The Get-Rich-Slow Scam
By Matt Theriault
There are a lot of get-rich-quick scams out there. They usually sound too good to be true, and most of them are.
But the biggest trend I’ve noticed among the people that come to me for advice is not the get-rich-quick scam. My clients tend to be people who have stable jobs but who are unfulfilled. They’re tired of working for other people and are looking to break out of the rat race. They’ve tried those get-rich-quick scams, and they’re frustrated.
So they lunge in the opposite direction.
Instead of a get-rich-quick scam, they fall for the traditional get-rich-slow scam, which is actually way riskier.
And here’s why I say that: at least with a get-rich-quick scam, you know when it has failed. With the get-rich-slow scam, you don’t realize that it’s failing until you’re old and broke.
I get why people fall for it, mind you. We’ve always been told to exercise patience and to build wealth slowly and steadily. And while the get-rich-quick scams sound too good to be true, the idea of getting rich slowly sounds too horrible to be false.
Squandering your most productive years scrimping and saving, pinching pennies and waiting to be rich? It sounds downright awful.
So it must be true, right?
Great news. It’s not.
Let’s talk about why.
But first, we need to define rich. To be clear, I’m referring to money here. Not metaphorical or philosophical wealth. Those are great, but they’re not going to put a Lamborghini in your driveway. Only money will do that.
So how much money would you need to feel rich?
Everyone has a different number, so let’s keep it simple and say that “rich” $1 million.
I know. A million dollars ain’t what it used to be. But that’s only going to make my point more compelling.
Now let’s posit a very reasonable, “safe” rate of return of 6%.
Obviously, with a million bucks that 6% nets you $60,000 per year.
This could last you indefinitely. You could just withdraw that $60K every year and never touch your principle savings.
But remember: we said rich. To even call yourself “well-off” you’d have to withdraw—in my humble estimation—$100,000 a year.
So let’s go with that. You pull out $100K per year and you compensate for inflation with a 2% increase every year.
There’s no Lamborghini in your driveway, but you’re comfortable.
For how long, though?
Just over a decade. 140 months, to be exact.
After that, your entire million dollars is gone.
It’s a sobering thought. Especially when you remember that $100K per year is just well-off. To be rich, to be in the 1% club, you’d need almost four times that.
But let’s back up a bit. How do you actually get that million dollars in the first place?
Let’s say you cram $1,000 under your mattress every month. Most people can’t afford to do that, but if you could, and if you did, you’ll be a millionaire in just… let me calculate that for you… 83 short years.
Wow. Better get started.
I know. You wouldn’t actually put that money under your mattress. You’ve heard financial planners talking about compound interest—the Eighth Wonder of the World, they call it—and naturally you’d want to take advantage of that.
So you find a nice, safe mutual fund with an above-average return of 6%.
Now how long will it take to hit $1 million?
30 years. Much better. You’ve just shaved five decades off your timeline.
Or at least you would have, if not for the fees involved. Over that 30-year span, even a harmless-sounding 1% fee would eat into your million dollars to the tune of nearly $200,000, leaving you with $808,000.
That’s the problem with compound interest: it works both ways. Those fees compound too, and to pay them you’re going to have to work for an extra five years.
It’s discouraging, I know. Which is why some people are drawn to the scams I mentioned above. They do the math, and it never seems to add up. Eventually, desperation sets in.
Now let’s say—again, just for the sake of illustration—that one of those scams did pan out.
Let’s say you found an easy-money investment with a crazy, impossible upside: a 100% return. Your money doubles every year. The initial investment is $1, so anybody can invest. And there are no fees.
This is obviously too good to be true, but let’s roll with it. How long would it take you to save a million dollars with this scam?
It would take you 20 years.
That’s a long time, but it’s not as long as our other scenarios, and it’s effortless. You put in a single dollar, wait a few decades, and you’re a millionaire.
The problem is, while your investment may have earned a million dollars, you don’t have anything close to that left after 20 years. Why?
Because it’s not just interest and fees that compound: taxes compound too.
The tax implications would depend on where you live, but if you live in California like I do, your state tax can top out just above 13%. Add federal tax to that and the majority of your million dollars is gone.
Now factor in inflation and the rest disappears too. You’re back where you started, holding that single, lonely dollar in your hand. And by the way, you’re twenty years older.
That’s the real risk of any get-rich-slow scam. You’re not going to get rich. You’re going to make huge sacrifices, and you’re going to waste half of your life before you realize you’re out of time.
If you look at it that way, is the get-rich-slow scam all that different from the typical get-rich-quick scam?
No. We each get four or five decades to reach financial independence. Which decade are you in right now? How many more do you have left?
More importantly, what if you could get rich while you’re still young enough to enjoy it?
You can, actually. But first, you need to shift your perspective.
Instead of focusing on saving, focus on earning.
Earning is hard too, and it requires sacrifice, just like saving does. But instead of sacrificing in the get-rich-slow ways that people like Dave Ramsey and Suze Orman advise, you should focus on only those sacrifices that earn you money. Get out of save-a-nickel mode and shift into earn-a-buck mode.
When you adopt this new mindset, everything changes. You start investing for income.
Instead of focusing on that million-dollar fantasy that will earn you $8000 per month, you focus on the monthly $8000 itself. That’s the real goal, after all. Why not chase it directly?
But how do you get that monthly income? And how do you avoid all the pitfalls I mentioned above?
What sort of investment vehicle generates income and calculates the ROI post-fees and grows in a tax-sheltered environment?
I’m not one to play games, so I’ll just go ahead and tell you: income real estate.
That’s it. That’s the big secret. If you keep everything I’ve talked about in mind, and you follow this single piece of advice, you can accomplish in four years most people can’t accomplish in four decades.
Sure, you can get rich quick—depending on how you define that word—but more importantly, you can get rich permanently.