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Tuesday, February 11, 2014

2 Ways For Young People To Build Wealth: Which One Will You Take?




The majority of expats in third world nations live-off interest income or yields from high ticket assets such as rental properties.The problem with expatriating with this method is you need capital. Lots of it. To accumulate capital you need time. By the time you cash-out you will be old. You will be one of those old retirees who is gasping for air while chasing bar chicks. How did these guys do it? They have been building their capital for decades and enjoy the fruits at the tail end of their life.

So how should young people (gen Y and Millennial) build  wealth then? Young people have neither cash nor skills. Does having no cash and no skills mean you should first build capital until you have enough to live on investments like these guys? WRONG. What young people have is the most valuable asset in this world: TIME. You cannot buy time. Everyone gets assigned a finite time and yours is still plenty. A young person is rich with time. Consider that all these old guys would trade every single cent they have for a chance to be young again. As a young guy, you have this asset and that is the most precious asset that you can ever have.   

You can choose to grow your money by saving and investing like these old guys. However, there is another way. You say, “Third World Hero don’t fck with me.. I have dreams and aspirations here!” I’m not. This is a logical reframing of how you should look at building wealth. The only realistic way to build wealth is to control your costs while increasing your income. It really is that simple. Now there are two ways to do this.

First is to be an employee. With an employee, just like the old man, your ultimate goal is to control your costs through frugality. Growth comes from interest compounded on savings after a LONG time. You will not be in control of your income. You will trade your time for a set amount of cash. You will not be in control of your time. You get a set time (usually 40 hours) of work a week. Your per hour rate will always be less than market value so that your employer profits. You will only develop skills your employer requires. You can build wealth this way by being frugal. You will enjoy your wealth at the end 10% tail of your life. Your friends are interests as they fuel your capital growth.
   
The downside is that you might not make it. Consider what happens when the market tanks. This is what happened to Americans recently as they saw their life savings evaporate. Consider if this happens before retirement or before you take the leap. What if the house value you were hoping to increase suddenly gets obliterated (just like a mortgage crises)? What if you get replaced by automations? How about outsourcing? There is more to this than just numbers. What if you don't want to be frugal? What if you want to enjoy your youth? What if you want to enjoy your life? 

The second way is to create a non-job. With the non-job, unlike the old man, your ultimate goal is to build an income system that is scalable. Instead of interests, growth comes from scalability. You will be in control of your income. You will be in control of your time; you can devote 40 or 100 hours to your work. Your per hour CAN be scaled (an employee doesn’t have this). You will learn the skills that you need. You will keep all the profits. Because you are in control of your time and the direction of your income system, you can compress your working time to pump out a viable system in 5-10 years. Your friends are scalability. It allows you  to increase income over costs at a faster rate than growth on interest. Consider that online income systems produce at 24/7 365days a year.

The downside is failure. This is where young guys have an advantage. With your time advantage you are able to fail and fail again. Think of a $1000 investment with 1/10 of succeeding to create $15,000. Will you take it? With the ability to fail you will have multiple chances to play. You only need to hit it once to recoup your capital and profit. Older guys are limited because their time is already scarce and their capital is locked to provide their income. Young guys should use their time advantage on that one successful roll. You are unlikely to hit it on your first try. But consider that on 7th try you already possess skills and experience and on the 10th you might even have mastery and have better odds. 

The choice will be yours. However, young men are forced into this as well. I know, as a millennial, the traditional concept of being an employee are being challenged. More and more millennial are opting out of the rat race. They are exploring, innovating, and providing value to their end users. These millenials to save costs are starting from their parents home, friends basements, small apartments, and increasingly, in third world nations. 

Choices you make early on will have the most impact. If you change course by 1 degree in the beginning of a 5000 mile trip, it makes a huge difference. If you make that change in the last 100 miles, you’ll still end up in about the same place"

3 comments:

  1. "You can build wealth this way by being frugal. You will enjoy your wealth at the end 10% tail of your life."

    I don't think it has to be this way, even if you're working for the man. One should be able to check out of the work force in their mid to late 40s with some dedication, assuming they're earning enough money. This gives you 20-25 years of active retirement and that's before you even look like that guy in the photo.

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  2. Yeah right, good luck trying to make it to your 40s without getting laid off. Imagine graduating this decade and staying in the same place. It never happens. Nowadays,employee turn-over is at an all time high as profits are squeezed to maintain shareholder earnings. America is a hyper-capitalist society and every EDGE will be taken including mass layoffs and lower pay. The employee model is busted in America and is a riskier proposition. Have you met an analog engineer in the unemployment lines? I have.

    Good luck with stashing your money in an asset like a house -- and pray to God you wont see the savings you managed to stash (frugal is the game right?) get obliterated.

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  3. These differences are defined by the terms "income inequality" and "wealth inequality". These terms are increasingly used in politics, news, and academics, and have inspired controversy, debate -- even public protest, such as Occupy Wall Street and We Are the 99%. Let's explore why...guarantor loans

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