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December 09, 2009


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While regular readers may, may I repeat, tire of hearing these comments, I for one believe they should repeated on a regular basis for new readers. Not everyone becomes wealthy but financially comfortable is within the reach of many (most) Americans.
Spend less than you make.
Invest (index funds for most) your savings
Manage your career.

I am more aware that sometimes misfortune overtakes a person. This usually relates to medical issues, divorce and other major life crisis. To call it "bad luck" for me and me only seems to trivialize real life.


Okay, my question is with the source of the data. For example, it looks like the wealthy are more likely to cite saving and investing as the source of their wealth. Why not business or entrepreneurship?

Most major fortunes in the US were generated by starting major companies. Why isn't this factored into the data?



I think people overwhelming underestimate the amount luck has played in their life (or for that matter lack there of). People want to believe their accomplishments are a direct result of skill, and although skills are important, its not the only factor. Couple quick examples- year and location of your birth- good luck acquiring any wealth in your life if you were born in 1910 vs born 1950; proper skills at the right time- NFL player before cable tv vs after; running into someone who inspires a new idea; first job out of school; industry you work in; getting hit by a car or not; I can go on and on. I agree with the post, but one can not underestimate the value of external factors when discussing wealth.

Savors throughout history, are often wiped out through no fault of their own/ unlucky.

Final thought, I am willing to wager than many of the respondents in the servery, due to their demographic makeup, have benefited from one of the greatest creations of wealth of the last hundred years. As Paul Simon says "They were born at the right time."

I may be wrong, but I expect you'll get a lot of response along the lines of: You make your own luck. What luck go to do with it--apologizes to Tina Turner.

I happen to agree with you. But and I know you agree with this, barring bad luck/external factors, FMFs guidelines will work. They worked for me. And I have had my share of luck. Good and bad, overall good.

Just in case I wasn't clear, I do agree with you.

It's not rocket science: live within your means. If you spend less than you make you have savings...continue to do this and it will grow.

Interesting survey.

"I wonder where "spend less than you earn" or "control your spending" is."

What does habitual saving mean?

I agree with Tyler that Luck plays a larger role in financial success and prosperity than many people like to admit. My path to becoming wealthy is full of lucky breaks.

1) I was never drafted or had to perform military service. In this regard, wars or no wars, age, marriage status, education, type of employment, & being a father can all be factors in whether you serve or don't serve.
2) I was born into a good stable working class family where money was very tight, went to excellent schools and had great teachers that motivated me.
3) I left high school and took a dead end job because my family needed me to help financially. Later on an uncle convinced me to quit that job and become an apprentice at a local aircraft company that sponsored my further education, part time at a municipal college.
4) In 1956 I married my childhood sweetheart, & finished my 5 year apprenticeship with the British equivalent of a BS degree - without my Uncle's intervention that would never have happened. The Cold War was in full force and a Canadian aircraft company paid our way to Toronto & guaranteed a good job.
5) The Canadian company closed down after 2 years when the government cancelled an advanced fighter plane, but an American company was right there immediately with a great job offer to move to Denver.
6) Two years later I felt that I needed to get an MS degree with the help of a major aerospace company. Times were good - I sent out 3 applications and received 3 job offers. I accepted the offer from Lockheed in the San Francisco Bay Area.
7) I applied to join a MS program knowing that I didn't have a BS degree and my British diploma was unknown in the USA. The Dean of Engineering said, "Go ahead, sign up, all that we care about is that you get good grades". After 2.5 years I got my MS and had 2 B's and all the rest were A's.
8) I stayed with Lockheed until retirement, had many promotions, and had wonderful and very creative work assignments until retiring in 9/92. The MS plus a good work ethic helped me avoid every layoff.
9) Upon retirement I educated myself in the technical analysis of stockmarket trends and wrote software to help me manage my portfolio. From there I ran into a great market, then in '98 the bubble started and by 3/15/00 after the bubble burst and I got out completely my portfolio was 10 times larger than when I retired.
10) I also ran into the great real estate market and was able to have my mortgages paid off when I retired. Another huge factor is "No Divorce" & a very happy 53 year marriage, and that takes Luck as well as work.

Even though I have always tried my hardest in every respect, there is no doubt that a lot of very favorable and critical events that were beyond my control could have easily gone the other way for me and I would now be in entirely different circumstances, even maybe sleeping under a bridge tonight.

