Getting rich slowly vs. taking financial risks

After years of living well below my means, I'm finally a few weeks away from reaching a personal savings goal and rolling over my 401k. I'll hold for applause.

Yes, I'm almost in a secure place financially. But this has left some people close to me offering their input on what I should do with my income, now that I'm a grown up and all.

The suggestions are interesting. I've been told I should open my own business, something I've never had a desire to do. I've been told I should completely change careers, something I've already done once, recently. I've been told I should invest in real estate, and, well, let me put it this way. Yes, I'm close to being financially comfortable. That doesn't make me Donald Trump.

My loved ones' advice, basically, is that I need to use my money to make more money. But I think this is getting way ahead of myself.

Taking Financial Risks

On our journeys to getting rich slowly, the slow part is easy; we can't really control that. But we often forget the steady part–keeping our eye on the prize and ignoring distractions like expensive cars. Or financial risks we're not necessarily ready for. Like buying rental property.

That being said, risks can also be worthwhile. Financial risks may even be a part of the GRS journey. But how do you know when you should take a risk? It's a question I've been pondering, so here's what I've come up with.

  • Make a budget: Have to give my Dad props for this one. After having this whole “risk” conversation with him and professing my skepticism, he suggested saving up for it. After taking care of your emergency savings, retirement, etc.–everything that gives you peace of mind–begin saving for endeavors/investments you may want to pursue. Make sure you can afford the risk in the first place. Call it your “risk budget.” Or something less ominous. If you lose the money, knowing that it was set it aside for a risk may help soften the blow.
  • Take a timeout: If you have an idea of something you'd like to invest your money in, write it down, and revisit it in a few weeks. Months, maybe. Still excited about it? If not, it's unlikely you'll give the investment its due diligence, making the risk enormously riskier. Example: I wanted to start a website about cheap date ideas in Los Angeles, based on happy hours, free events, etc. I was very excited, even knowing that I'd have to invest copious amounts of time and money. But after revisiting the idea a month later, I decided that I'm actually not that excited about it. Good thing I didn't spend money on a domain, hosting or web design.
  • Make a pro/con list: I have pro/con method that's helped me make some big decisions, none of which I've regretted. I left a bad job and rented a lovely apartment based on this method. Start by making your pro/con list as usual. Why should I do this? Why shouldn't I do this? (For financial risks, a con would be: “I could lose a buncha money.”) Then, review the items and rank how important each one is to you, on a scale of 1-10. After ranking, add up each side. Whichever side has the greater number–that's the decision you should go with. So it's not just about quantity–which side has the most items. It's about which side carries the most importance. Simple, and maybe not too scientific, but hey, it's worked for me.

If you decide to take the risk, whether it's going back to school, starting your own business, buying wholesale jeggings and then reselling them on eBay, whatever, consider these tips:

Be steady and patient: See your commitment through, and put everything you have into it. Make your investment worthwhile. This is the best way to make the risk less risky. And remember that success with anything takes time.

Prepare for the worst: And hope for the best. The worst is that you fail. You have to be okay with that, and you have to be okay with the possibility of investing all of that money for nothing. Having a “risk budget” set aside probably helps with this.

And hey, it wasn't all for nothing. If you went back to college for a degree and ended up not being able to find a job in your field, for example, you've still furthered your education. When I left a lucrative career to pursue a freelance writing dream with only a small cushion saved, it was a huge risk. But the risk of never attempting to pursue my goals outweighed the risk of failure. My decision has been worthwhile, if only for trying alone. But hell, I'm still prepared for the worst.

Slow and Steady

I realize that when talking about financial risk, one may expect to learn something about investing. Frankly, it's an overwhelming topic I'm still learning about. Financial risk in the context of investing requires an analysis of one's own situation and more research than I can fit into the rest of this post.

Anyway, as much as our culture glorifies the short road paved with instant gratification, success–financially or otherwise–is a long and steady journey. I don't care how many episodes of “Lottery Changed My Life” TLC airs.

My point is, financial risks aren't all bad, but they shouldn't sideswipe you clear off the GRS path. Getting rich slowly is about saving your hard-earned money and adapting a frugal lifestyle so that your bank account can reap the rewards. For me, the more I progress, the easier it is to get distracted and start to think I have more money than I actually do. But remembering the diligence I've invested into my journey, along with how far I have to go, keeps me levelheaded.

Stay steady, my friends.

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Lance@MoneyLife&More
8 years ago

I am a big fan of pro con lists. I used them in both of my job changes and made the right decision in both if you take a long run look at it.

I also always hope for the best but plan for the worst. If you plan for the worst and something better happens you’re already mentally ahead. While some people view it as pessimistic I just view it as being prepared for things to go better and have some extra money 🙂

david
david
8 years ago

I once read a book by a guy who was writing about wealth. He said a rule of thumb is to never invest more than 20% of your available investment capital in any one investment. I think that is fairly sound advice. Of course, to increase your chances of success you really have to do a LOT of due dilligence before getting involved in anything. That is one of the secrets to making it work out in your favor. You need to go in with the idea that they are trying to rip you off and then figure out why… Read more »

Emily
Emily
8 years ago

This is a pretty good post. It could have used more details around types of possible investments and ways of feeling them out; the pro/con example was great because it was concrete.

