Rags to Riches

Personal finance is a sensitive subject for many people. As people, we always look to compare and measure ourselves to those around us and one easy way to do so is through money. In the US we idolize the rags to riches story and narrative that a mixture of hard work and persistence will ultimately result in the American Dream. If you’ve ever watched the reality TV show Shark Tank where budding entrepreneurs and wantrapreneurs pitch their ideas and companies to investors (aka the sharks). The Sharks represent the finished product of the American Dream while the contestants are in the early stages of their journey. I am a huge fan of the show, yet it fails to capture the consistent effort and long-term thinking it took the Sharks to reach the level of success they have.

Our society tends to focus on the short-term get rich quick mentality versus the truly long-term building of wealth strategy. Numerous examples from bitcoin and cryptocurrencies to the housing bubble even the lottery and casinos all highlight this idea of doing little work and creating an exponential return very quickly. While this path seems like the easiest road to travel and ties into the rags to riches portion of the American Dream, it misses the point. Majority of corporate profits, securities investors, and sales reps are focused on the short-term monthly, quarterly or annual profits. Our incentive structure is distorted leading us to admire the lottery winner or short-term success stories. It makes us feel like maybe that could be me, has a quick time horizon and takes some of the burdens of success into the hands of luck or chance.

Financial Glass - Las Vegas Casino
Photo by Mike Boening

This is the wrong way to view personal finance and ultimately leads to unhappiness as we measure ourselves against unrealistic standards that fail to highlight the true path to building a sustainable financial foundation. We must focus on the long-term and make decisions that weigh the long-term importance more favorably than the short-term. Investing a $100 in bitcoin and watching it go to $10,000 in 3 months sounds incredible. Yet we fail to recognize that this isn’t a sustainable model. Great return on your $100 but now what do you do with the $10,000? If you are smart you will continue to invest it, but where can you get that kind of return without gambling. You will now be back to square one with nowhere to put your money and you really learned was that you timed the bitcoin market well. The problem now arises and you are started to get hooked on a very short time frame for an incredible return.

Financial Glass - New York City Flat Iron Building
Photo by Braden Collum

I’m not saying there isn’t a time and place to make bets like the one described above, but if you truly want to build long-term wealth that you are able to pass on to your family or donate to your favorite organizations that you have to focus on the long-term. Warren Buffett one of the most successful investors of the 20th & 21st century is to find and buy great companies at a discount and then never sell. Investing for the long-term means you lose out on the thrill that a bubble brings, but over time you will be building a strong foundational wealth. What I challenge you to do is over the next few days make conscious decisions that maximize the value/well-being of the future you. That may be cutting a luxury spending habit or it could be starting a diet to help you invest in your long-term health.

More posts…

3 Keys to Personal Finance

Woodstock for Capitalists – Berkshire Hathaway

The Silk Roads

There is No Finish Line – Shoe Dog


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