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You Will Fail Trying to Get Rich Quick. I Promise.

One of the biggest mistakes that I see with new investors is that they start off with a mindset that they can get rich quick.  Sure, you might get lucky and hit it big with a couple stocks, but that’s not going to make you get rich quick.

The question that I ask is – Why do people have this mindset? 

Honestly, it’s simple – people are lazy.  People want to do the least amount of work and get the best results possible.  I mean, I also fall into that camp, but who doesn’t?

If my retirement number is $2 million would I rather steadily invest over 30 years or just hit the freaking lottery?  Of course, I want to hit the lottery.  I want the money now.  I don’t want to have to be dedicated.  I want all of the results and 0 of the effort.

The dream.

Unfortunately, that’s not how life works.  You won’t be a pro athlete without years of training and effort.  You won’t lose weight without working out and eating right.  You won’t graduate school without studying and doing your homework.  You won’t get a promotion at work without working hard and proving you’re worthy.

Nothing in life is easy and if it is, then it’s probably not worth having.

So why do people think that they can get rich quick by investing?  It kills me!  I often see people post THE MOST annoying posts on our Facebook Page trying to sway people into this sort of scam that they can get rich.  Don’t worry, I ban them, just like this person below:

These people are scammers trying to take advantage of you.  But while you can’t get rich quick with investing, I am here to show you that you can QUICKLY GET RICH!

“Andy, you just said the same thing.”

No, I didn’t.  There are steps that you can take quickly that will allow you to get rich.  You won’t be rich right away, but you will be at some time as long as you can take these simple steps:

1 – Spend Less Than You Earn

Getting rich all starts with the basics of spending less than what you earn.  You know how in football they say, “it all starts up front”, right? Well, it’s the same way with getting rich.

Just as with that saying in football is referring to the offensive line, by spending less than you earn, you’re going to be able to “block” any future financial stress from coming your way.

This is something that I can truly speak from experience on.  I have fought years of spending recklessly and being too scared to look at my bank account after a fun (stupid) weekend to get to this point now. 

Not even 5 years ago I was withdrawing money from my 401k to pay off some of my credit card.  Do you want to know what my stress is now?

I was trying to figure out a way to save 35% of our pretax income…can those situations honestly be any more different from one another?  Nothing has changed in my life in those 5 years that’s given me the ability to save that much except that I got a grip on my life.  In fact, you can argue my life has gotten more expensive!

Yes, I got married so now we have a second income in the household, but that also means much more expenses.  Also, we have a son that’s under 1 year old and trust me – kids aren’t cheap, so you better get that baby budget ready!

But I got my spending under control and now have completely changed my spending mindset, and that has trickled down to my wife and now we can talk about doing something crazy like saving 35% of our pretax income!  And some people can even save much, much more than that because like I mentioned – 5 years ago I was making some insane decisions to pay off debt, and that debt isn’t totally gone, but it’s well on its way.

For me, it started with Doctor Budget.  I’m not going to try to sell you on it, but you can see the drastic impact it had on me, so if you’re struggling to get started then maybe it’ll be worth it!

2 – Pay off Crippling Debt

The next step in getting rich quick is paying down your debt that is currently crippling you!  Now, that doesn’t mean that I am recommending you put all of that extra money (because you’re now spending less than you earn, right 😉) towards a 3% mortgage, because honestly there are better options for that, but I’m talking about debt that is just crippling you right now.

Specifically, I am talking about debt that has an insane interest rate like a credit card with 22% APR.  I know that credit cards can actually provide a lot of benefits, but if you’re late on even just one payment then you’re likely going to wipe away a year of credit card benefits, so pay it off!

If you’re paying interest on it, it’s going to just absolutely kill you.  I recently was watching HGTV with my wife and a couple said that they had $90K in credit card debt at one point in their life.  If their APR was 22%, which I personally have on some of my own credit cards, then that would mean they’re paying $1,650/month in INTEREST ONLY!

That is insane.  THAT is crippling debt. 

Not only can debt that is super high interest be crippling, but debt that has a very high monthly amount due can be crippling as well.  If you’re having to pay something insane like $700/month on a car and you’re struggling to live, I am good with you paying that thing off as soon as you can. 

Even if the interest rate is low and it’s not the most efficient thing that you can do, I think there is a benefit to creating some sort of buffer between your income and your bills each month.

This goes against a lot of what I say, but personal finance is personal, so you have to do what works best for you.  Personally, if I had a $700 car payment and I only then was able to save like $100/month, I would sell that car, buy a cheap clunker car and then bank the rest and invest it. 

It’s about what is making you feel crippled and what is keeping you from getting rich.  But if your car payment is maybe only $250 and you now have $550 left at the end of the month, what do you do with it? 

3 – Invest

This is really the meat and potatoes to this blog of how to quickly get rich (and not get rich quick)!  You see, everything up until this point has really been some quick steps that are going to help you get rich:

  • Get a grip on your spending and cut those stupid expenses
  • Pay off debt so that you have more of a buffer at the end of the month

Now that you’ve done those best, what’s next? 

Invest.

