Accumulating Wealth, Slowly But Surely

by Silicon Valley Blogger on 2011-09-1817

In the world of personal finance, a lot of choices we make are tailored to our lifestyles, age and profile, and so much of the guidelines can be subject to interpretation. I realize that financial advice is just a blueprint that many readers can act upon differently, depending on where they’re coming from. Let’s take for instance the general advice that tells us to “put our money to work.” What does this mean to you? For a lot of us out there, does this mean taking the money we have and applying it to any of the following activities?

  • “Invest” it in lottery tickets.
  • Create a portfolio of individual stocks based on their relative strength.
  • Leverage with options, margins and little or no money down.
  • Buy real estate, then flip it or rent it out.
  • Lend money and collect the interest.
  • Start a business with our savings.

Each one of these approaches has made someone out there very rich, so it’s natural to expect that there will be people who will swear by each method as their proven and definitive way to wealth. But what we need to remember — but many choose to ignore — is the fact that what works for the select few may not apply to the general populace.

Money making schemes are a dime a dozen. And though there are an infinite number of ways to make money, most of them don’t work too well. Some won’t get you very far (or may even derail you: e.g. playing the lottery) while others will give you a much better chance of building a solid nest egg and growing your net worth.

turtle jewelry

Can you tell which of these ways can spell trouble and which can propel you further ahead?

Think about some of the distinctions between “getting rich quick” and its antithesis — “building your wealth slowly”. Most of us want to be wealthy someday, but many of us are also impatient. Those who insist on becoming rich right away will often want to take shortcuts and take unnecessary risks to get from A to B. If you have any of these traits, you may find yourself susceptible to high-risk financial ventures.

  • Are you ambitious and impatient?
  • Do you feel frustrated about the pace at which you are saving money?
  • Are you envious of successful people?
  • Are you familiar with the concepts of personal finance?

Many people who go down the wrong path are often enthusiastic and overconfident but lack knowledge and experience. But since we all have to start somewhere, my advice here is that anyone who decides to take shortcuts to wealth should be aware of the potential consequences and losses that they may face. If we instead opt for the slow journey to wealth, we are more likely to sidestep those gaping potholes that threaten to swallow our money. One of my favorite sayings is “a fool and their money are soon parted,” which serves as a reminder to me whenever I get the itch to look into a nebulous wealth-generating idea. There’s nothing wrong in investigating such activities, but it’s important not to let our emotions, our initial excitement and imagination get the best of us.

I’m also not claiming that you can’t make insane amounts of money by going down certain roads, because you can certainly do that — but what are your odds? If you want to increase your chances of doing well, then you may want to take note of the things that DO WORK for most people vs the things that BLOW UP in most people’s faces, while enriching a select few.

So “Get Rich Slowly” is not just a name of a highly recognized personal finance blog, but is also a financial battle cry for a lot of financial bloggers and PF (personal finance) heads. It’s a mantra we can apply to the subject of accumulating wealth. The fact is, there are many ways you can approach wealth building, but it does not have to be through high risk, unethical or even illegal means. Here are some ideas to help you get going on this mission:

Really, why not ask ourselves this interesting question, which I feel sums up this topic well:

Which would you rather take: a 5% chance of making $1 million in one year with 95% chance of going deeper in debt, or a 90% chance of making $1 million in 20 years?

One final tip: Succumb to the temptation of “hitting it big” by allocating ONLY a small amount of your money into such a project or activity — an amount you can afford to lose. Hopefully, this scratches your itch while preventing you from going broke.

Created February 19, 2008. Updated September 18, 2011. Copyright © 2011 The Digerati Life. All Rights Reserved.

{ 17 comments… read them below or add one }

moneymonk February 19, 2008 at 10:34 am

I would always rather 90% chance of making $1 million in 20 years…always

However we live in a culture “spend it and spend it now” and savings sometime takes the backburner. Hence, this is why most live paycheck to paycheck

Mrs. Micah February 19, 2008 at 12:15 pm

It can be frustrating to be patient. I don’t like it…I mean, I can figure out how we’re going to do stuff, but I have to act day by day in paying off debt.