The writing overall is good but felt a little gimmicky–“journeys to getting rich slowly” and “GRS journey” felt corny to me. References to the overall blog don’t need to be so explicit or label-y when the subject matter is on point.

Holly
Holly
8 years ago

The other thing which should be on this list but isn’t is research. There is the briefest of mentions about due diligence, but it is a key component of the process. It would be worthwhile to explore due diligence checklists (what should you think about?) for a future post. Not enough people do it, but checklists are a great tool for ensuring you consider all the important risks. Overall I will agree about the other items mentioned. Several times over the course of our marriage, my husband has taken time to invest in himself. We’ve been able to do this… Read more »

Allyson Carneal
Allyson Carneal
8 years ago
Reply to  Holly

He implied that research is necessary in the “Take a Timeout” step, when he said that you won’t give the investment proper due diligence if you’re not still geeked about it after waiting a month or so. I do agree with your basic point though – research is so crucial that it could really have been a step in itself.

Holly@ClubThrifty.com
8 years ago

Great post!

I, too, struggle between getting rich slowly and taking big chances that could really pay off. Right now, being conservative seems like the smartest move…for me at least.

We did buy some rental property though and I don’t really see why someone would label that as risky.

Kristen
Kristen
8 years ago

Well written and I like the thought process, but I feel it’s missing the personal tie-in at the end. Having gone through this thought process, what did she decide to do with the money she’s considered investing? What has she learned from it? I appreciate tips, but prefer to get them from someone who can share the ups and downs of the process because they’ve lived them. Without the personal experience and (humble) lessons learned, advice feels a bit preachy to me. Good content, though. 🙂

PB
PB
8 years ago
Reply to  Kristen

I agree. I would have liked to see information about an investment she is considering or decided for or against, and maybe an example of the pro/con list.

Kris10MK
Kris10MK
8 years ago
Reply to  Kristen

I agree. I really liked the voice of this article and it head great suggestions. But it would have been and added bonus to have found out what she decided after listening to her own advice. Looking forward to more articles by this writer!

Kristin Wong
Kristin Wong
8 years ago
Reply to  Kris10MK

Thanks, all! I really appreciate the support and feedback. Hope I get the chance to share more!

MIchael
MIchael
8 years ago

Fantastic article. Lots of great points to incorporate into our individual financial flow.

krantcents
krantcents
8 years ago

Slow and steady always wins!

Tyler Karaszewski
Tyler Karaszewski
8 years ago
Reply to  krantcents

Just ask the guys who built Instagr.am.

Cheryl
Cheryl
8 years ago

Of all the audition pieces so far, I like this writer’s “voice” the best.

Adam
Adam
8 years ago

Risk cannot be reduced by thinking about it, but it can by preparing for it. I became an accidental landlord when I could not sell my house, and I needed to move closer to work. There was risk, but the financial aspect was very clear. I have a 15 year mortgage on that property and build significant equity every month. I just needed someone else to cover the bills. So I rented it. Fast forward a few years I now have half a dozen rentals, and growing. “Prepare for the worst and hope for the best” I could not agree… Read more »

Cortney
Cortney
8 years ago

I really like the idea of a risk fund. By starting it now, you determine how much money you’re willing to risk before you have an opportunity to use it. Hopefully, this means you’re less susceptible to the emotional swings that may occur when the opportunity presents itself and would negatively impact your judgment.

I also agree with the other commenter on the importance of research.

Jenna
Jenna
8 years ago

I agree Cheryl, this was very easy to read and digest. The content was solid as well. Sure as others have pointed out there are a few small things that could be better, but they’re really easy to fix in the future.

Jim
Jim
8 years ago

I agree with Cheryl about the writers voice, and this is my favorite of the audition writers. Although this one has merit, I prefer Kristin’s other piece to this one.

Amy
Amy
8 years ago

I agree with Cheryl. This is my fave so far, and I really like the “risk budget” advice.

Kathleen @ Frugal Portland
Kathleen @ Frugal Portland
8 years ago

I like this post, and writer. Very well said — and I feel like I’m this conservative, too!

Tyler
Tyler
8 years ago

“See your commitment through, and put everything you have into it. Make your investment worthwhile. This is the best way to make the risk less risky. And remember that success with anything takes time.”