Invest as much as you can and as early as you can.  If this is the first time you’re really reading about investing, I want to give you just a few tidbits that will really hit home:

  • The average stock market return since 1920 has been 12% since 1950

This matters because when you’re considering paying off debt or investing your money, you should really use 12% as a general threshold for your anticipated return.  Now, I personally use 6% because investing is never guaranteed, but the returns of the stock market in 2019 were over 30%!

If I had chosen to pay more on a 3% mortgage instead of investing, then my opportunity cost would’ve basically been 30% because I saved 3% interest but lost 27% in the opportunity of investing.  Of course, there are years where the stock market drops, but on average, it has been 12% gains for the last 70 years. 

But how does this really impact you?

If you invest $100 now, you will have made (on average) $112 that year, meaning you now are at $112.  Then, the next year, you’re going to make another 12%, but this time it’s more than $112 because you’re making 12% on the $112 instead of $100.  So, you will have $125.44, meaning that you made $13.44 instead of just $12 that year.

This might not seem like a crazy amount, and it’s not, but this is the concept of compound interest.

So many people don’t understand compound interest and it’s such a disheartening thing.  As Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

But what does he mean by that?

Well, you know how in the previous point I talked about earning 12% on your $100 investment?  If you understand that this year you’re going to make $112 and then the next year you’re going to make even more, because now you’re making 12% on what you made the year before, then you’re going to be motivated to do everything you can to squeeze more money into the stock market, right?

And if you don’t understand it, then you’re likely going to be more lackadaisical with your spending and be willing to rack up a credit card.  You’ll sit there and just make your minimum payments each month and realize that you’re actually never really paying your debt off.  You’ll pay hundreds of dollars each month just to see it not really move.

Why is that?

Just as you are the recipient of compound interest when investing, the credit card companies are the recipient of compound interest when you’re racking up a credit card.  You’re paying maybe 2% monthly interest and making a minimum payment of 3%, so you’re only gaining 1% on the total debt.  All the while the credit card company continues to get 2% on this growing debt that you have.

Once you understand compound interest, not only will you be a better investor but you will be a worse spender. 

I am really bad at spending money and guess what, it’s probably my best quality if you ask my wife!

  • Even if you’re not a stock picker, you can invest in ETFs that are literally hands off

You do not have to invest in stocks.  Personally, that’s what all of us do at einvestingforbeginners.com but we know everyone isn’t built this way.

There is nothing wrong with investing in a total stock market ETF like SPY, a high-dividend ETF like VYM, or even some industry-specific ETFs that target Gold or Cloud stocks.  Hey, you honestly can even invest in some different ETFs that have different strategies like Momentum Investing.  I do this today! 

I actually own WCLD and MTUM!

Nothing wrong with ETFs.  Nothing at all.  Way better than the alternative of sitting in a bank account earning basically no interest. 

If you’re investing in ETFs, I would be willing to bet that eventually you’re going to get to a point where you’re going to want to pick some individual stocks, and I don’t blame you – that’s how many people are.

Do yourself a favor and start by reading Andrew’s eLetter or Dave’s Fat Pitch Fundamentals prior to doing so.  Not only are you going to get a ton of insight about what’s going on in the world, you will see some of their top stock picks (they actually invest in these companies, too) and get some deep, meaningful analysis behind their reasoning for picking those stocks.

This is one of the hardest things that I have to overcome with new investors.  No matter how little you have, you need to start as soon as you can.  There used to be fees to invest and a requirement to buy full shares of companies, but most brokerages have waived both of these!

So, you really don’t have any reason not to.  Even if you can only invest $10, that $10 is now worth $11.20 next year.  I know that seems ridiculous, but what if you let that money just sit for 30 years at 12%? 

You now have nearly $300….

You just turned your money into 30x what you put in.

But what if you say something like, “I don’t have $10 right now.  Maybe in the future” and then you wait 5 years to invest, meaning you pull it out 25 years in. 

That just cost you A TON!

On the contrary, what if you started 5 years earlier?  Now, you have turned $10, over the course of 35 years, into…

$528!

Do you see why it’s so incredibly important to start as early as you can?  Even a small amount is better than nothing, so just start! And if you can, add a little to it each year.

Adding just $1 to your $10 investment over 30 years takes your total from being $300 to nearly $570:

So, do this – start now.  Find out what extra money you have (from your budget) and then open up an account.  I’d recommend a brokerage other than Robinhood and maybe try an IRA that gives you a little extra tax advantage!

It’s true!  Many people think the stock market is for the corrupt but that’s because they only know it from movies and bad stories!  I mean, I don’t blame them – crazy stories of bad people are better for movies than one with a storyline of, “Andy was a hard-working man.  He spent less than he earned.  He invested early in tax-advantaged accounts and at the age of 55, he was able to retire and spend time on the golf course.”

Good thing that we’re talking about making our lives better and not writing a screenplay, right?

Summary

So, in summary, no – you cannot get rich quick with investing.  Well, you theoretically can, but if you try to do it then I bet anything that you’re actually going to lose it all, first. 

So, get that mindset out of your head and start small.  Get your budget started.  Optimize your spending.  Get a side hustle.  Invest anything that you can into the market. 

And then watch the balance grow and your financial dreams come true.

Feeling lost?  Let me help.

However you like to learn, I have you covered:

And if you have any questions, I’m here to help as well.  Shoot me an email – andy@einvestingforbeginners.com

Good Luck!