, the tail events. What are tail events? Tail events are outliers. They’re those rare, unexpected events that can make or break your financial future. Think about how a single case or a single client could skyrocket your law firm’s reputation. Or in investing, how one or two big winners in your portfolio might generate most of the returns. It’s the simp.
Darren Wurz [00:14:45]:
This is. This is the way things work, right? You know, when we look at the stock market, there are hundreds, thousands of stocks, right? But the vast majority of the returns of the stock market are driven by a handful. And it’s very hard to predict what that handful is going to be. I mean, it’s been pretty consistent over the last decade or so. But who would have known that Apple was going to be the company that it was going to be? It was not written in the stars that Apple would come to be this dominant company. Apple struggled for a very long time as a company, and it really wasn’t until the iPhone that Apple made an incredible breakthrough. And that was luck. That was a lot of luck.
Darren Wurz [00:15:45]:
That was a lot of happy circumstance, being in the right place at the right time. Because Apple was not the first designer of a cellular device. They were late to the game, and that was not their primary markets or their primary product. It would have been very hard for you to predict in 1999 that Apple would become the maker of phones. And if you did, hey, hats off to you. But I just want to illustrate and want to harp on that a little bit, because in investing, it’s an old adage, and we get tired of saying it. Diversification is key. And so often we want to pin our hopes and dreams on a few stocks that we believe in or we think are doing really well.
Darren Wurz [00:16:35]:
But it’s hard to know what are going to be the big drivers of success. The other part of tail events that I like to think about is that there are these moments in history that will define your financial future. There are these singular moments that will make or break you. 2008 was one of those moments. In 2008, the world had one of the worst crises financially that have ever been experienced. And it was a myriad of factors that created this crisis. But basically the world’s financial system came to a grinding halt. And we won’t get into all the complexities of why, but the economy ground to a halt.
Darren Wurz [00:17:33]:
The stock market dropped 50%. So I mean, if you are a boring investor, invested in the S&P 500, you saw your portfolio go down by half. Now, if you’re thinking about that, you don’t know what that feels like unless you’ve experienced it. Let me tell you, you do not know what that feels like unless you have lived through that experience. It’s one thing to imagine it, it’s another thing to feel it happening in the moment. But here’s the thing. The people who stayed invested, the people who got invested, were successful. Because although it did take some time, the market rebounded.
Darren Wurz [00:18:22]:
And not only did it rebound, it went on to double, triple, quadruple in value. If you got out of the market because you panicked, not only did you miss out on those gains, but you locked in severe losses. And folks, I have talked to people as recently as a few years ago who took their money out of the market in 2008 and just never got back in. Because they kept wondering if it was going to happen again. They allowed that fear to stop them. And they were always concerned that, well, it’s gone up so much now, it’s going to go back down. Don’t let that hold you back. These tail events, these moments are the critical moments in history.
Darren Wurz [00:19:11]:
And if you can keep your cool during these time frames, if you can stay level headed and even view these as an opportunity, you will be tremendously successful. But if you allow panic to take over, you can really harm your future. It’s so powerful, folks, I really just really have to stress that very, very important, the key is to stay in the game. The key is to stay in the game. And you know, there’s an important lesson in here for our lives as business owners. You know, most of the things that we do in life are not going to be terribly successful. Most of the things that we try as entrepreneurs are not going to really work terribly well. Most of our decisions won’t lead to extraordinary outcomes.
Darren Wurz [00:20:06]:
But the few that do could change everything. So let that give you some hope. Let that give you some inspiration. Keep trying. Keep innovating. Keep striving. You might not. You might not knock it out of the park on this hit, but it’s coming.
Darren Wurz [00:20:26]:
It’s coming. That that rare moment could come. That rare, unexpected moment could come. And it could be yours. Well, folks, we’ll wrap it up here for you. The Power of Compounding don’t forget that the power of compounding and survival entail events. These three simple but profound principles can transform how you think about wealth into and can allow you to accumulate wealth and to keep it. Compounding rewards patience.
Darren Wurz [00:21:00]:
Survival keeps you in the game. Intell events remind you to stay open to big opportunities. Start early. Let time work in your favor. Build safeguards and protections to to protect your wealth because it’s fragile. And recognize that the big wins may be rare, but they’re worth waiting for. What can you do this week to apply these principles in your life? Whether it’s funding your retirement account, reviewing your insurance, or saying yes to an opportunity that feels outside your comfort zone, take one small step today. The key to building wealth isn’t just about how much you earn.
Darren Wurz [00:21:45]:
It’s about patience, protecting what you’ve built, and being ready for those rare opportunities that can transform everything. This week. Take one small step. Invest consistently. Review your safety nets, or say yes to a new opportunity that aligns with your goals. These principles are at the core of creating lasting wealth and at the core of what we do here at the Lawyer Millionaire. We’re here to help law firm owners like you build a financial foundation that aligns with your business and life. If you need help putting these ideas into action, I’d love to talk with you.
Darren Wurz [00:22:24]:
By the way, if you enjoyed today’s conversation, I invite you to join our book club and get in on the conversation. It’s free and it’s open to all law firm owners. Just go to community.lawyermillionaire.com well, I hope you enjoyed today’s show. This has been the Lawyer Millionaire podcast. I’m your host, Darren Wirtz, here to help you go from grind to greatness. See you next time.
Outro [00:22:56]:
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