James --

"Most major fortunes in the US were generated by starting major companies."

1. What do you classify as "major fortunes"?

2. Do you have a source for this claim?

If you can answer those two questions, I think I can answer yours.

Pop --

Spend less than you earn over a long period of time and what do you get? Long-term (or habitual) savings.

Old Limey --

It's my opinion as well that luck plays a role in life. But what's the difference between perople that have the same "luck" and one ends up with several million while the other ends up with nothing. In other words, good luck doesn't guarantee a high net worth and bad luck doesn't guarantee a low net worth, does it?

How exactly is "inheritance" different from "a lucky break"?

How else can winning the parent lottery be described?

"Most major fortunes in the US were generated by starting major companies."

Most major fortunes in the US generated by starting major companies were lost when spending exceeded earnings. The Vanderbilt family is an excellent example of tremendous wealth accumulated over two generations being consumed by exuberant extravagance. Businesses may be very profitable but spending profit faster than the business generates it always results in bankruptcy.

Tiger Woods, Inc is a billion dollar enterprise that may soon be teetering on the brink of solvency. When his sponsors and endorsements dry up and the marriage dissolves, outgo will overtake income.

Old Limey:
Thank you for a very important and personal post. I thought it special as I we have exchanged post before (the value of a college degree being its own reward).

At the risk of disagreeing with you sort of in the last two days: Luck does matter. You are correct that it guarantees nothing. But. Sometimes its better to be lucky than good. I was good at what I did, I managed my career well --I took some risks, I didn't pout when things didn't go right; but, I did have some breaks that I could not have managed to arrange. Yes I saw some of them, the openings and grabbed them, but....Some breaks were beyond my control. One in particular could have ended my career, but I had the confidence up the food chain. Never discount luck. never blame fortune.

I do know of several of my contemporaries that followed my exact path for the first few years but I have lost touch with them. One had a problem that his wife was homesick for England so they moved back to keep her happy. Another one was a big womanizer and that messed up his life big time. He also got greedy and became what in my days was called a job shopper. Job shoppers were contracted out to large companies that needed immediate help, you were paid a lot more but you were the first to get laid off and you received no benefits and no 401K plan. He also never got an MS degree, had several divorces, and was a big spender.

You are correct that you do need to work during good economic times, i.e. Luck, but you also have to be very well qualified, very conscientious, and stand out from your competition in order to get ahead. Then when you are earning a good salary you need to do all the right things discussed frequently on this website to ensure that your net worth grows at a nice rate. Lastly you need to have a good, stable, marriage and a wife that contributes in every way that she can to help reach your financial goals.

Another younger colleague that I worked with, who was really brilliant, left Lockheed before I retired and started his own company. His wife went back to work to bring in the money while he got his business going. The three major auto manufacturers each now use his software in their design departments and pay him royalties for every computer on which it runs. His company never went public and is basically a 2 man show but they have a great product. He now lives in one of the best areas, in a fancy home with fabulous views. I think we are fairly close in net worth largely because he was too busy with his work to also become a successful investor. A funny store was that his first customer was GM, and he hung up on them, thinking it was a crank call - however they called back.


You asked "where is spend less than you earn?" and Pop asked the leading question "what does habitual saving mean?" I think his intent was to point out that "habitual saving" and "spend less than you earn" are the same thing: earning - spending = saving. You prefer to phrase it one way, but the survey phrased it the other way.

I think the most interesting result of the survey is the much higher percentage of "wealthy" vs "comfortable" people who mention sound investing. In other words, a better grasp on investing is one of the things that will tend to separate the W's from the FC's. It's one of the big differences between someone who retires with 1 million in a 401k they've never really looked at and a bit of cash in the bank, and someone who retires with 5 million in a well-balanced portfolio with low expenses. I've just started to understand investing (in large part due to you and your readers) and I think the understanding will make a huge difference in my level of wealth long-term.

I agree with Tyler in that luck plays a bigger factor than a lot of people care to believe. Yes, you *can* make your own luck, but there are a lot of chance-based attributes that can factor into making you happier and wealthier. Statistics have shown that tall people earn more than shorter people. Beautiful people tend to earn more than 'ugly' people on average. Men earn more than women. These attributes are all luck based. If you are short, "ugly" (in quotes because beauty is really in the eye of the beholder), non-charismatic, and of below-average intelligence, chances are you won't be making big bucks, even if you work very hard (and it's very hard to save anything on a minimum-wage type job).

