Do You Really Want to Be Rich?

by Tara Struyk on 19 June 2012 13 comments
Photo: giumaiolini

Here’s a statistic for you — according to the U.S. Census Bureau, about 57% of people over the age of 18 play the lottery in a given year. That suggests there are a whole lot of people out there who are angling to be rich — or at least richer.

Maybe it’s only human nature to dream about wanting more out of life, whether that means a bigger house, a better car, more time off, or real financial security. But here’s the thing — while I’d venture to guess that most people would like a little extra padding in their finances, very few actually take any steps to make it happen. To me, that’s a bit like wishing for washboard abs while watching the “The Biggest Loser Workout” videos — and scarfing down a family sized bag of potato chips. What I mean to say is that it just doesn’t make sense.

It makes me wonder...how many of us are actually willing to do the real work that’s most often involved in raking in the big bucks? And if we aren’t willing to get our hands dirty, are we really interested in being rich at all? (See also: 5 Money Lessons From Millionaires)

What It Takes to Be Rich

Take a look at the Forbes list of the richest people in America, and it becomes very clear that there are really only a few key ways to become filthy, stinking rich (because, let's face it, moderation just doesn't factor into our dreams):

  1. Inherit
  2. Found a successful company
  3. Invest

Unless you’re the heir to a major fortune, you can scratch the first one of your list right off the bat. Now you’re left with two solid options. And when I say solid, I mean that they’re possible, not that they’re easy. Building a business is a huge commitment of time, effort, money, and risk. In the end, a lot of start-ups fail despite the heroic efforts of their founders. But when your own business pays off, you get to enjoy a lot more of the spoils than if you were simply an employee.

Investing your way to wealth may be even more difficult. Even with high returns, you’ll need a fairly large amount of money to work with. That means you have to either earn more or save more. Plus, scoring a huge win (often called a “tenbagger”) in investing is very rare and tends to be a once-in-a-lifetime deal, even for many of the best investors out there.

A Practical Option

I don’t mean to burst your bubble, but all in all, the odds of being very rich aren’t that good, at least not in the near future. So do you have any chance of being richer? The answer is yes — if you can muster a little patience.

Let’s go back to the people who play the lottery. According to the North American Association of State & Provincial Lotteries (NASPL), about 20% of players spend more than $1,300 per year on lottery tickets. That’s a lot of money, especially when you consider that those regular players tend to be on the lower end of the income spectrum.

Now, I can totally understand the lure of dreaming about winning the jackpot, but based on the odds, I think I can safely say that it won’t happen to you. What I can say with all certainty is that if you were to invest that $1,300 per year at a modest 5% rate, you’d have $70,000 at the end of 25 years. Kick in a little extra here and there, and you’ll have yourself a respectable retirement account. OK, so maybe you won’t be rolling in a giant pile of cash, but having some money to spare during retirement doesn’t sound all that bad, now does it?

Do You Really Want to Be Rich?

“Whether rich or poor, it’s always nice to have money,” the old saying goes. I’m not going to say that having more money can’t make life more comfortable, but most studies show that the sense of well-being that comes from wealth peaks well below a six-figure salary, never mind millions. That suggests that you might get more mileage out of a living in a house and dreaming about a mansion than you will out of actually crossing the threshold to become truly rich. Plus, a level of wealth that meets all your needs, leaves room for a few wants, and allows you to build a secure financial future is a lot more attainable for everyone.

The bottom line is that there’s no magic pill for wealth. Hard work and smart choices play a key role, but any successful businessperson or investor will also tell you there’s more than a little luck involved. Working hard, saving as much as you can, and investing well will put you in a position to capitalize on that luck. The best part is even if you never get lucky, you'll still be better off. That's more than I can say for the other options. Spending your money on lottery tickets (or just idly wishing for a bigger bank account) are likely to leave you broke and possibly bitter.

So here's the bad news — extravagant wealth is pretty hard to come by, and unless you’re the heir to a fortune, it's pretty unlikely you'll get there, even with hard work and sacrifice. So why not work toward creating a life where your needs are met and you don't have to walk the thin line between survival and financial failure? Sure, it's a lot less glamorous than a million-dollar lifestyle. The good news is if you put in the work, the odds on this one are in your favor.

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Guest's picture
Adam

Great article--and very well written too! I liked how you showed that though safe investing strategies and hard work may be tough and unsexy, it is the best bet for creating financial stability and success.

Guest's picture

My thoughts exactly. I do dream of becoming rich but I know that in reality, there's a very, very slim chance that I'll end up being filthy rich. Not unless I win in the lottery, which is even more unlikely since I don't buy lottery tickets. I do strive to work hard to live more comfortably.

