I often write answers on Quora, where I am the most viewed writer for investing, wealth and personal finance, with over 231 million views in the last few years.
On the answers below, taken from my online Quora answers, I focus on a range of topics including:
- Should everybody save money or is investing the only option in an era where interest rates are 0% around the world?
- What are the pros and cons of being rich? The pros seem obvious but what are the negatives associated with wealth? I suggest it depends on how you use the money.
- If you want to get wealthy, are there some goods and services which you should avoid at all costs, because they are a waste of money, or is it more complicated than that?
- Let’s say I needed to make $10m in a year or face death. Of course it is an unrealistic situation but it does pose an interesting theoretical question. In this case, what tactics would I use to increase my odds of achieving the threshold?
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Should everyone have at least a small amount of savings?
Remember during the first Covid lockdown how afraid many people were:
Everything was new and uncertain. It wasn’t clear how long people would go without incomes, and whether the state would step in.
Even plenty of high-income people wondered about how to pay the bills, especially if they just spent as they went along.
Covid-19, and the associated lockdown, is just one unexpected event which has affected the world.
There have also be industry-specific shocks, such as 9/11, which resulted in plenty of people losing their jobs in some sectors.
So of course it makes sense to have a little bit of liquid savings for emergencies.
If you don’t build up wealth, it also means that choices are taken away from you, which can result in needing to work until you drop even if you hate what you do.
There is another question people ask though. That question is that with interest rates being 0%, which is below inflation, does it make sense to have any cash at all sitting around?
The logic is that you are losing money to inflation, after all, and this loss compounds, and you can sell a small portion of your assets if you have an emergency.
Even in this case it makes sense to have a small amount of savings in case your laptop breaks, or something far worse happens.
Nobody finds saving interesting compared to sending or investing the money.
Yet it is a necessarily evil. Remember the plant comparison though:
If you water the plant too much it will cause problems. If you never water it, the plant will die.
The same is true with savings. If you never save, that is a big problem.
A bigger problem than saving “too much”. Yet if you only save, and never invest, the money will get eroded due to inflation, and unless you are very high income and have great spending habits, you will never be able to retire from savings.
Money needs to be put to work, not kept in a 0.1% savings account.
Which ones are the pros and cons of being rich, and why?
The pros are very obvious.
Money, especially if it is wealth and not just income, gives you:
- More choices, including the ability to say no to things. For some, that means stopping doing things that give you pain – like work for a percentage of people. For others, it might mean the opposite, like continuing to work for as long as possible.
- More time if you decide to do that. If you are a business owner, you can eventually outsource, delegate and use technology more. This is partly linked to choices though, as many wealthy people retain a great work ethic, even after riches have been acquired.
- If you are in business, taking more might mean you have achieved something. In other words, it isn’t the money itself, but the sense that you have got the money due to taking big risks or inventing something or whatever
- More security.
The negatives can be
- Money doesn’t always make you happier, and this might disappoint some people. It can do, if you make the right choices and certainly helps, but it doesn’t guarantee that. Sensible people use money to engage in activities that are more likely to give them happiness. Others don’t do this. Ultimately, the hedonistic treadmill (below) means “base level” happiness might stay similar over long periods of time. This graph will become your reality if you just buy more stuff as you earn more. You get a buzz and then the buzz fades. The only way to increase this base level happiness is to use the money to engage in things beyond pure materialism.
- If you acquire money quickly, like some celebrities and lottery winners, you might struggle to adapt. This can result in problems and hangers on trying to take advantage.
- If you have more choices, you might eventually go for the wrong ones, like excessive use of drugs and the wrong lifestyle, especially if you are bored. We certainly see that with some famous celebrities who went broke due to the ability to pay for vices.
- The money won’t last if you don’t manage it correctly. The world is full of formerly rich and wealthy people.
- The more you have, the more responsibility and sometimes risk you take. The bigger your company becomes = the more risks you are taking in some ways. If you get huge (super rich) you will face bigger political risks as well, if governments turn on you. You also face more scrutiny.
- A final negative is that some people you used to resonate with, like lifetime friends and family, might seem more distant. Some might feel envious. Others might not understand why you don’t live a flash lifestyle just because you have money. This can result in many people partly hiding their wealth.