I was also going to point out that Inheritance is also luck based, since you don't choose your parents, but Terry beat me to it. :)

But yes, I do TOTALLY agree that the biggest factors in gaining wealth are saving/investing and have a high-paying job. If you've got what it takes, either skill or luck, to land a high-paying job, it's all up to you from there on out as to whether you want to be wealthy or not (by spending very little, and saving/investing a lot).

Luck certainly helps, but it's not a pre-requisite. 1, 2 and 3 will do the job for me. Luck just means I will get there a bit sooner:

1. I lost two thirds of my money (whcih wasn't much to begin with) during the 1987 sharemarket crash when I was 21. Learning a harsh lesson about risk at an early age has been very valuable to me. That loss also helped me decide to go back to law school to complete my law degree which ultimately led to a well paying job

2. I purchased my first property in my home country in 1996 instead of HK because I had broken up with my then girlfriend and was thinking of returning home. If we hadn't broken up, I probably would have purchased in Hong Kong - ver close to the top of a bubble

3. I got a promotion and very significant pay rise in 2000 because my boss left creating a vacancy for me to move into (absent his departure there was nowhere for me to go in that organisation)

4. random pub conversations + my wife's nesting instinct persauded me to buy real estate in Hong Kong in early 2004 after the Asian crisis and SARS - it turned out to be just after the low point in the local property cycle

5. I changed jobs in late 2008/early 2009 and found myself with a relatively large amount of cash and enough confidence (I read a lot of books on economic history) to put most of it into emerging market equities at the time - so far it looks like a very rewarding decision

Sometimes it really is better to be lucky than good.

BillV --

It's ok to disagree with me. ;-)

I could write a book on luck, but here are my summary feelings:

1. Yes, luck matters in some cases. Maybe even many cases.

2. That said, many things people often refer to as "luck" are the results of good or bad decisions they have made. It may have been "unlucky" to take a job or it just could have been a bad decision.

3. You can't count on luck. That's why you need to do the best you can, follow good principles, etc. and let the rest of the chips fall where they may.

4. In general, only very good luck or very bad luck events are life-changers that totally control your situation in life (think winning the lottery or being diagnosed with an incurable disease). The majority of people will never experience these kinds of "luck."

5. Most people have a combination of good and bad luck (it's not just one or the other), so in many cases things balance out (at least within reason.)

6. Think of a situation where someone was successful because of good luck and I'll point out a situation where someone was successful despite having bad luck or show a situation where someone was unsuccessful despite having good luck. It's a moving target with many facets.

It's quite an interesting topic, huh?

What does "financially comfortable" actually mean, and was this survey done before the recession?

Beth --

"What does 'financially comfortable' actually mean"

Click the link in the first sentence that reads "financially comfortable" and find out.

"Was this survey done before the recession?"

The book was published in 2009, but I believe the survey was done before the receession.

Old Limey- very nice post. I too use algos to manage investments.

First I need to apologize for the many errors in my previous post.

As a part time ego maniac, I never intended to imply that skill, talent, and discipline were not major factors in the acquisition of wealth. I merely wanted highlight that many factors outside of one's control can play a substantial role in one's life and thus, wealth creation- call it luck or whatever you want. People overwhelmingly overestimate their skills and underestimate luck in their life.

I try to put myself in the position to get run over by luck everyday. I still have to have the skills to take advantage of fortune when it comes my way.

Investing has a major factor of luck to it.

Someone can gain wealth by simply being lucky. Someone can have all the skills in the world but have zero wealth because they have be unlucky.

I think most wealthy people, and certainly those who have $5mm+, would list luck, or some synonym as a major factor to their success. (Skilled and Lucky) Then again, a civil servant/teacher/etc will probably not list luck as a factor to their wealth because of the nature of their incomes.

I'll stop now because I can go on and on.

I think that the list at the top masks some of the "real" percentages that might make a person wealthy. For example only 13% said "starting a business", but if you start to add up the small factors 13% (own business) + 15% (inheritance) + 39% (high paying job) + 4% (lucky break) = 72%. This ignores people who have more than one factor in their favor, but that would hardly appease the "poor person" looking at this list (more than one factor just makes it easier to be rich right?).

