Where did the money come from?

After multiple discussions with people who have been critical of the idea that financial independence is possible, I think I’ve finally managed to define for myself one of the key issues that stops people from believing in FI – they just don’t understand where the starting capital comes from and therefore conclude that something shady must happen to get started.

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Counterintuitively this is also one of the key reasons why I think financial blogs in Estonian have become as popular as they are now – you can see actual numbers of growth from the start of a portfolio that makes FI seem more reachable. There are multiple issues that I feel have compounded this problem (alongside overall pessimism), so I thought I’d try to figure out where the money does come from.

1. People born with a silver spoon in their mouth

For those unfamiliar with this expression, its mostly implies people who were born into wealth. It doesn’t have to be significant wealth (though it can be), but even a little bit of an extra boost is a significant help on the path to financial independence.

For example starting off your life with your parents just giving you an apartment to live in. Yes, it’s not just a pile of money, but not having that one extra monthly expense is a huge boost to your finances. Quite often these people underplay the impact their extra “help” has had, which tends to annoy people. If you were born lucky embrace it, thank your parents and don’t tell others you just “worked hard” 😉

2. Being in the right place at the right time

I’d say this is probably a large portion of the people who have reached FI or are working hard towards it. At some point lady luck may smile on you and you’ll end up with a great opportunity that comes with a nice financial bonus. This is complicated since people will often try to reason why such a thing would never be possible for them – oh, you got lucky… oh, it was random chance.

I’d say people who went and sold books in the US in the early 2000s are a good example of this. It doesn’t mean that they didn’t work hard, or that that it was just luck, but you have to admit that in the case of Estonia those first people who came back from a summer with 100K+ kroons when that was a huge amount of money did have a certain leg up on everyone else. I recently read a blog where someone had an 80% savings rate… (impressive until you realize that was from a 4000€-ish salary, definitely top 5% of Estonian wage earners).

3. Working hard (and working dull)

This is by far the least glamorous way to get your starting capital but most people who aren’t fortunate must grind to succeed. While with other strategies people tend to curse Lady Luck or missed opportunities, then with this option people just tend to get demotivated rather quickly.

Many people have been asking me recently where I got the money from to buy my first rental apartment since it’s such a large amount of money. They’re always very unimpressed when I tell them that it mostly involved working like a dog for more than a year by both my husband and myself. Sacrifices need to be made for that first push and a lot people stop when the going gets tough (and it will, working like that will get to you physically and mentally).

The importance of talking about beginnings

When you read most personal finance books they are about people who are already millionaires (since why else would you read a book by them?) Most of them focus on their overall ideas and are super optimistic about just getting started and doing stuff and most of them only share some anecdotes or “learning stories” from their childhood when answering the question of how they get started.

In many ways it’s an issue since leaving those beginnings fuzzy makes people doubt your claims. I’ve developed a new question to ask new people I get into contact with – how did you get started? You’d be interested at the answers or the lack of answers that people give. (Also, how many of those start with the words “I got lucky…” or “Someone helped me…”.)

A lot of people do not want to share how they started (and one of the reasons is likely a bit of a silver spoon or lady luck issue) and I think that’s a huge problem because it makes a lot of people who are working hard think that they are doing something wrong since they aren’t getting the same results.

They aren’t getting to x amount of passive income or reaching FI super quickly. No matter how much “hard work” is involved, you don’t become a millionaire by 30 “just” from buying stock every year or working hard at finding rental apartments and I think that’s a dangerous myth to perpetuate since it actually demotivates people.

4 thoughts on “Where did the money come from?

  1. [quote] 3. Working hard (and working dull)

    This is by far the least glamorous way to get your starting capital but most people who aren’t fortunate must grind to succeed. While with other strategies people tend to curse Lady Luck or missed opportunities, then with this option people just tend to get demotivated rather quickly.

