“The way to wealth depends on just two words. Industry and frugality” – Benjamin Franklin
One of the most common questions people often ask is “How do I get rich?”.
The evidence that people are concerned with this question more than almost any other is clearly seen in the fact that a quick Google search on the topic returns over 160,000,000 results.
Clearly, and for good reason, people are interested in getting rich.
An obvious question immediately comes to mind. If there are so many people out there advising us on how to get rich, why aren’t there more rich people?
Be careful of the advice you buy.
One concept I recently learned about is the what MJ DeMarco, author of The Millionaire Fastlane, calls the 30K millionaire.
The 30K millionaire your uncle Bert, your next door neighbour and the fifty year old travelling salesman who has been wearing the same cheap suit for years. They fancy themselves as financial gurus, experts in the subject of wealth, despite the fact that when you exclude the equity in their homes (which I don’t classify as an asset) and you take away the debt they are living on, they have a net worth of about 30k.
Now don’t get me wrong, someone sitting on 30K cash with no debt and who is under 30 would probably be a good person to listen to.
While this person hasn’t yet become rich, there’s a good chance they are financially wise and should at least be heard out – but the other types, the 30K millionaires mired in debt and with little to show for their efforts – well, just tune them out as politely as possible, and that includes most of the people offering financial advice online.
Just like when you want to become a world-class athlete, it’s probably a good idea to have a trainer who knows what he is talking about. It’s the same when you want to get rich.
The two kinds of people who really do get rich.
In my experience, having met a lot of people who really are wealthy, there are two kinds.
The first is the hardworking man who works with his hands in mining, construction, energy or some other highly paid trade, who keeps his expenses to a minimum and only buys things with cold hard cash.
He typically lives well under his means, invests wisely throughout his late twenties, thirties, forties and early fifties, then through the power of compound interest his wealth explodes and in his mid fifties through sixties he becomes what we would call rich – that meaning he has the kind of cash flow that allows him to do just about anything he pleases and live the kind of life most people are still dreaming of when they wake up and find they are seventy.
The first kind of man is patient, hard-working, and thinks about the long-term. You’ll usually find certain values within him: he doesn’t like debt, doesn’t have much faith in the system and likes to make his own way in life.
He’s a rare and dying breed of a man in a world full of special snowflakes who think they should be paid vast sums of money just for being alive. In a generation or two there may not be any of this kind of man left.
I’ve also noticed this kind of man almost always has entrepreneurial tendencies. He usually makes money flipping cars and houses, he may own a small store or outlet on the side which is family run, and he often works for himself. He’s usually practical and prefers simple businesses with tangible assets. Things he can see and touch are real investments and he avoids things he doesn’t understand or can’t control. This is his mindset.
The second kind of man is what I call “Flash Harry”. I know several of these, one in particular being worth hundreds of millions of dollars. These men are rarer still than the first, in that they have one quality that separates them from the pack – a stomach for risk that would make most men vomit and run like little girls for cover.
This second breed of man is a gambler. He usually gets rich a lot earlier than fellow number one, he typically enjoys millionaire status in his thirties or forties.
He usually owns his own company, or perhaps several, and has put everything he has acquired on the line several times throughout his career. He doesn’t rely on blind luck by any means, but he does rely on luck to some extent since he is used to making large investments or trades that could ruin him. He takes calculated risks.
These are men like Richard Branson and Michael Dell, rare men in our world.
They are the men who can take 10 million dollars and place it on the table, not worried if they lose it because they know they can leverage up and make it back again. They have incredible self belief and vision, not to mention a nervous system constructed out of nothing less than high-grade titanium.
They are comfortable with debt and see it as a tool to enter the money fast lane. They are usually highly versed in finance and the money markets, and involved in more complex and less tangible businesses like tech companies, financial services and trading companies.
Both of these men are to be listened to and respected and you should follow whichever course you feel most comfortable with.
Not everyone is cut out to start an airline or a software conglomerate, but that doesn’t mean you can’t slowly build a small empire of rental homes and burger outlets, for example, and make a fortune over the course of your life, if you have the patience and the will.