My point is this: The list makes it look like the wealthy don't really rely on inheritances, luck, a business or high paying jobs for their wealth, but that is not a conclusion that can be drawn from the list. You have shown (repeatedly) that keeping the wealth requires discipline (less outgo than income), and I think the investing, saving numbers support your thesis, but the others items may actually weaken it.

The optimism of youth and the realism of long experience have something to do with the disagreement over the relative importance of Luck and Ability.

I first started work in 1950 at the age of 16, retired in 1992, at the age of 58, and now I am 75.
With my working life and wealth building behind me I can look back into the past and it's easy to see the major forks in the road where a life altering decision was made. There was one real estate decision that I would have made differently from my wife but in a marriage you have to compromise at times to keep the peace. Other than that I wouldn't change a thing. During all those years I was too busy working to pay much attention to things like recessions, unemployment data, the federal budget etc. since I was unaffected, primarily because of a career path that I chose when I was 17.

Now however with lots of free time at my disposal and the availability of the Internet and CNN I am better informed than in the old days. The dire state of the U.S. economy, budget, national debt, unfunded liabilities of social security and medicare, worst joblessness since the great depression, stalemate in Congress, involvement in two wars, huge numbers of factory jobs lost forever, foreclosures, rising crime rate etc. etc., make me personally very glad that the working, decision making, and wealth building part of my life is behind me rather than in front of me.
I can now be a spectator rather than a performer and am well insulated from feeling the effect of the current problems.

I love this blog because it always amazes me how people can save money to become wealthy but they don't. It also amazes me how often people are trying to trick you and take your money.

I was clicking around the other night and noticed an advertisement for a FREE TV with purchase at their stores. I expected to see something pretty cheap, and was surprised to see it was a name brand. I have needed a TV for a while now so I decided to look at this further.

The fine print is what killed me though:

Please allow eight weeks delivery for merchandise redeemed online.

You DON'T ACTUALLY GET THE TV. You get a voucher for a TV -- that you'll get in 8 weeks and will at that point be a lot less expensive.

Don’t let these marketers trick you. We are too smart for them.

Well, when you describe "luck" that way, I 'd say I don't disagree with you after all. :-}

Old Limey,

Even after reading your story above, I beg to disagree on 'luck'. What you are unaware of is that you were actually destined to be the next king of England, however, due to your oh so unfortunate decision to emigrate to the US, you missed out on that!

What am I driving at? Sure, life is full of surprises and chances. But as my mother says, 'oil will always float', i.e. if you have qualities, they will show, no matter what your circumstances (life's surprises) may be. I think that's a better mindset than relying on luck. At the same time, you can still be grateful for the life you get to live.

Related story that I love:

Also, in many if not most of the instances that people will label as 'luck', the 'lucky' person has been working hard for years. Every so much time, a chance came along, and eventually one of them turned out well, so the person 'got lucky'. The rest of us keep wondering why we don't 'get lucky'.

I can't resist. I have to dive in.

So, Old Limey, you say you were lucky because:

1) [Fortunately] I was never drafted or had to perform military service.
-- some people credit what they learnt in the military for their later success
2) I went to excellent schools and had great teachers that motivated me.
-- what does that tell me about you? The guy that went to your same school and became a thief wasn't so positive about school...
3) An uncle convinced me to quit my dead-end job and become an apprentice at a local aircraft company that sponsored my further education.
-- so you wanted more than a dead-end job...
4) I finished my apprenticeship with the British equivalent of a BS degree - without my Uncle's intervention that would never have happened.
-- Without your uncle's intervention, you would have gone along with someone else's intervention. Life is full of people who want to help. The question is: are you open to it?
5) The Canadian company closed down after 2 years, but an American company was right there immediately with a great job offer to move to Denver.
-- you were good so they wanted you
6) Times were good - I sent out 3 applications and received 3 job offers. I accepted the offer from Lockheed in the Bay Area
-- times were good so you got the job you were destined to get anyway, sooner than you would have in bad times
7) I applied for the MS but my British diploma was unknown in the USA. The Dean of Engineering said, "Go ahead, all that we care about is that you get good grades".
-- despite your 'wrong' diploma, you tried your luck and went to talk to the Dean. He happened not to be a dick, so you didn't have to look any further.
8) I stayed with Lockheed until retirement, had many promotions, and had wonderful and very creative work assignments until retiring in 9/92. The MS plus a good work ethic helped me avoid every layoff.
-- Boy were you lucky to have such a good work ethic! If I only got so lucky too!
9) Upon retirement I educated myself in the technical analysis of stockmarket trends and made a boatload of money in the bubble
-- The era may be gone, but the trends are still there, with boatloads of money waiting to be made.
10) I also ran into the great real estate market. Another huge factor is "No Divorce" & a very happy 53 year marriage, and that takes Luck as well as work.
-- you were a disciplined saver who built assets. Assets grow in value, that's why they're called assets.
-- you were prepared to work on your marriage, so it lasted

My 2p ;-)

Maybe it's the word "Luck" that you don't like in this context.

