I don’t completely agree with the “get rich slowly” theory. I accept the fundamental advice, like paying yourself first, making conscious decisions about big financial decisions as well as the full series of small financial decisions, and setting long-term goals, but there is a fundamental flaw with taking this theory as the sole approach to building long-term wealth.
By the time the future comes around, your financial target has moved. The million dollars you’ve saved over thirty years is now worth what $400,000 was worth when you started thanks to inflation’s erosion of real value. With $400,000 in value, you’re certainly better off than you would have been if you didn’t start aiming towards a million dollars, but the finish line isn’t nearly as meaningful as you thought it would be when you began.
I understand that there are many definitions of the word rich. The goal has different meanings. Let’s look at financial independence instead: the amount of money you need so that the choices you make in life aren’t affected by your financial condition. Or perhaps financial independence is the amount of wealth necessary to prevent you from needing to work ever again.
It’s a number that changes as time passes; today that number might be $2 million, ten years from now it may be $8 million.
Calculating that number can be difficult. You may think you could live the rest of your life with $1 million, and maybe you can. With $1 million invested in stocks and bonds, the safe withdrawal rate of 4% gives you an annual income of $40,000, increasing with the rate of inflation each year. Withdrawing that amount gives you a good chance of having your money last 30 years, regardless of most market conditions.
$40,000 is a decent income, especially if you’re not trading your time and effort for income — that is, working — but it may not be enough to consider yourself financially independent. It may not be enough to have the freedom you want. And by the time you get to the point where your investments total $1 million, that annual $40,000 might be just around the poverty line.
Getting rich slowly calls for gradual progress, but gradual progress alone won’t get you rich. It can’t lead you to financial independence. Gradual progress needs help from quantum jumps.
A quantum jump (or quantum leap for those who remember the clever television program) is when electrons moves from one quantum state to another, resulting in a change in the atom’s energy level. It’s not a big change in the physical sense as the term leap might imply — it’s something that happens on a subatomic scale. Quantum jump are very small changes relative to a person, but they are incredibly significant to an atom.
Quantum jumps in finances are what make financial independence possible. If it’s not clear, I’m not talking about physics now, I’m talking about personal behaviors and attitudes, using the quantum jump as a metaphor.
The improvements I’ve made with my finances over the past decade or more were not a result of just making better choices with my money on a daily basis. The success thus far did not come from saving ten percent of my income, reducing my propensity for dining out, asking for raises, or visualizing future success. Success came from quantum jumps — significant moments of change.
The first quantum jump is awareness. It was easy remaining ignorant of my financial situation. It was getting worse on a weekly basis because I was earning barely enough money to pay for my commute, making it even more difficult to handle things like food and rent. I protected my emotional state by ignoring my problems. That could only last so long before I’d be in serious trouble.
I used free software to help me get an accounting of where I was financially. It took some courage to face reality for the first time, but this change in attitude made success possible over the long term.
You can’t improve financially by staying in the same job. In my last job before quitting to pursue my own businesses full-time, I had a few colleagues who had the same job for over a decade and had no plans for advancement. There’s nothing wrong with this. If you’re comfortable in a job that you like and you have no need to make financial progress — perhaps you have a spouse who is also earning money and who has a stronger desire for financial success — there is no need to make changes.
But when you do stick around in one job, waiting for someone else to promote you or just looking forward to incremental raises each year, you end up barely making progress for financial independence if at all.
What pays off is changing jobs, and in some cases changing entire career paths. After college, I worked in a non-profit, as I’ve written about many times on Consumerism Commentary. Financially, I was moving backwards and it was clear I was not destined for advancement within the organization. The quantum jump was leaving that job and working in a more stable environment.
With a new job, I was working for a solid company. The compensation was a big improvement, but still not great. I stayed with this company for eight years, about seven years more than I expected. Again, I wasn’t making big changes. My salary increased by nominal amounts year to year.
I experienced a few bigger jumps with promotions and with two job changes, but the changes weren’t big enough to significantly accelerate my progress towards financial independence. A quantum jump, a jump to a new level, might have been moving from a staff type position to a management type position, but it can be very difficult to move across that barrier within the same company. And even if you do, the pay increase isn’t often commensurate.
Again, the quantum jump was leaving that company to work for myself full-time, something I regret not doing sooner.
There have been a few more quantum jumps since then, mostly pertaining to my approach to my business. Had I just persisted with incremental changes, waiting for raises and only looking for opportunities for growth within one company, I would be a long way off from being financially independent.
Quantum jumps aren’t limited to the revenue side of the wealth equation. The same concept applies to expenses. You’re not going to make a significant dent in your overall quest for financial independence just by cutting out your daily latte. You will have a noticeable positive effect by making these quantum jumps:
- Reset your attitude towards spending overall. consciously deciding whether each choice will be good for your finances. It’s an attitude adjustment that effects everything, not just lattes. When you go from someone who doesn’t look at their money to someone who puts in the effort to be frugal, this is a quantum jump.
- Move your family to where there’s a lower cost of living. This can be a major change for a household, just like a quantum jump is from the perspective of an atom. Maybe you can earn much more living in a different city or maybe your earnings will go farther for you if you change location.
- Quit your bad habits cold turkey. You can’t ease yourself out of bad behaviors. Changes like that are rarely permanent. Every former smoker I know who successfully quit didn’t use nicotine gum or any other gimmicks. They realized their health was in jeopardy — and maybe that came from hospitalization for another issue or from some other health incident — but when their backs were against the wall, they made the immediate decision to overcome cravings and dependencies. Smoking isn’t the only expensive bad habit. The cold turkey approach is the quantum jump, an immediate shift.
Are you willing to make quantum jumps to reach your long-term financial goals?
The gradual progress that comes through making better decisions about money — the “get rich slowly” approach — is the baseline. It will get you to the point where you can build immunity to financial setbacks. It will help you grow a nice emergency fund and eliminate debt. That’s a good place to be, but it’s only mediocre goal. It’s just a landmark to pass when your’re on the way towards your ultimate goal, financial independence.
The quest for excellence, in the case financial security at a level beyond mediocrity, requires not only the baseline gradual progress but also these quantum jumps. The significant moments in which you change your entire approach to a topic or you overcome inertia by making difficult decisions that require changes in your life are those moments that are most effective for bringing financial independence within reach.