The Starting Point of Riches
Introduction
If a person earning minimum wage (Ksh. 20,000/m) were to save 10% of their income every month from age 21 to 65, and he earned an average interest rate of 10% per year, they will most certainly be a millionaire by the time they retired.
He would end up better off than most doctors, dentists, lawyers, teachers, engineers, corporate executives and small business owners. All they have to do is set aside Ksh. 2000 every month and they would retire financially independent.
Not because he was particularly shrewd - but because he understood a mathematical process often lauded as the 8th wonder of the world - compound interest.
The rule is simple - money does not rot. Quite the contrary, left alone for long enough, it grows - and this process speeds up dramatically over time.
The trouble, of course, is the discipline required to leave money to its own devices in this way, but at that small cost, you can plant a money tree.
First, Make Money
The first step to growing a tree is acquiring the seed.
Making money is a basic skill. It’s so easy, in fact, that my friends and I were doing it at 16 years old. Back in boarding school, after evening classes, there was hot water available for everyone, we’d mix with hot cocoa for a nice nightcap for the cold lakeside nights.
One night, I noticed there was still some leftover bread from breakfast, and, while noisily unwrapping te bread, I inadvertently attracted the attention of hungry vultures sticking out their hands for a share of my spoils. The hot cocoa was burning the tops of their mouths, they complained.
And a wave of genius I have never been able to replicate since rushed through me like a jolt of electricity. The next day, I shared it with a close friend of mine, and over the course of the next three months, we wound up making nearly ten thousand in revenue from hawking bread at night (which was basically like making a million back in those days).
Towards the end of the term, just before we could get away with the spoils, a particularly hawkish teacher burst our little business operation wide open. He didn’t confiscate all our loot, but diminished it enough that we could not see our grand plans of “painting the town red” through.
Money is created when there is demand, and a person is willing to meet it.
Why most people dont get rich
If a 16yo kid can mint ‘millions’ and a person earning minimum wage can become a millionaire in the course of their working life, why do so many people remain poor?
1. No Exposure
The first reason is simple - it just never occurs to them. The average person grows up never getting to meet any rich people. His coworkers aren’t wealthy, his neighbours at not wealthy, nobody he knows has built any real wealth.
It is distant and abstract - it only happens to other people.
This is why people that grow up in rich homes are more likely to become wealthy. What is not conceived cannot possibly be pursed.
2. No Decision
Secondly, most people never decide to become wealthy.
Of course, if it never occurs to you that you can become wealthy, you will never make the decision. However, even people that have been exposed to wealth can remain poor all their lives if they never make the decision.
The rule of decision-making is simple - if you continue doing what you’ve always done, you’ll continue getting what you’ve always got.
All the hope, riches and intention in the world - “I’m going to get rich someday” - is useless in the face of inaction.
3. Maybe tomorrow
The third reason most people never become wealthy is intimately linked to the second - it’s always the wrong time. It’s the wrong month, the wrong year. The market is too strong, it’s too weak. The economy is in the gutter, I’d be risking too much.
In truth, it’s impossible to know how deep the water is until you dip your toes in. Even if you satisfy the first two conditions - you were exposed to wealth, AND you made the decision to become wealthy, you still have to put your money where your mouth is.
The best time to plan a tree was yesterday, the second-best time is today.
4. Pay the price
The fourth reason is another familiar one - honey tastes sweetest today. Likewise, money spent today is sweeter than money saved for tomorrow.
Delayed gratification is a malaise of a generation used to satisfying their boredom at the click of a button, having food ready in five minutes just by the movement a finger.
Consider the farmer - he does not plant a seed in the morning and expect a meal by evening. Or the archer, who, in order to hit a distant target must draw his bow back farther, and hold it steady with immense strength.
If you cannot practice frugality as a lifelong habit, then it will be impossible for you to achieve financial independence.
5. Think long term
The fifth and perhaps most important reason that many people retire poor is the lack of time perspective.
In the 1964, Dr. Edward Banfield published a study at Harvard, seeking to understand the reasons for upwards social mobility. He wanted to know if it was possible to predict whether an individual or family was going to move upwards one or more socio-economic groupings and be wealthier in the next generation than this one.
Before I reveal what his findings were, dear reader, I challenge you to guess what the answer might be. What determines upwards socio-economic mobility? Is it education? Intelligence? Being born into the right family? Being born in the right country? Having the right job? Luck?
If you guessed “none of the above”, I award you 10 points. Redeem them at the nearest “pat yourself on the back” store at the earliest convenience.
The single factor they concluded was more accurate than any other at predicting success was dubbed “time perspective” - the amount of time taken into consideration when planning day-to-day activities and when making important decisions in life.
A good example of time perspective is the parent that starts saving up for their children’s education as soon as they are born. This long-term thinking causes them to open a savings account to ensure they don’t struggle with school fees over the course of their lives.
Putting it all together
Once you’re earning money, and setting some aside each time, growing your earning potential stops being solely dependent on your hard work, and becomes a function of time.
It’s easy to get discouraged at the start, because progress appears slow and the money seems insignificant - why not use the money now? After all, there are all these pressing issues to be taken care of.
Resist the urge.
Eventually, gains exceed contributions. Labour is no longer your primary source of income. This is the tipping point. Financial independence has been achieved.
What this means for you
If there is a single thing you should take away from this article, it is this the ultimate superpower is not luck - that can’t be summoned at will, it’s not intelligence, which is fallible, and it’s not education, which is foundational, but useless if not applied.
It is time perspective.
The average professional has a time perspective of five, ten, twenty years or longer. The average person has a time perspective of about two pay periods. The addict has a time perspective of minutes, or hours… in the worst case, no time perspective at all.
A poor working menial jobs, sacrificing so that their children can go to school and attend university, with the right attitude, knowledge, and discipline is virtually guaranteeing upward mobility for themselves and their offspring.
Plan for the future
The very act of lengthening your time perspective, of thinking far into the future, changes your attitude, personality, and approach to money. That is the true beginning of your journey to wealth.
As you take that journey, you become more capable of setting bigger, more long-term goals, and making plans for their accomplishment. You become more thoughtful about your decisions, and more sensitive to the consequences of the ways you use your time and money. You will develop greater patience, greater perseverance and actually become a better and more serious person.
From this day forward, practice lengthening your time perspective.
Begin to see that everything you are doing today is part of a long process that is always moving you towards becoming financially independent, if not rich, over the course of your career.
This is the mindset of people that ultimately become rich.