Let's forget about luck and use facts instead.
Right now 17,000,000 americans are unemployed, its very hard indeed to find a good job and even people with advanced degrees are making do with a job in retail because it's all they can get.
Then there are all the people that just happened to buy a starter home near the top of the market and they have lost their job, lost their health insurance, the house has dropped way down in value, they owe more than it's worth, and they can't pay their mortgage and their emergency fund is empty. On top of that a family member was in an accident and needs expensive surgery and hospitalization.
Maybe none of their problems were their fault so why are they in deep trouble.
Do you remember the slogan that James Carville coined in Clinton's election campaign - "It's the economy, stupid!"

One for the road (my last post, I promise!)

A while back there was this story in the press about a murderer who had been arrested. When asked how he had ended up the way he did, he said: "my father was a criminal and a drunk who beat us up all the time. With this kind of youth, what else could have become of me? Turns out the murderer has a twin brother, who happens to be a well-known, widely respected lawyer with a happy family life. When asked how he ended up so different from his brother, he told the same sad youth story, and concluded: "After witnessing this misery first-hand for such a long time, what else could have become of me?"

Um, Concojones (as distinct from Sincojones)...I gotta ask...(and the story sounds inspirationally contrived)...

How on earth did this lawyer-from-a-criminal-dysfunctional-family ever afford to go to law school?


This is Western Europe. Here, higher education doesn't cost you an arm and a leg -- ask FMF's daughter ;-)
In the US, I believe there is a thing called student loans.


BTW, you've got a point (not just about the nickname). The story comes from a book (on the same topic this blog is about).

Old Limey,

I noticed your reply just now. You have a point that many Americans are having a hard time now, incurring medical expenses just when they lose their health coverage. I tend to forget that, living in Europe.

Still, some of the people struggling in such adversity will go on to become very successful in life, because they don't let go.

Luck is the Hand of the Supreme Being. Everyone needs that and it is so obvious that it is NOT worth wasting time talking about it. Why? You can't buy it, can't inherit it, can't choose that path and cannot even get it in your circle of influence. So, let it do its thing.

In the meantime, working hard, working smart, being consistent, sacrificing, planning and designing the future and finally income generation for decades will do it.

Limey just did not happen to make a 10x jump in the portfolio after retirement.....He worked for it. Also, his 53 years of marriage says a lot > Many sacrifices, lots of adaptation and hard work through all of those years got him to where he is today.

I have similar experiences, but much younger than Limey, and hope to design some paths that lead to similar situations as Limey.

In either case, I am doing a lot of the right things, and reading a lot everyday with a full time job/career, handling teenagers, social life, managing tasks/chores, and doing everything myself (without outsourcing like a lot of my not-so-rich-neighbors).

Good luck y'all......Limey have a great life.

Old Limey is telling the story looking backwards, all is written in history and it's easy to see the forks in the road and ponder the big decisions / turning points.

Looking to the future, nobody knows with certainty what will happen.

It's good to attribute your successes to luck- it keeps you humble and grateful- two qualities I like to see in people including myself.


I happen to not believe in a supreme being but my wife and I are both very strong believers in Kharma, i.e. what goes around, comes around, or, follow the golden rule. Evidence of it working is everywhere.
You are definitely on the right track with the comments where you describe your approach in life.
The other quality that you need to be successful is confidence and you appear to have plenty of that also.
I also have saved loads of money during my life by doing everything that I possibly can myself rather than paying others to do it for me, I learned that from my father.

As Mike wrote, it is also good to be humble and grateful for what you have in life. The greatest gift of all is to find a partner to share your life with. Early in our relationship, long before we were married, I was stupid and she broke up with me, however unknown to me my mother sent her flowers under my name, she came around to the house, and we were back together again, thank goodness - maybe that's also Kharma.

i think these articles are quite helpful...the more we talk the more we know. s.r. van meter jr.

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