How long till I get rich?
Something I get asked a lot is "How much time does it take to become rich in the market?" I'll give you a realistic assessment. If you are starting from nothing, but willing to contribute 5% of your income to a solid growth stock that pays dividends, or even just an index fund, something like the S&P 500. If you're going to do individual stocks, stick with something that's been around a lot of years, not some new company that hasn't had time to figure out who it's competition is. A decade's worth of performance is great, but a century is where I'd start.
First things first, you need to be willing to take this seriously. As you go along, the time commitment from you that's required can grow a bit. You'll want to at least read a couple of books explaining about how the markets work, and what risk really means. This is not a casino, but that doesn't mean it doesn't have the chance to lose you some money. But here's the thing. If you stick to only profitable businesses, I can guarantee you that you will not be retiring poor. Unless you're a spendthrift, but that's a different issue altogether and we'll talk about it another time.
This is going to surprise you. You'll probably get your first taste of economic freedom after about three months. It's not going to be like what you're expecting. What you'll have here is wiggle room. If you're putting at least some small percentage of everything you earn, you should have a few bucks in your account by three months. Most people stop here, they take whatever they saved up, they go shopping and get themselves some new clothes, or a video game or something. The people who stay poor in life, this is their exit off the money bus. Maybe they do this again in the future, but odds are good that they'll never learn the discipline needed to see real wealth building.
Keep reading. The next step in wealth building is coming, and if you stop here, you'll never be able to see what your true potential is. You will start to have options for how to use your money in a better way. You might be able to see that you can get a better return by paying down some of that debt of yours. But don't give it all away. This is where compounding starts to begin. Remember what I said about contributing regularly. In 3 months, the market can do all kinds of crazy things, but odds are good that no matter what it did, your base investment hasn't changed much because you have been cost averaging. If the market came down some, you bought shares at a lower price, and if it went up, you paid a little more. Don't worry about what the market did. Don't worry about what the market does. Just stick to the plan.
Start examining your budget, see if you can find more of your income to put in here. Aim to get to 10% of your income. But once you've made those changes in your lifestyle, don't back down because you are probably going to have a fully functioning cash machine after about two years. Even faster if the market has had a significant decline in the time you've been in it. Because remember, as the price goes down, you are earning more future money on what you invest today. Those dividends and the power of compounding are real, and it tips the risk of investment into your favor when you refuse to get out of the game.
Now, after two years, this is the time that you have learned at least the basics, and more likely some of the really good things about yourself. You'll have started diversifying your investments. You'll own both stocks and bonds now. You will have a new dividend income that's noteworthy by this point, and it will be consistent and reliable. Enough to get a nice dinner at least once a month and still have your portfolio grow. Try to resist that. You might have enough for a down payment on a house here. Unless interest rates are exceptionally low, and prices are great, try not to go there either. Remember, if you spend the shares, this money flow stops forever and you'll have to completely start from scratch.
There was actually an opportunity very recently where your entire net worth could have doubled in just one additional year of prudent investing. Those opportunities will come again, I promise they will. You just worry about staying put. The average annual return on stocks has been somewhere around 10% a year, but it's not like that every year. Some years you'll make a lot less, some you will even see your worth decline, but you won't lose that dividend income, that's the beauty of a long-term outlook. Stock prices will fluctuate, but you will always see your dividend income increase more every month longer that you stay in. Keep investing, don't try to guess what the market will do. You can't control the market, you can only control how you react to it.
Keep your spending modest, and stick to your budget. If you keep going another 3 years, you will probably never have another serious money problem your entire life.
So there you go, the time frames are:
3 months = A few bucks
2 years = Ghetto fabulous
5 years = financially independent. Enjoy those vacations, you earned them.
20 years = You'll be at least a millionaire at this point.
40 years = Congrats, now your kids can be millionaires too. Teach them well so they don't waste the opportunity.
Now stop wasting your money on lottery tickets. Go get rich.
First things first, you need to be willing to take this seriously. As you go along, the time commitment from you that's required can grow a bit. You'll want to at least read a couple of books explaining about how the markets work, and what risk really means. This is not a casino, but that doesn't mean it doesn't have the chance to lose you some money. But here's the thing. If you stick to only profitable businesses, I can guarantee you that you will not be retiring poor. Unless you're a spendthrift, but that's a different issue altogether and we'll talk about it another time.
This is going to surprise you. You'll probably get your first taste of economic freedom after about three months. It's not going to be like what you're expecting. What you'll have here is wiggle room. If you're putting at least some small percentage of everything you earn, you should have a few bucks in your account by three months. Most people stop here, they take whatever they saved up, they go shopping and get themselves some new clothes, or a video game or something. The people who stay poor in life, this is their exit off the money bus. Maybe they do this again in the future, but odds are good that they'll never learn the discipline needed to see real wealth building.
Keep reading. The next step in wealth building is coming, and if you stop here, you'll never be able to see what your true potential is. You will start to have options for how to use your money in a better way. You might be able to see that you can get a better return by paying down some of that debt of yours. But don't give it all away. This is where compounding starts to begin. Remember what I said about contributing regularly. In 3 months, the market can do all kinds of crazy things, but odds are good that no matter what it did, your base investment hasn't changed much because you have been cost averaging. If the market came down some, you bought shares at a lower price, and if it went up, you paid a little more. Don't worry about what the market did. Don't worry about what the market does. Just stick to the plan.
Start examining your budget, see if you can find more of your income to put in here. Aim to get to 10% of your income. But once you've made those changes in your lifestyle, don't back down because you are probably going to have a fully functioning cash machine after about two years. Even faster if the market has had a significant decline in the time you've been in it. Because remember, as the price goes down, you are earning more future money on what you invest today. Those dividends and the power of compounding are real, and it tips the risk of investment into your favor when you refuse to get out of the game.
Now, after two years, this is the time that you have learned at least the basics, and more likely some of the really good things about yourself. You'll have started diversifying your investments. You'll own both stocks and bonds now. You will have a new dividend income that's noteworthy by this point, and it will be consistent and reliable. Enough to get a nice dinner at least once a month and still have your portfolio grow. Try to resist that. You might have enough for a down payment on a house here. Unless interest rates are exceptionally low, and prices are great, try not to go there either. Remember, if you spend the shares, this money flow stops forever and you'll have to completely start from scratch.
There was actually an opportunity very recently where your entire net worth could have doubled in just one additional year of prudent investing. Those opportunities will come again, I promise they will. You just worry about staying put. The average annual return on stocks has been somewhere around 10% a year, but it's not like that every year. Some years you'll make a lot less, some you will even see your worth decline, but you won't lose that dividend income, that's the beauty of a long-term outlook. Stock prices will fluctuate, but you will always see your dividend income increase more every month longer that you stay in. Keep investing, don't try to guess what the market will do. You can't control the market, you can only control how you react to it.
Keep your spending modest, and stick to your budget. If you keep going another 3 years, you will probably never have another serious money problem your entire life.
So there you go, the time frames are:
3 months = A few bucks
2 years = Ghetto fabulous
5 years = financially independent. Enjoy those vacations, you earned them.
20 years = You'll be at least a millionaire at this point.
40 years = Congrats, now your kids can be millionaires too. Teach them well so they don't waste the opportunity.
Now stop wasting your money on lottery tickets. Go get rich.