If you listen to the media and the financial gurus that have space on national TV, you will hear the solution that is given to all financial problems one might have: save more money, and you will have a million dollars or more after 50 years.
In their fantasy land, financial advisors tell you that saving a laté every single day will propel you into millionaire status as you get older.
A lot of people think that this is a difficult advice, that it is pretty hard to save this money everyday, while at the same time denying ourselves small pleasures. Well, it seems hard, but the only reason they give this advice is that this is the easy way of making a fortune, and also, more importantly, because it is all a fantasy.
World of La-la Land
It is a fantasy because you don’t become a millionaire by saving a few cents per day. Although I recognize that money adds up, and you want to use this to your favor, it is hardly enough to save little money. To get rich, you really need to make lots of money, and then save it as you go.
The reason this is the easy path is that it requires no knowledge, no special effort. Just deny yourself something for a long time, and you will be an automatic millionaire (in fact, this is the name of a famous book in this area).
What these people fail to tell you is that you cannot get millionaire like this for several reasons:
It takes so long to become millionaire this way (40 to 50 years), that a million dollars will not even be a lot of money. By that time, $1 million will have the purchase power of less than $500K — and this is the optimistic view. It will probably be more like $100K, which you can easily spend in one year.
In fact, people started already to say that $5 million is the new $1 million, since a million cannot be used to maintain a good life standard by itself.
The other reason is that you don’t save money every month like this for your whole life. There is always something that may happen: an accident, a lost job, a big loss in the market. All of these can reduce your capital and make it even harder to achieve your millionaire dream.
What Really Works
What really works is what every rich person knows: create assets that generate a lot of money. The asset is usually a business, but can also be real estate, books, or other types of money generating assets.
If you are not creating one of these assets through your work, it becomes really hard to become rich. In other words, the solution is not to save in the first place, but to generate wealth, and then save it to make it last. This is the plan that made the fortunes of almost all rich people out there — with the exception of lottery winners. If you expect to become rich from a job, you desperately need to do something else, unless you’re able to become CEO of a major corporation.