But I also don’t like taking chances. I really really don’t like risking my money. It’s not like I have enough to risk it more than I have to. Not investing would be a sure loss, however, what with inflation.

P.S. Love the turtles!! You always have the best pics. 🙂

squawkfox February 19, 2008 at 1:49 pm

The power of compound interest is astounding. The way to get rich is simple: 1. Save money, 2. Compound, 3. Wait 20 years. It’s the new math.

RacerX February 19, 2008 at 4:32 pm

Risk/Reward is important too. Over the course of 20 years a 1% change can be thousands of dollars more. But balancing that risk/reward is key. For example I would risk $1 on a 500/1 payout ($500) if the risk was much less then that, say 10/1. However at 1000/1 I wouldn’t because the risk well outweighs the benefit.

Plumbing Course Andy February 19, 2008 at 11:52 pm

Anybody can be rich! As long as you have the patience and determination I guess anything is possible… And also you don’t have to be afraid to take the risk. At first it may be risky but in the end it’s rewarding..

The Financial Blogger February 20, 2008 at 5:05 am

The problem is that your 1M$ won’t worth much in 20 years 🙁

I guess it would be safe to aim 3M$ in 20 years 😀

SVB, do you think it is the right time to buy properties in the US or is it going to continue to drop?

Silicon Valley Blogger February 20, 2008 at 9:02 am

The Financial Blogger,

You are absolutely right about the erosion of money after 20 years. But it’s still good. It’s still worth $500,000 – $600,000 even with 3% inflation a year running for 2 decades! Better that than going further into debt….!

Regarding the property markets — I think it will take another couple of years to bottom. The behavior of real estate is that after it bottoms, it also takes a while to plateau before it rises again. So I won’t be in any hurry. Here is a post I wrote on this subject not too long ago. I discuss “timing” real estate investments to some degree.

Young Investor February 22, 2008 at 11:24 pm

Hi there,
I think its good to have the attitude that wealth is accumulated over a longer period of time. And the effects of compounding can be amazing in building wealth.

I cover a post in my blog about how wonderful compounding is. It really is a magical thing!

Anyways despite being able to accept that building wealth over a period of time is good, one should not also miss out on opportunities for creating wealth today as well.

Its not really the case of one or the other. I think that you can do both.

Of course you have to pick your investments wisely. But its also wrong to say earn money today or earn money in the future.

Young Investor

JonBoy October 29, 2009 at 5:45 pm

I would risk the 5% for a quick return if I “felt” the investment. Of course, research is ALWAYS the key to any successful investment. Do your homework. If it still feels like there is a possibility of hitting a golden bulls eye then go for it. Just never risk (invest) money that you cannot afford to lose. Investing is gambling, there is no other way to put it. The reality is that you have to balance the risk and investment with the potential payoff. Some truly stupid ideas have made millionaires out of some lucky people.

would you rather February 1, 2011 at 11:02 am

I think I would rather go for it, and try for the quick million. If that failed, I would go for the slow burn. But you only life once, and I say take the shot 🙂

krantcents September 18, 2011 at 12:19 pm

I think the answer is obvious! Some may hedge their bet a little by buying lottery ticket too. I am not one of those people.

The Better Investor September 19, 2011 at 4:14 pm

I agree with your perspective that slow and steady is a much more reliable way to build wealth than following a “money making scheme” that worked for only a handful. And I appreciate your note that approaching wealth building is not a one size fits all approach.

In general, if you follow a portfolio allocation that’s right for you (that fits your investment timeline, capacity for risk, goals, and other preferences), you can add a certain limited amount of exposure to those high-risk (and hopefully high-return) investments without sending your entire financial life into ruins if it doesn’t work out. But, it’s important not to over extend yourself by investing an amount that you are not willing to lose.

