Alex asks:
I think I have a fairly solid financial intelligence, although I am always on the lookout for learning new information on stocks, and real estate and the like. When I was a sophomore in high school I spent my saved money on stocks instead of a car like everyone else. But what I want to know, is how to START. It seems like you need money to make money, but right now I am just about to begin college, and while I have no intention whatsoever of spending my life (especially my youthful 22-40 years) working, right now I don’t have the money to buy real estate and begin to build an income generating property portfolio. In four years when I graduate, I will have no college loan debt, but I don’t want to “enter the workforce” because I will never get rich working for someone else. Do you think its possible to do something like 2 million in 4 years, so that when I graduate I will have enough money to use to make more money with? And if so, how do I start that now? I currently have about $16,000 in stocks.
So Alex wants to go from $16k to $2 Million in 4 years …
… as I pointed out to him, that’s a 400% compounded return. The stock market averages 12%; Warren Buffett averages 26%
But, I did point Alex to two places that can return 400% or even more: the lottery and business. I humbly suggested that he start the next Facebook.
Alex responded:
Well maybe I was too hasty in throwing out the figure 2 million. I guess what i really mean is how do I build up a large enough sum of money to actually begin making money with? All of your “money making 101″ strategies seem to already require a sizable pile of money with which to begin implementing them. Also, the real estate strategy of building up passive income through rents is an extremely long term one. If I were to buy a $160,000 dollar house at 6% with about 30,000 down (assuming my 16k turned into 30k during my college years), my mortgage would be around 720 a month. Realistically, I could probably rent that property for about 1100 a month. So we are only talking about somewhere around $3600 per year. Its a strategy that takes over 25 years to really begin producing enough passive income to support just a modest, middle class lifestyle.
Now, I’ll let you in on a little secret, and the younger you are – College age is ideal – the better this works:
Skip Making Money 101.
There, I said it: don’t worry about all the save 15% of your salary stuff; all the pay down debt stuff; all the diversify into Index Funds stuff …
… simply forget all the personal finance blogs, altogether.
Jump straight to Making Money 201.
Start a business – the internet is ideal – because I can’t think of any other legal way to give you a shot at making millions … and, it’s clearly possible because others have done it.
But, wait … surely you can’t expect to create the next Facebook?!
No, you can’t … but, you won’t need to: you only need to focus on making as much money (income) as you reasonably can – while still concentrating on getting good College grades.
Here’s the SECRET:
While you are making oodles and oodles of cash (well, at least a few extra bucks), you don’t spend it … in fact, you don’t even tell anyone that you have it. Your business could be generating an extra $100 a week, $1,000 a week, or even $10,000 a week and you still don’t tell anybody.
Why?
Because your secrecy lets you keep living like a penniless college kid, mooching off family and friends like any ‘normal’ college kid does, while you’re busy investing 99% of what you earn.
Will this work?
Maybe … but, if you flame and burn [AJC: did I forget to mention this was high risk / high reward 🙂 ], so what?
As long as you’ve been careful to avoid accumulating personal debt, you’re still just as poor as your buddies; you learned a lot; and, you had a helluva ride …
… one that you would never had been able to take if you actually needed Making Money 101 😉
That’s why you take risks when you are young, before you are saddled with debt, commitments, and angst.
Nice one! This is some good advice. I’m in college right now and I don’t want to get a part time job like everyone else. Always wanted to start something, like an ad revenue website. On the web you need an original idea, and if you’re lucky you’ll come up with one like the http://www.milliondollarhomepage.com.
AJC, what do you have to say about trying to come up with those big ideas that make you rich quicker? Is it worth it? I’ve tried it and it seems a bit like trying to run after the money and you end up always behind the money and your idea not being so big after all. Big ideas don’t come to you, they just happen like facebook.
Your blog is a lifestyle, I need to learn how to think like you and then just put those big ideas I think are big out there and see what happens. 🙂 That brings to another question, how do you cope with failure, it’s very demoralizing.
Had someone told me this type of strategy when i was just leaving high school I would have been incredibly happy to go for it. The older you are the more risk averse you become.
Great post. Now I just need to find the next facebook idea.
I wish I knew what Alex knows now when I was first starting college.
AJC, would you suggest someone in Alex’s position to possibly skip college and just work on money making 201, saving years that would be used on Money Making 201 activites? Sometimes I think this is what I should have done.
The next Facebook has come and gone 1000 times already – and things aren’t looking so hot for the original either. I totally agree with AJC that business is the way to go (if you’re buying stocks in high school you clearly have an interest in it) but there’s still many different ways to approach it.
If you start a small business (basically bring a small improvement to an existing market or serve a group of customers that’s being ignored) and grow it by yourself for a bit until you understand the market and have a customer base, hiring one person could give you the same profits as investing hundreds of thousands of dollars in bonds. You still have to work for it but it mostly depends on you and this puts you years, even decades ahead of the “work and save” game.
This is basically where I am two years out of university; had I started to do this between classes I could have had a stable business that ran without my continuous presence before graduating. It’s doesn’t mean you can retire as you graduate, but if you’re interested in business you’ll probably want to keep doing something even after you make your millions – having even a small amount of income that doesn’t depend directly on your work puts you on the right path.
It’s certainly not impossible to skip all the actual business experience and make millions starting from nothing in a very short time, but you don’t want to be like the guy who lied his way into $2M of real estate “investments” after college only to find out that yes, the housing market CAN go down. Remember that while the average career has a linear salary growth (at best), in business your income can grow faster and faster over time. Taking it one step at a time and starting out with a few slow years doesn’t put you out of the game at all.
At the very worst, if you take a long shot and fail you’ll learn something (if you’re smart). It really depends on how sure you want to be that you won’t need a job when you graduate.
@ Ravi – Then, you’ll love this list (Million Dollar Home page is at #1):
http://nichegeek.com/10_totally_stupid_online_business_ideas_that_made_someone_rich
@ Matt – Absolutely! And, what’s the problem with living like a (soon-to-be-rich-if-I-get-incredibly-lucky-and-what-have-I-lost-if-I-don’t?) grunge for a while, when you’re still in college, anyway? Hard to do once you’re older and those commitments start to pile up …
@ Josh – No … because there’s an incredibly high ‘risk component’ to all of this; if things don’t work out as planned you move to Plan B: stay tuned 😉
@ Richard – good advice … advice that is mirrored in an otherwise exceedingly flawed book , but one that I recommend to you because the author started a brick’n’mortar business in college and shares his (very interesting) experiences in one chapter:
http://www.amazon.com/Proven-Ways-Become-Millionaire-three/dp/0979313988/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1219426482&sr=8-1
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I think the next facebook will be a website that doesnt depend on profiles, blogs, or user to user messaging systems. Something that has an actual goal, and that can be updated everyday. Facebook, Twitter, and Myspace are all same in concept, just set up differently. [link removed]
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Couldn’t agree more with the idea of starting side business(s) on the internet at a young age. I started learning html my senior year of college and really wish I would’ve even started earlier on learning seo and web development.
I think it’s still possible for anyone to moonlight doing this stuff no matter the age though.