Is "Slow and Steady" Approach to Wealth Out of Fashion?

We have all heard the story of the “hare and the tortoise” when we were young. But somehow, many of us seem to have forgotten the lesson taught by the story as we grew older. In a world where the rich are placed on a pedestal and worshiped, the “gods” are those people that made it rich quick and with a bang. Larry Page and Sergey Brin, Chad Hurley and Steve Chen, David Beckham, Tiger Woods, Oprah Winfrey – these are the people that fascinate us. OC, the simple life – these are the TV shows that hold our attention. We dream that someday we will be rich and famous too.

There is nothing wrong, or for that matter new, with this dream. For generations, people have dreamt of becoming rich. But it seems to me that in the more recent times, this dream has somehow caught on a tone of urgency. We not only want to be rich, we want to be rich *now*. We don’t want to wait for our boat to come in – we just want to get there right away. In a world where everything moves at the speed of light, it seems like we have come to expect our dreams to become reality fast too.

Take for instance the example of a friend’s younger brother who recently graduated with an undergrad degree. He got a job right out of college and it pays him a fortune. Being a bachelor who shares an apartment and stays close to work, he could easily manage to splurge on parties and manage to save a fair amount at the same time. Considering that he is in his early 20’s, if his career grows at a reasonable rate and he maintains a consistent savings plan, he could easily be a multi-millionaire by the time he retires. But he does not see it that way. He looks at the folks who made their millions in the dot com boom and feels that he has already missed the boat. To him, the only way to make money is to make it fast and with a bang.

Last year, when he was in his senior year of undergraduate study, he was assaulted by severe doubts of whether he did the right thing by majoring in computer science. He was fascinated by the real estate boom and was convinced that that is where the money is. For a while his folks were seriously worried that he may throw the three years he spent on the engineering degree to pursue a real estate certification. Fortunately, he stuck it out and completed his undergrad. But with the real estate bust, he is again disheartened and fretting about missing “yet another” boom. He is already looking to see what the next wave it going to be. He wants to make his millions by 30 and retire to a life of traveling the world and driving expensive cars.

He is an extremely smart person. And I have no doubts that he has the potential to make it big. But if every smart person were to become a millionaire before 30, we would have a lot more stories to tell than we do now. In addition to being smart and talented, success requires a pinch of luck and a dash of timing. I wonder if in his quest for instant success, he is neglecting the more time tested way to riches – the slow and steady way. While the stories of the slow-and-steady millionaires may not be as fascinating as the stories of the got-rich-quick whizzes, the slow-and-steady approach has a much better probability of eventual success.

The attitudes and expectations of my friend’s brother is a bit disturbing to me, because I can understand and to a large extent relate to the way he feels. I look around me at the peers who joined start-ups that went public and who made a nice cushion of money. I know a few seniors who rode the dot com boom. And a colleague from an old job that day-traded his way into retirement at 32. And a friend who sold his home in California at just the right time, and owns a house now in Texas free and clear. It makes me wonder if I am doing the right thing. If I should look at other options than the regular 9-to-5 job (that is really more of a 8-to-8 job) and find my own ways to quick riches.

But when you look closely, for every friend that I can think of who can afford to retire in their 30’s, I can think of a hundred others that cannot. The common strand in many of the success stories is that, these people were going about their daily lives as usual, and the right opportunity came knocking. Seems to me that the best approach to riches would be to take the slow-and-steady approach, while keeping an eye open for an opportunity to make it rich quick. That way, if the stars align just right and you are the story that people talk about, great! If not, at least you have a Plan B already in place to make you rich eventually.

The nice thing about plan B, the slow and steady plan, is that it is tried and tested for centuries and as shown in the book Millionaire Next Door it works. In addition, there is a clear cut step-by-step manual to take you where you want to be. As long as you are persistent and follow the directions in the manual, you will get there. And instructions usually read something like this:

  • Live below your means.

  • Stay out of debt.

  • Invest wisely.

  • Avoid the temptation to keep up with the Joneses.

  • Rinse and Repeat.

Now for something that can give you a guaranteed results (bar the unexpected curve balls that life may throw your way), those instructions aren’t all that hard to follow, are they?

In this fast paced world, the slow-and-steady approach to riches may be extremely uninteresting and seem out of fashion, but considering that it can make promises that no other approach can make, I doubt it will ever really lack a following. Count me in.

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WizCoder said...

i personally prefers a fast and furious way to my millions

ryan said...

great article. i try a hybrid approach, hedging my bets and hoping that it will work out. i live below my means, no debt, couple of roommates, etc.

i also work the 9-5 and take all of the money i save each month and buy good rentals at a discount with my girlfriend.

i figure the rent makes money all day long, and if things appreciate thats icing on the cake. i just want to have options.

well thought out and thought provoking article though, not your stanrdard personal finance rehash.

Ben said...

Very good article, seƱor. I would have to say that "Stay out of debt" will work against "invest wisely" at times, though. At least for 'good debt' like the mortgage and student loans. It's better to jump into school early and let Uncle Sam float you some living money than wait 10 years to save up your own cash and let tuition triple and lose out on a decade of career/retirement building years. Also, you're better off purchasing with a mortgage than you would be renting and saving up the cash. Staying out of credit card debt is nearly always wise investing, however. These seem to be no-brainers and I suspect they are implied in your post, but I couldn't resist commenting to make sure you're not striking debt fear into the hearts and minds of too many people out there.

plonkee said...