Guest's picture
Dave

I actually actively do *not* want to be rich. I'd love to not have to worry about money, but appreciable wealth I am not after.

At one point, I bought a brand new sports car. It was absolutely at the top of what I could "afford" at the time, barely, but I was 28 and I'd worked very hard for every scrap of anything I had, so I was very proud of it. If I was so wealthy that I could easily buy 10 cars anytime I wanted, there would be no "specialness" about any of it.

Now, a mere 7 years later, the economy hasn't been terribly kind - I have a family, an economy car and a house that is upside-down in value, but the bills are all paid every month at least. When I get rid of all the debt that my 20s snowballed into, THEN I will feel truly rich.

Tara Struyk's picture

Dave, you make a great point. Thanks for the perspective!

Guest's picture

Great article! Below are some financial rules that our family practices. I am not sure if we would be a “filthy rich” but I know we will achieve financial freedom!

· Always live below your means, regardless of your income.
· Be happy with what you have, not with what you could or should have!
· Do not compete with Joneses! One of the best ways of doing this is to live in a neighborhood that does not force you to compete with others in the first place. For example, drive a modest car and live in a place where everyone drives modest cars. Don’t get me wrong competition can be a good thing, but in the case of “Keeping up with the Joneses” it can lead many to an unhappy bankrupt life.
· Be mindful of your financials. Always plan ahead. Never ever carry any credit card debt. That does not mean don’t use credit cards. Do use cash reward credit cards all the time so you can track your expenses AND earn money, but don’t go above what you know you can’t afford.
· Try to make as much money as you can. One of the best ways of doing this is to work for you; own a business. Keep in mind that owning a business could be as simple as having a website or selling something that is in demand and you know how to make or provide!
· Save as much as you can. Choice of saving may vary, but do save!
· OVER estimate your future/potential expenses and UNDER estimate your future/potential income.
· Live in a good public school district so you can avoid the expense of a private school and take advantage of the free amenities, such as library, community center, tennis court, etc.

Tara Struyk's picture

I agree. Those are great suggestions anyone can work towards.

Guest's picture
Frank E. Adams

Interest rates are under 1% and the market is a scam for retail investors. And the crap that lotteries are a tax on those that are bad at statistics, chew on this: The odds that you are here and are YOU are so infinitesimal that you statistically DO NOT EXIST.

Tara Struyk's picture

I have some thoughts on this, but now I'm not so sure they're real either ...

Guest's picture
Callie

Tara, this article is another home run. I'm so glad I came across your wise words in the Facebook-phere...at just the right moment. You have no idea. :) Thank you!

Guest's picture

I have an uncle who makes a very low annual salary. Although he doesn't have a wife or kids, spending his money on lottery tickets every week is just simply unreasonable. He complains when he can't come on family trips because he has to work, he always complains when he feels like he is giving less to his nieces and nephews for birthdays, he pretty much has the "the world is against me attitude", when in reality, he spends his money on lottery tickets hoping to win the big bucks rather than being smart with saving. Just like you said, it's unrealistic to hope for something without taking action in doing the smart things that will plausibly get you there.

Guest's picture

Good insight. I try very hard to educate clients (or prospective clients) that investing is not really a means to "wealth". Typically, investing allows someone to earn a reasonable rate of return on their existing wealth, and to maintain the wealth they have already accumulated through earned income or business profits.

As you indicated, other than inheritance, building a business (including investment real estate) is the primary way most wealthy American have accumulated significant wealth. Ultra-rich CEO's and professional athletes are rare (as a % of the population).

The point that should be taken is that people should build a lifestyle that is well within their means, and enjoy it to the fullest. If somewhere along the line, wealth is found, then that's just gravy!

Guest's picture
Jason

I built a business and work a full time job. In the first year, I made a grand total of $480 profit. The second year was a lot better (roughly 50% of my full time job). Now, I and my partners are pulling in two incomes (our full time jobs, and our own business). We have no weekends, we have no evenings, and our families have forgotten what we look like, but we're happy and building towards our goal... and because we're balancing full time jobs, we're debt free. Our day job paychecks are going into our business when we need to raise capital. It is great to see our balance sheets and sales grow every month, and it is awesome to know that we're being stalked by bigger companies in our industry (Can you say BUY OUT?! :D), but at the same time, it is one of the hardest things we have EVER done. We've had fights, blow ups, marital stress, and family stress. We've lost friends, vacation opportunities and have completely fallen behind in pop culture references... but we're debt free which makes it very hard for us to go out of business!

Is it difficult? Yes. I wouldn't recommend it unless you know that you can sacrifice EVERYTHING in your life to one goal for years on end. Because it isn't easy.

Guest's picture

I will keep trying