Another post inspired by my study of gambling. Just to bring you up to where I am right now: I realise you can lose lots of money if you gamble and you don’t know what you are doing. I don’t know if you REALLY know that. Secondly, with discipline and the right system, you can make money, but professional gamblers don’t look for that ONE BIG DEAL. In fact, they are quite prepared to grow rich slowly. And that is what this post is about.
The article that I read suggested a way to back the horses (a technical analysis type of system) and suggests that your aim should be to make R5/$5 or whatever your currency is, per day. Once again, as we have already seen, you should protect your capital by only investing 2% of the bank on each race. As the bank increases, still playing 2% of the bank, your winnings will increase. So he uses the power of compounding.
I am sad to say that I still know only enough to lose my money on the horses! BUT WHAT IF:
I don’t need extra income to cover my living expenses;
I can make R5 per day at least 200 days per year – not by gambling, but by selling fudge or a rose from my garden, for instance.
If I just keep on adding R5 per day and manages it carefully?
The immediate problem is – greed or laziness – R5 per day is not enough or not worth the effort. At least that is my mindset. But if I decide to do it, after 1 year I will have R1 000. With R1 000 I can get a decent bank account and let’s say I can earn 5% interest. After 2 years I add another R1000 and with interest I now have R2050. I still don’t feel very excited, but I am going somewhere. And without a doubt, by now I have gained some very valuable skills and insights. I keep on doing what I am doing, just adding R1000 per year.
At the end of year 5 I have R5500 and I invest that in the SATRIX and I reckon I can get a return of 20% per year. So each year I get 20% growth and I add R1000. After 10 years I have R21191. I still don’t feel very excited. But, how much effort can it be to make R5 per day? And as time goes by, that R5 will probably also increase to keep up with inflation. The question is: can I keep on doing something “trivial”, just by looking at the future?
After another 10 years (20 years in total) my money is worth R157 000. For some reason that still does not stir any emotion. But at this point I can start doing other investments. But I stick to my plan like a missile that has locked on to a target.
After 30 years I hit the MILLION. Now I feel some emotion stirring. Imagine I started out in search of my extra R200 per year when I started working! This million is over and above all my other savings! And after 40 years, when I get to retirement, I have a whopping R6.212 million extra to enjoy my retirement.
It has been some time since I last did financial planning for any individual, but I think I have saved more than most people will ever accumulate in their pension funds! By making R5 per day 200 days per year! If I just had the guts!
Imagine a youngster starting to do this while at school!
Which leaves some questions that I ask myself while shaving:
How difficult is it to make an extra R5 per day? I can think of a lot of ways to do it! Why don’t I do it? Because I am lazy, I want more money and I want IT NOW! I don’t want to wait so long to enjoy the fruit of my labour. What will my neighbours say?
The above scenario is a bit slow, I agree, but the point is, we can accumulate wealth with little effort and even less risk if we are prepared to start slowly, stick to the plan and focus on the ultimate goal.
There are 2 problems: because we want everything as quickly as possible, we risk big amounts of money and when we lose we are too weak financially and emotionally to get back on our feet. Or we have an attitude of: if I cannot have it all, I don’t want anything – to me it is everything or nothing. That is kind of stupid, but it also kind of sums it up!
I would love to hear your views on this.
When Mr Y o Y bought a car, he was referred to me to do his insurance. The first time we met, he was still waiting to get the car and he told me he only has a learner’s licence. I warned him about driving without a “chaperone” and he said he is well aware of it. I got all the info and with a bit of trouble got him a very good package.
Then we had to sign the documents and we met in a coffee shop – he drove there with his chaperone! I warned him that it is very high risk, but he just smiled. Then he asked me if we could make the inception date of the policy 1 month later. Obviously we can, and since cash flow is a problem, it is probably best. Once again I warned him about driving a car that is not insured and he smiled and assured me that he drives very carefully.
Two weeks later I receive a fax asking me to cancel the policy. Three days after signing the documents, he had an accident – the damage is R60 000. He fought with the insurance company, because they refused to accept responsibility, after all, he did not have insurance! So he already owes more than R100 000 on the car and he borrows another R60 000 for repairs.
Why cancel the policy? Because with all the debt he cannot afford the insurance premium!
“Mr Y o Y, you understand that the problem is getting bigger? If you now have another accident, you will once again have to borrow more money? The insurance premium is cheaper than the debt and the possible financial ruin.”
“Yes, I understand, but I will drive carefully. But I cannot afford the premium right now.”
Why does that sound so familiar? I am sure I heard that one before! And the worst part? He will not even consider third party insurance to cover the damage to somebody else’s property, should he cause an accident! That could easily run into millions!
Remember: protect wealth before you build wealth! Then invest for income. Then invest for capital growth.