Ultimately though, not having any money is the biggest problem of all.
Going from comfortable to rich doesn’t have as big an effect on your happiness as going from poor to comfortable.
What are the things that a person who wants to be wealthy should never buy?
What matters is that people live below their means and invest the surplus well.
It is possible to get wealthy by wasting money on things you don’t need, but it is much more difficult.
So as Sadie said below, things you don’t need should be avoided.
This quote says it all:
That can even mean buying a house which is too big for your needs, which indirectly costs you a lot of money due to bills, taxes and maintenance.
Beyond that, I would avoid things which depreciate in value, including most new cars and consumer goods.
If you buy a luxury watch which you don’t need, and which won’t beat the stock market long-term, it won’t turn out to be a good investment.
Yet at least it will probably hold its value, and match or beat inflation.
Most importantly of all, perhaps, I would any kind of status-driven purchases.
Purchases which are designed to impress random people you don’t even know or like.
These are the worst kinds because it doesn’t even help your happiness.
I was reading an article a few years ago about some wealthy Chinese businesspeople who didn’t like the taste of expensive wine.
So, they put Coca Cola in the wine to make it taste better! This quote comes to mind:
I am sure most of the people at the bar didn’t even notice that they were drinking expensive wine. Even fewer people would have cared.
All of this is important because people tend to overspend on big ticket items (cars and houses) or impressing others.
Those $5 latte’s might add up, but usually not to the same extent as big ticket purchases.
You must make 10 million from scratch in one year or you die. It can’t be illegal. What would you try?
In that situation, the whole equation changes. When it comes to wealth, it is sensible to focus on the best risk-adjusted return.
If you are relatively young, or even approaching middle-age, you can get very wealthy by leveraging time:
- Compounded investment returns
- Playing the long game in business
- Many other forms of delayed gratification
If you need to make $10million from scratch in just one year, you have no choice but to take huge risks.
Not calculated risks, but risks which are unlikely to work out, but have a small outside chance.
The options would be:
- Leverage. Assuming starting from scratch means $0 in savings or investments but doesn’t mean starting from zero in terms of knowledge and experience, I would leverage up my business. In other words, take out loans, and offer associates a fixed return if they lend me money. With that money, I would reinvest it into areas which could make me a lot of money. I will give you an example of how I have seen this work before. One of my associates runs a real estate agency. He runs Facebook and other ads. As he sells high-end developer real estate, he makes about $50,000 per year, but he can’t get volume sales. Sometimes he goes months without getting a decent one. Yet if he had the cash to spend $100,000 on ads, of course there is a chance he will catch a few people who would be ultra high net worth. Now, my present business isn’t leveraged, yet in the scenario you paint, extreme risks would need to be taken.
- Making a small amount of money and investing it into a one stock portfolio, or a speculative financial asset. As many of my answers have said before, this is highly unlikely to work long-term, yet in such an extreme situation I might not have a choice but to consider this option.
- Of course if somebody has wealthy associates they can ask to have the money and pay back with interest. You are much more likely to get the money if you are somebody with a secure income. I have seen several high-income but low (or negative) net worth people who have managed to persuade people to lend them money, as they are seen to have the ability to repay. $10m is a lot but you never know.
- Marry into wealth, win the lottery or just depend on another form of luck.
- Focus only on big ticket items/big decisions. That could mean trying to find a buyer for the business or any other uncomfortable decisions. This is unlikely to yield $10m in isolation, but that money could be reinvested into speculative investments.
Honestly, from the three options, leveraging would be the more realistic option, but even that is unlikely to succeed.
If making $10m a year from scratch was easy, everybody would do it.
It is possible to do it, and a few have managed to do it, due to luck or trying extreme risks.
Fortunately, there are safer ways to build wealth slowly rather than relying on unlikely scenarios.
The vast majority of people who reach the $10m threshold, and more importantly keep it, are sensible, patient and can delay gratification.
Those who only focus on the quick buck often pay a long-term price.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 231.2 million answers views on Quora.com and a widely sold book on Amazon
In the article below, taken from my online Quora answers, I spoke about:
- How do most millionaires make their first million?
- Has the stock market really changed compared to ten years ago?
- Do attitudes differ between wealthy and non-wealthy people?
- Interest rates are 0%. How can retirees invest?
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