Kevin@RothIRA September 19, 2011 at 6:30 pm

Get rich quick probably gets a big lift from TV, where everything happens quickly (and usually with no fuss or pain) and if we don’t like what we’re watching we can just change the channel! That sets us up for a short attention span.

For most people, a slow, methodical approach will be the only way forward–but it’s also a bit…boring! (there, I said it!) So cutting expenses, saving money, investing in relatively high yeild/low risk investment vehicles, keeping taxes and fees to a minium–are all necessary. We can do that through retirement plans/planning because the plans themselves are established to do so. But getting “rich” beyond retirement requires the same steps, though it may not seem as apparent.

Silicon Valley Blogger September 19, 2011 at 7:14 pm

@The Better Investor,
Yes, I think that allotting a small amount to more high risk investments may be the most prudent way to approach these tempting schemes. At best, you’ll satisfy an “itch”, but at worst, you’ll lose only a bit and learn a lesson from the process. It’s when people decide to go all or nothing that life-changing mistakes are made. You can’t lose what you don’t bet.

Unfortunately, the road to becoming a better investor is paved with many painful money-losing mistakes. It certainly was the case for me! But ultimately, anyone who’s serious about making money over the long run will realize that being smart about their investment choices and financial decisions entails careful deliberation, study and even built up experience. While there are people who will be careful about their investments from day one, not everyone is built that way. Others will learn over time, while the rest will probably won’t bother heeding the error of their ways and will continue driving themselves towards bankruptcy with bad (and perhaps overly aggressive choices).

There are people who are clearly addicted to get rich quick schemes — sometimes due to their desperation to make up for lost money. Once they’ve lost, they feel the need to make up for that loss right away and this clouds their judgement, setting themselves up for further losses. They become victims of a vicious cycle. Many people fall for scams repeatedly for this very reason.

Soullfire September 19, 2011 at 8:57 pm

For the majority of folks, slow accumulation of wealth makes the best sense because that is really the easiest path.

There are legitimate faster tracks to wealth besides the 20 – 30 year plans, but they include a couple of four letter words that offend many – hard work. 😉

While there are exceptions to the rule, the bulk of people who have gotten wealthy quickly fall into two categories – those who were shined on by good fortune such as working for a company with a huge IPO, or winning the lottery. The other group put in long hard hours to get to where they are. The lucky group presents chance events that can’t be passed/on or duplicated except by more random good fortune.

The problem is most media presentations of success only focuses on the end product, which makes it look like many people are just waltzing into wealth overnight- since all the behind the scenes blood, sweat and tears makes for “boring” TV.

This is why one really needs to be passionate about any particular field they wish to be successful in, as it will be much easier to put in the extra time, effort, and perseverance required to reach their goals.

And don’t let your friends shoot down your so-called “nebulous” wealth ideas. Who would have seriously considered anyone successfully selling worthless rocks to people, or pricing coffee at $4 with a straight face? =)

Darcy September 23, 2011 at 11:01 am

I remember reading the Wealthy Barber by David Chilton when I was in my 20s and thinking nice but I want it all and I want it now. After spending 10 years recovering from a divorce and a bankruptcy I wish to hell I could teleport back in time and boot the young me in the head. Lesson learned.

Now the bulk of my income goes on the slow and steady plan but I do set aside a small amount that I can lose and not care about for the risky opportunities. I just never dip into the money designated to support the long term plan.

Bill March 3, 2012 at 5:31 pm

Another way to increase wealth is to work as a consultant from a temporary staffing agency and you usually command much more income than if you were a salaried employee. Instead of being salaried, you work on a contract at a client. The staffing agency charges the client an hourly rate and you get a cut of it. No benefits, but you have to demand more money to make up for lost benefits. You get good tax benefits as well. You make far more money and I know consultants who have become multi-millionaires over two decades. You can make your wealth grow faster if you combine living cheap, earning high, and investing a lot more into stock funds, treasuries, and precious metals (dollar cost averaging) with what you are not taxed and what you do not spend. This worked for me. My only regret is not getting into consulting in my 30s.

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