When it comes to getting rich slowly, I’m generally a skeptic. The typical path to getting rich slowly prescribes investing $1,000 a month for thirty years into the stock market, earning 8% each year. At the end of thirty years in this example, you will find yourself with $1.5 million, but there are major assumptions that must be overcome:
1. Do you have $1,000 each month to invest? Many people live paycheck-to-paycheck. $1,000 may be 25% to 30% of your monthly pre-tax income.
2. Will you earn 8% each year in the stock market? It’s possible; over long periods of time, the stock market has provided this level of return, but it isn’t guaranteed. Taxes and fees eat into this return as well. Many professionals believe 8% is too aggressive an assumption; stock brokers will tell you it’s too conservative.
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Even after considering the above, there is one major problem remaining: inflation. If you accept the government’s measurement which declares that money loses purchasing power at a rate of about 3% each year, to find the “real value” of your future investment, reduce your assumed return percentage by that amount. Suddenly the $1.5 million 30 years from now looks more like today’s $836,000. Although most Americans do not have a balance that large in savings and investments, in most social circles, that balance won’t earn someone the title of “rich.”
Despite my thoughts about the fallacy of getting rich slowly, an enticing but ultimately disappointing endeavor, people make it work. Paul Navone from Vineland, New Jersey is an example. He worked in a mill for never more than $11 per hour, but he retired with millions. He doesn’t say how much he has to his name, but it was enough to become a significant philanthropist, giving away millions of dollars.
The below is from the Philadelphia Inquirer, from an article no longer available online.
The day he turned 16, Navone left the eighth grade and applied for a factory job at Wheaton Glass in Millville. When he got his first paycheck two weeks later – Navone was earning 75 cents an hour – he thought he was a Rockefeller… At 21, he joined the Army and spent two years assigned to the base post office in West Germany. Back home, Navone moved in with an older sister until he had saved $6,500. With that stake, he bought his first property. He moved into one half and rented out the other…
“I lived on the income the one unit provided me, and I saved my wages from work,” Navone said. Not just saved, invested. He acquired a second rental property, then a third. Eventually, with the advice of stockbrokers, Navone expanded his investments.
So while Navone was working at is $11 per hour job at the mill, he was also earning money in property. That’s the key in this particular case, despite Navone’s penchant for cutting expenses. Even so, living frugally puts money in the bank and certainly contributes to a large bank account.
- He seldom watched television.
- He has never read a book. (What?!)
- The last girl he had a crush on contracted tuberculosis and died; he has avoided relationships since.
- He has no children. (Now this certainly contributes a lot to his bottom line!)
- All of his clothes come from thrift shops.
Navone’s mantra is, “I’ll work for the money, and then I want the money to work for me.” It sounds to me like he attributes his wealth to his investing prowess rather than his extreme frugality habits.
Updated October 21, 2015 and originally published January 14, 2008.