Thanks, I needed that today.

chacha1
chacha1
8 years ago

This is clearly a psychology-oriented piece, not a mechanics-oriented piece, so I didn’t mind the lack of detail. Thought it was well written and thought-provoking. My own intolerance of risk has definitely … I almost wrote “held me back in life” but that is not the truth. The truth is, intolerance of risk has steered me to choose jobs, and a mate, conducive to financial stability. And financial stability has provided a lot of opportunities to do very rewarding things outside the workplace. I had to leave a very bad job once, a job that had me so burned out… Read more »

mike crosby
mike crosby
8 years ago

A lot of posts are about slow and steady wins the race. I’m not so sure that’s the way for many, and it wasn’t my experience. I never made over $20-25K/year in my entire life with my regular job, money wise I’m set for life. And while it was my job from being self-employed that provided the seed money, it was taking risks financially that allowed my nest egg to explode. And taking a risk for me might be considered a huge risk for someone else. It’d be interesting to read how others are wealthy not only by practicing frugality,… Read more »

Alea
Alea
8 years ago

“I don’t care how many episodes of “Lottery Changed My Life” TLC airs.” LOL!!! such a guilty pleasure. Speaking of the lottery, it’s what got me interested in getting my financial life together. TRUE, and I know some of you are laughing your heads off. One day I started thinking “What if I win? What do I do?” Now when that question came up, I was broke, bankrupt, depressed, you name it, (at 39 I had nothing to show other than debt) but I decided that I was going to win the lotto and I had better know what to… Read more »

Jerome
Jerome
8 years ago

Great post! I hate pro/con lists! My personal experience with any difficult decision is that the pro/con list gives very comparable scores for the pro and con. And I now understand why this is: if a decision is easy, you do not need a list. If it is difficult this is because there is a dilemma. And you can’t solve dilemma’s with a list. I use a slightly different approach: I make a pro/con list, but just to get an overview of the issues. Than I try to solve or work around the cons. And than I take lots of… Read more »

Nicole
Nicole
8 years ago

Calculated/measured risks are awesome.

Jenna, Adaptu Community Manager
Jenna, Adaptu Community Manager
8 years ago

Great post! Definitely a fan of the pro/con list. And I think you definitely need to spend a little money to make more money.

Cherleen @ My Personal Finance Journey
Cherleen @ My Personal Finance Journey
8 years ago

Great article! I believe that budgeting is an important part of financial management. If you stick to your budget and save every dollar you can, you can eventually be rich. Though the process is slow, as long as you do it consistently, you will soon reach your goal.

Sophie
Sophie
8 years ago

I like this article. I’ve often come under pressure for not investing in shares, even though I’m very clear on my own risk tolerance. It’s important that if you can’t tolerate risk, you invest in ways that won’t keep you awake at night!

Bryan@Gajizmo
8 years ago

This is definitely one thing I am working on myself. I used to be very impatient, wanting to be successful overnight, but I’m actively trying to think more long-term, enjoy the moment and focus on the fact that being wealthy and happy in 10 years is just as good as tomorrow.

Tim Thompson @ The Road To Wealth
Tim Thompson @ The Road To Wealth
8 years ago

Well, the thing is there’s actually risk in NOT taking any financial risks. For instance, if you just built up all these huge cushions in a savings account which earns 1% interest, only to have your purchasing power erode at a rate of 3% per year (inflation), how are you getting rich slowly by losing 2% of your wealth every year? By all means, sit back and assess your situation to make sure you’re not taking too much risk. Definitely rethink it if you’re looking at rental property…it’s a huge nightmare to deal with. Most businesses, rental properties included, don’t… Read more »

Michelle
Michelle
8 years ago

I really like the style of this article and the authors last article… I feel like we’re at the same place with the same mindset. I enjoy JD’s articles as well, but this author seems to have more similar life experiences to myself. Two thumbs up!

Whitney
Whitney
8 years ago

Congrats! Have you ever read the book “48 Days to the Work you Love?” by Dan Miller? It’s a great book. It has definitely set me on the right track. Again, congratulations:)

Kristin Wong
Kristin Wong
8 years ago
Reply to  Whitney

Thank you for both the kind words and the recommendation, Whitney! I’m definitely still on my journey, but it feels good to finally reach some goals.
I haven’t read that book, but I will definitely check it out. Sounds intriguing.

Allyson Carneal
Allyson Carneal
8 years ago

I really liked the voice of this article. Very conversational.

Me
Me
8 years ago

I like this writer. What ever happened to the follow up article with respect to their income property? I would love to hear how it is going 2 years later.

John @ Independent Advisor Norwich
John @ Independent Advisor Norwich
7 years ago

Nicely written piece. Agree with some of the posters above that seemingly taking ‘no financial risk’ can be a risk in itself. Virtually no financial step can be considered entirely ‘risk free’. Even when using investments covered by the accepted academic concept of the ‘Risk Free Rate’ i.e. the rate of interest earned on a ‘no-risk investment’ (e.g. sovereign bonds held until maturity) there is still exposure to certain risks. Inflation risk is the most obvious, but currency risk and legislative risk are other examples. So, simply not knowing the risks you are exposed to using a ‘slow and steady’… Read more »

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