    Many people have been asking me recently where I got the money from to buy my first rental apartment since it’s such a large amount of money. They’re always very unimpressed when I tell them that it mostly involved working like a dog for more than a year by both my husband and myself. Sacrifices need to be made for that first push and a lot people stop when the going gets tough (and it will, working like that will get to you physically and mentally). [/quote]

    While I agree it is the case for many, I tend to disagree.
    If you do right thing at right time even less amount of work can achieve you a start capital.
    Also it depends heavily on how much risk you want to take. If you want to take more risk, then you probably invest in start up companies and less capital is needed if as the growth potential in many cases are 100 times or even 1000 times. You also need to have some Financial Intelligence to understand the probabilities of success of a project and then allocate your funds accordingly.
    Becoming rich requires some mathematical skills and some vision on how the future might look like, especially if you want to start from small.

    If you want to become rich by investing in mutual funds, you really need to work like a dog quite long time, and personally I feel very distract from that idea. By working like a dog a person loses the best years of his/her life and when (s)he is old, the person is willing to pay almost whatever to get at least a few extra years.
    It is a sad story that people do business day and night, neglecting their families and then finally retire with 100 million usd in wealth. Then when they are sick, most of them are willing to pay 99 million usd for medication that potentially could increase their life a year or two.

    Do not get me wrong, “working” is something humans need to do. Even the richest people on earth are “working” but it is not certainly working like dog to pay the bills but because they like what they do and they are passionate over it. It is kind of “hobby”. Like Warren Buffett could retire anytime but he still likes to read the financial statements of companies and find a new pearl.

    One example is bitcoin. Some early adopters bought bitcoins with cents each and now one bitcoin is still denominated in hundreds of dollars. If you invested in bitcoin 1000 usd when it was 1 dollar each (in 2011) you would now have 250 000 usd worth of bitcoins, and those some bitcoins were worth of over 1 000 000 usd in December 2013. And to get 1000 usd starting capital is not that much, is it.
    However, the harder part is to find such ventures that have high enough likelihood to succeed big time.

    1. I agree fundamentally that working like a dog isn’t a long term sustainable path. However, a lot of suggestions in terms of how to get capital to start are in the line of “Oh, just become an entrepreneur…”, “Oh, just find that one good deal…”, “Oh, well do xyz, which worked for me.”
      The problem is not everyone gets lucky or has an entrepreneurial spirit. Unless you’re very highly paid (which is luck on its own), some hard work is still required and it’s unreasonable to gloss over it, since most people can’t just “skip” that step of getting started.

      1. Hello,

        Thank you for reply.

        I admit that most people need to work a little to gain the starting capital. Especially if you are not talented (ie need to work for minimum wage).
        But let’s say you are working on average wage – let’s say your net income is 1000 usd/mo. which is pretty normal in Estonia based on the income people are receiving in Bondora.
        Working normally 8 hours a week and saving 100 euros/mo should not be a problem. After a year you have 1200 usd in savings already.

        People can say the early bitcoiners got lucky. I tend to disagree with that statement. While some part of it must be luck (like 2-3 %) I would not say they were simply lucky. What makes a person to buy bitcoins in the first place? I think you need to have a skill of picking up a good project which has high enough expected value. Expected value is a term that is used when you calculate the average price weighting the probabilities of each scenario.
        If the expected value exceeds the current price you should invest – by picking up enough ventures like that you eventually make money. Your challenge is to estimate the probabilities of each scenario with enough of realism. Calculating the values of each scenario is pretty easy job – all you need is to put the numbers in right order and a little bit multiplications. :)
        The most early bitcoiners were making such calculations – you can still find those type of analysis from bitcointalk.org.

        If you want to invest in start up company, making such analysis is also vital if you want to succeed as a business angel in the long run.
        Therefore, mathematical skills and some basic knowledge within the field of statistics and probability theory is needed in this field.

        However, gaining skills in those areas require pretty much work unfortunately. But once the work is done well, the skills are yours pretty much the rest of your life. :)

        The other alternative is, what the most people do, is work very hard, even more than is needed. Then being extremely stingy and investing in mutual funds and getting 5-10 % ROI pa. However, that road is pretty rocky and long (might take decades). Actually by working and investing in mutual funds you can pretty much calculate how much money you will end up after certain number of years.

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