Make Money Part 1: The Much-Ignored Path to Wealth

February 10, 2013 in Making Money

Or, What I Wish I Had Known When I Was 20

Gustave Doré - Dante Alighieri - Inferno - I found myself within a forest dark...

Gustave Doré – Dante Alighieri – Inferno – I found myself within a forest dark…

I’m assuming you are not somebody for whom the chips seem to have fallen in all the right places. You are not Bill Gates, Steve Jobs or Mark Zuckerberg, in the right place at the right time with the right idea, the right energy, the right knowledge and the right colleagues. No, you are probably someone much like me: stuck in some rut with no obvious way out, maybe paying a fortune in rent and other bills, maybe working long hours, or simply stuck on welfare benefits or disabled or something, and wondering if you’re even employable at all.

Well, while we’d all like to “get-rich quick” as the saying goes, that is not usually the way it happens. Instead, what I’ve called “The Much-Ignored Path to Wealth” is actually what the rest of us have to do if we want to get anywhere financially. Now don’t get me wrong – get rich-quick schemes can sometimes work, and there is no doubt that some people manage to get rich with them – usually the founders, since most get-rich quick schemes are usually thinly-disguised scams designed to take your money and funnel it to them. The almost infallible sign of this is that they want some money off you up front before you can really find out what it is all about…

Anyway: what is this much-ignored path to wealth for the rest of us? And who am I to talk about it? Have I got rich from it? Well, no – not yet – and that’s why I’m writing this article, in fact: it is called “Part 1″ because I am going to keep writing occasional articles detailing my progress as I try to escape from the rat-race rut into full-scale financial independence – which I define as not having to work any more if I don’t want to. Just search for “Make Money” or view the Making Money category to see more articles in this blog as and when I’ve written them. You can also subscribe with your e-mail address using the widget in the sidebar or with RSS to get (irregular and not too frequent, I promise) updates. You can also follow me on Twitter if you like, at @alphatucana.

The Much-Ignored Path to Wealth

In short, this is how it is done.

  • Get a job if at all possible – any job if necessary but get regular money coming in;
  • Spend less than you earn at all costs, no matter how low your standard of living has to get;
  • Save the surplus in an interest-bearing account;
  • Keep some savings set aside for emergencies: things go wrong all the time. Most people need to work towards having a few months’ living expenses set aside;
  • When you have a small lump sum, say US$500 or GB£250, or around a week’s wages saved, preferably over and above your emergency fund, begin investing it seriously;
  • Your early investments may include gold and silver coins for security in times of crisis and the stock market for short-term or long-term growth and income;
  • Your later investments may include real estate to collect rent or to speculate on in a rising market and some small business venture either as a participant (your new job) or as a “sleeping partner” to collect dividends from the business’s profits;
  • By this time you will probably be not far from being financially independent and may be able quit your original job;

And that’s basically it. Of course there is much more to be said about all this – and in future articles I will be doing exactly that. From a get-rich quick scheme, or online blogging, or whatever the latest fad may be, your odds of making serious money are probably less than 1 in 10,000 (I made that number up but I’m sure you understand that the odds really are low). From the much-ignored path, used by the vast majority of the self-made millionaires in the world, it seems to me the odds are more like 50-50, over a period of anything from 5 to 25 years. Me, I wish I had understood all this properly when I was 20 or so, rather that at 53 as I am now! Indeed, I did kind of know it, but I didn’t understand it at the intuitive, instinctual level and allowed myself not to work hard enough at getting jobs or at saving money. So to cut a long story short, I’m effectively starting from scratch right now (with about £500 available to invest in the stock market and the occasional gold or silver coin to be kept safely locked away outside the home in a safety deposit box once they amount to any decent quantity).

Some people commenting on this article from Reddit have suggested indirectly that I should add a couple of warnings, with respect to investment. 1) Never invest what you cannot afford to lose, 2) Keep some cash available for emergencies, and 3) Don’t invest in what you don’t understand. I’ll be writing more about these ideas in future articles: this one is just intended to outline the general plan. In any case, before you invest money, invest some time learning about what you’re planning to do, and maybe do some dry runs with pretend money first – many online brokerages have practice accounts. And don’t think that just because you get lucky with an early investment, that investment is easy: fear and greed are your enemies in the markets because they make you sell low and buy high, instead of the other way around. Be warned…