Editor’s note: This article was first published in September 2013. The readership figures it cites, the remark that jobs are hard to find right now (reflecting Spain’s crisis) and the Oliver y Benji and La Tienda en Casa joke all reflect that year.
Most people are looking for the formula for getting rich. Every week, hundreds of visitors reach our blog by searching for “how to get rich without working” or something along those lines. But it goes further: recently, in a Quora thread, someone kicked off the debate with this question:
What can I learn in under 10 minutes that will help me get rich?
Clearly this guy only has 10 minutes to spend on this simple race to riches. Put that way, anyone who isn’t rich yet simply hasn’t found 10 minutes to spare.
But he isn’t that far off, because we have a much faster formula that will help you build wealth, and in less than 10 minutes. You can probably do our exercise in just 4 minutes, or 7 for the lazier or slower future rich.
Step 1: identify your number
How much money do you want? For some people, wealth means having €200,000, while for others it would take at least €5 million. Wealth is relative and depends on the person. Even so, think of the figure you would need to reach to consider yourself rich. That’s your target (you can always raise it later).
Step 2: identify another number
This one is the number of years in which you want to reach your target. Some will want to get there in 5 years, others in 20.
Step 3: how much money you start with and how much you expect to earn each year
This step is a real pain, because I’m sure most people start out with more debt than money they could put into investments. But we’ll come back to this point later.
Step 4
Go to Investopedia’s compound annual growth rate calculator. In the first box, enter the money you’re starting with. In the second, the money you want to end up with (the figure that would make you rich), and finally, the number of years in which you want to get rich. Then hit the “calculate” button and it will tell you the return you need to earn on your money every year. But wait, don’t leave yet, there’s more.
When we talked about the most profitable investments for reaching financial freedom, the most profitable one was having your own business, where you could expect a 50% annual return. We also had real estate, index funds, stocks and so on. The best diversification proven so far is your own business plus stocks.
“But Carlos, what a crappy formula,” some of you will be thinking.
That’s when I’d send you back to the top to start over, because I’m sure, without knowing anything about you, that this crappy formula is telling you that the annual return you need is unimaginable for you with the money you have today. But you’ve already learned something: in your current situation, reaching your target is practically impossible. So either you change your mindset to change your situation, or this magic formula isn’t for you.
Step 5: change your current situation
Obviously, if you want to ski you first need skis, just as you need clay if you want to sell clay pots. To create wealth you’re going to need money, and to make the numbers work we’ll have to generate more income. True, your current job won’t be enough, and being unemployed won’t be either. And yes, I know finding work is hard right now, so you’ll have to do something about it.
See also: 4 things I learned from being broke
Step 6: learn to ski financially
I have nothing against football, but if you spend more time watching football than learning about finance and investing, this formula isn’t for you either. Keep watching football, and one day you’ll get to celebrate a win for Real Madrid, Barcelona or the Brazilian national team.
If that will make you happier, I’m happy for you. In fact, if football is your passion, the Oliver y Benji videos (the Spanish title of the Captain Tsubasa cartoon) are now on offer on La Tienda en Casa, a TV shopping channel. But if you don’t have a formula for turning your football passion into money, don’t you think it’s time to rethink a few things? Only 3,500 of our hundreds of thousands of readers have “wasted” 59 minutes of their time watching the Warren Buffett documentary.
Remember: if you want different results from everyone else, you’ll have to do different things from everyone else. I honestly believe Buffett has far more to teach you than Cristiano Ronaldo and Messi (as long as your goal is to prosper financially, of course).
Step 7: be clear about what to do and what not to do
As most of you already know, the secret to building wealth is simply to earn money, save, invest and reinvest the profits. How you earn your money is up to you, but how you spend it is another matter (The 10 stupidest things to spend money on). And above all, remember that high-interest debt is the worst cancer in personal finance.
Be very clear on how compound interest works for your money and savings, and make sure you don’t make the most common personal finance mistakes.
See also: Robert Kiyosaki: success, criticism, truths and lies
Most of all, you need to be very clear about what wealth is and what it isn’t. Building wealth is a slow process, and however hard Donald Trump may now try to sell the idea that he can make you money in 30 days by investing in real estate, the reality is that it doesn’t work that way, and he knows it.
The wealth formula in a nutshell
The wealth formula is to set a target in capital and time, and then try to get the money, and the return on that money, needed to reach it. You get there faster the more money you make and the more you save. And you’ll multiply it much faster the more you learn about investing.
The problem is that very few people look at how much their money has earned them over the past year. In fact, I’m sure most of them have lost purchasing power rather than earning any return.
If you’re disappointed by our realistic formula (there is no other) for building wealth, you can always go to your nearest bookshop and pay €11.50 for a book about attracting money, where all you have to do is “see yourself as a millionaire and think about money”, and sooner or later the money will come to you. You could also spend around $30,000 to attend Trump University, where they now promise to make you rich in 90 days with a valuable real estate investing formula. Then again, the Oliver y Benji DVD box set would work out much cheaper.
