Saturday, January 28, 2012

Do You Need Money to Make Money?

There is somewhat of a myth out there that you need money to make money.  If you are investing your money in stocks or real estate and you want to retire off of the dividends and interest, then you will need a lot of money.  Just for an example, if you have $2 million and you can earn an annual return of 4%, then you will have $80,000 per year without depleting your principal amount of $2 million.

However, most people do not become rich investing.  Most people become rich by having a high income and saving a good amount of it.  For people who do not make a high income, then being frugal becomes that much more important.  To have a high income though, you don't necessarily need a lot of money to start off.

Let's look at a few billionaires.  Bill Gates and Steve Jobs both made their fortunes through their own work and effort.  They needed some help along the way, but they both basically started their businesses from nothing.  They used their brains and natural talents and took advantage of the situations around them.  They may have even had some luck along the way.  But the point is, they both made it big without much money to start.

Warren Buffett has made many billions through investing in companies.  He did not exactly start from nothing.  His father, the libertarian Congressman Howard Buffett, was obviously not poor.  But Warren Buffett still used his talents to make billions.  There are a lot of people who start off with a lot more and don't amount to much.

The Walton family has inherited a fortune.  There are Walmarts almost everywhere now.  This was basically a self-made franchise and now the heirs are reaping the rewards.

The point is, most rich people are not like the Rockefellers.  They are more likely people who are mostly self-made in a generation.  It is a big advantage to grow up in a decent household that teaches good values and provides a decent education.  After that, it really depends on each individual.  There are not many people who grow up in an inner city neighborhood in the slums who grow up to be rich.  But even here, there are exceptions.  Some people are strong enough to fight through their environment and control their own destiny.

If you want to make money and become rich, don't worry about not having money.  This is usually a benefit.  You can start from scratch.  Some people have more natural talents than others.  But there is no substitute for hard work and discipline.  If you work hard and you try to grab opportunities when they present themselves, then you can be reasonably successful.  Then you have to make sure that you live below your means and save money.  If you do this, then maybe you can reach a scenario as described above where you can have enough principal money that you can just live off of the interest.

You don't have to have money to make money.  But it definitely helps when it comes to investing and retirement.

1 comment:

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