I definitely feel like I have missed the boat already. In fact I purchased my first house three months ago and a couple of people have already pointed out that is was probably the worst time to buy. That really helps.

ispf said...

wizcoder: I rest my case :)

ryan: Thanks for the compliments! I have been thinking about buying rentals on and off, but haven't found the nerve to take the leap yet! Good luck with that - by the time you retire, hopefully all the mortgage will be paid off on all properties and you will have a good stream of income in addition to the nest egg!

Ben: Again, thanks for the compliment. I agree with almost everything you say except the statement "Staying out of credit card debt is nearly always wise investing, however". I have been borrowing from credit cards at 0% and keeping it in online savings account to make a good amount of pocket money over the past year :) I wrote about it here in case you are interested. As you can see, I have no intention of striking any kind of fear in anybody's hearts and minds :)

plokee: Wow, Congratulations! People *always* say something or the other. As long as you enjoy your home, don't pay any attention to them.

xshanex said...

I've been watching my good friends and landlords go through this for a couple years now. They aren't seriously investing in anything but real estate. They're counting on appreciation and not positive income flow from rental costs. They're looking at a couple more areas locally to buy in so they can get more rental properties. They are also very hands off and don't want to invest anything in the property unless they absolutely have to so that worries me when some kind of major work might need to be done. Minimal investing into 401k and he isn't investing and is counting on military retirement pay. They have a high combined income yet don't even have Roth IRA's. Lots of $ in cash in low yield savings accounts. He is more looking for the get-rich quick thing and researching mini-golf places, small restaurants, laundromats or small franchises to open. They are not alone...every 3rd person out there still thinks they're going to make it huge in real estate and retire in 5 years. 2 years ago I had to explain compounding interest to a woman who used every last penny of her money to buy a horribly overpriced home with an ARM because she was firmly convinced that real estate would go up 20%+ a year for the next 10-15 years and that she would be retired soon. She laughed at me and my explanation of financial fundamentals.

I'm a bit more diversified than my get rich quick friends and have no illusions about being a millionaire any time soon. I'm currently investing in real estate by not investing in real estate if that makes sense. I'm actively saving the $500-800 a month I save by renting instead of owning and use it for debt reduction and investing. Figure I'll use some of the money at some point to buy a home once the market stabilizes over the next couple of years....I refuse to buy into any financial system that has this many serious problems with the fundamentals

ispf said...

xshanex: "every 3rd person out there still thinks they're going to make it huge in real estate and retire in 5 years. "
I must admit, sometime back I was quite bitten by the real estate bug too. However, when I started looking around, almost all the properties resulted in negative cash flow. Especially when we accounted for possible repair costs and that we would need to hire a management company since neither of us has the time or patience to deal directly with tenants. And we didn't want to go looking for foreclosures and deal with people who are already quite beaten down by life! When it started to look like we would just have to rely solely on "appreciation" we realized it was just a stupid proposition for people like us (who don't want to do hands-on work on finding and managing the property). And I am glad we stayed out of it!

Currently, we are also a bit more diversified, but unlike you I have not been able to get the "want to get rich now" bug out of my system. I focus on doing prudent things (career-wise, financial decision-wise etc.) but am always on the lookout for what the next up wave will be :) Seems like you are right on track - good luck!

Thrifty Penny said...

I enjoyed this article. It reassured me that one day I'll have a chance to become a millionaire if I follow the right steps. I worry often that becoming a millionaire is out of reach for me.

Anonymous said...

good article.

Sad truth ... we all want to be rich NOW. But wishful thinking and being clever isn't enough.

I think the nail on the head statements are 'luck & timing'. of all the successfuly people I know, luck & connections & timing or else the alternative of decades of hard work are the only things that work.

I'm 40 ... been saving & living beneath my means since I was 23 ... plan on retiring at 50 above the million mark (home, 401K, Roth IRA, and mutual funds to get me from 50 to 60 before I tap the LTerm funds). Thank goodness I had PLAN B in effect because so far PLAN A has been like an empty well ...

I am still on the lookout for the fast way toward riches, but nothing's dropped in my lap yet. Probably will happen when I'm 51 and it doesn't matter anymore ... heh.

But as long as I stay in decent shape & eat healthy, 50 isn't too bad. I always had the dream of retiring at 40, but it's just not realistic (at least not for me).

Thing is, as I get closer & closer, I feel less stress. It's never been about spending the money on flashy things, it's about the options that the money brings (freedom).

And like it or not, slow & steady does work. I have a spreadsheet going back to when I was 23 ... I had $1500. Every year that amount grew. it's like a snowball rolling downhill, grows more & more & more. Amazing how time & patience & the principles mentioned in this article do work.

Good luck all!

ispf said...

Thrifty Penny: Thanks! No don't give up. It's not really that hard - just requires a lot of patience and commitment. We can do it! (gosh I feel like I'm in a Nike ad :)

Anonymous: "Probably will happen when I'm 51 and it doesn't matter anymore ..." - Hey, didn't you hear that life starts at 51? :) Seriously though, thanks for sharing. It's hearing stories from people like you that strengthens my resolve to stay on the slow-and-steady path!