Finding out which road is right for you.
You may already have a fair idea which of these two paths is right for you, but in order to make it crystal clear let’s do the following thought experiment.
You’ve been working hard for a year and you’ve saved ten thousand dollars in surplus cash.
That means you don’t immediately need this cash to live off, but you still can’t just set it on fire and think nothing of it. You have the money set aside and don’t think too much about it, but you would notice if it was gone.
While working you’ve also been studying the financial markets. You have developed your understanding through watching and playing on a demo account and have developed a knack for trading.
You haven’t played with any real money yet but you’re pretty sure you’ve identified a few patterns and you know there are certain events which trigger market movements in a certain direction. You decide it’s time to play for real.
You know it’s just a matter of sitting tight and waiting for the right trading opportunity, and such an opportunity comes on a hum-drum Wednesday afternoon, when the CEO of a major fortune 500 company is indicted on charges of fraud.
You tweak, and somehow in your gut you just know that this companies share price is going to tumble fast and if you short the stock you’re likely to make a killing.
You take a deep breath and transfer the funds into your live trading account, all $10,000 and you select the stock and click “SELL”. A little message pops up on your screen “Please confirm trade – Sell company XYZ at $10.40”.
You feel one last rush of adrenalin, fight through it and click sell. The trade is on. (Note, you do not have to own stock in a company to sell it. This is called short-selling, more on that in another post).
You stay up late that night and hardly sleep, periodically checking the screen to see what’s happening. Eventually you calm down and fall asleep, and when you wake up in the morning you get the shock of your life.
The companies’ share price has increased due to a massive share buyback plan implemented by the company as a last-minute attempt to stop a free fall. You’re out of funds and the company has closed your trade at a loss because you were unable to make a margin call!
You read the balance on your account: $0.18.
What is your reaction to the above scenario?
If you imagined yourself picking up a chair and throwing it through the computer room window, breaking down in tears while slamming the desk and going into a suicidal depression, you will never be man number two.
That’s OK, it’s best to be honest with yourself and find out what works for you from the start, because after all man number one also gets rich, it just takes a little longer.
If on the other hand you would swallow hard, feel a little sick but ultimately shrug it off, chalk it up to experience, reflect on what happened and why the price went up, and immediately think about getting together another ten grand for your next trading opportunity, even if it takes you a year, you have a very good chance of striking gold some day and becoming filthy, stinking rich.
You may become man number two, but don’t forget there are no guarantees in this game. You may just not have the Midas Touch, and you may end up old and broke but saying “I had a hell of a ride”.
Are you OK with that if that is the outcome? Would that be better than having never tried at all?
Can you be a combination of both?
Ultimately you are either man number one or man number two at heart.
Both have their strengths and weaknesses and both, as I already said, are to be admired and respected for who they are.
However, it is possible to be man number one with a little more appetite for risk in my opinion.
While man number two is unlikely to ever get on a pair of coveralls and work on a car before selling it on for $800 profit, man number one can learn to take a smaller percentage of his money, which fits his appetite for risk more appropriately, and play at the big tables.
I know several such men who have taken 10-20% of their net worth, teamed up with four or five others and started an oilfield services company. As it turns out they are doing very well and become a recognized force in their market.
I consider myself to be man number one with a little of man number two in me. There’s no way I could ever sit down and risk everything I had on a single big deal, but I am perfectly comfortable with taking a percentage of my money and placing a financial trade, knowing I may lose it all.
Of course, I will only take a calculated risk where I feel I have good odds, but I can still step up to the plate to a certain extent all the same.
Ultimately though, I’m man number one at heart. I’m a simple man and prefer to be cash rich, living in a humble abode which I own outright and managing a few smaller enterprises.
I’m not ashamed of that fact and neither should you be if that’s where you fit. I still stand a very good chance of ending up a multi-millionaire in my early fifties, and I’m good with that.
Choose which road is right for you and then stick to it with the persistence of a pit bull with a truck tire in its’ mouth.
If you do that you will win at the game called money and reach the holy grail so many search for, but so few attain: being rich.
Desire. Decide. Persist.
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