Why Get-Rich-Quick Schemes Never Work: Lessons For Tomorrow’s Entrepreneurs

People are drawn to the idea that it’s possible to get rich quickly, especially kids. It’s a basic mammalian instinct: we want to get the most resources for the least expenditure of energy possible.

Unfortunately, the vast majority of get-rich-quick schemes don’t work, and our grand plans end up falling through. There are some good reasons for this.

Getting Rich Quick Means Being In The Right Place At The Right Time

News reporting on successful people has a tendency to bias our perspectives on how to generate wealth. The news only reports on the small cadre of individuals who made a fortune overnight, giving us the impression that building wealth is something that can happen in a matter of months. What we don’t see, however, are the millions of people who didn’t get rich quick and are working in regular businesses for regular incomes.

get rich quick? - kid in pile of money image

Pixabay

Often, the people who get super rich, like Larry Page or Mark Zuckerberg, did so because they were in the right place at the right time. Larry Page was perfectly positioned in the late 1990s to launch his search engine, Google. He had the right skills, and technology had just reached the stage where internet search was possible. The same goes for Zuckerberg: he just happened to have the right skills at the right time to implement his social media technology. These were freak events, but they’re the ones we hear about all the time in the press.

Success Takes A Long Time

There’s a joke floating around that says it take 15 years to be an overnight success. And even some of the biggest names in the business community agree with this. Many of them, including Twitter CEO, say that they had overnight success – it just took them a decade of work beforehand.

This makes a lot of sense. To build anything substantial takes a lot of time and dedication. Nothing that was complex or truly useful to other people was built over a weekend – especially in the modern world. Instead, new products and services require a long ramp up and even then they may not be accepted by the market.

Success Is Never Risk-Free

Success often means going into debt or taking on unsecured personal loans to finance a business venture. In other words, there’s an element of risk involved. The more risk, the fewer people who are likely to want to undertake the project. This is one of the reasons why we see so many people setting up their own accounting businesses (because the risks are relatively small) compared to people creating their own space companies (because the risks are much larger).

Get-rich-quick schemes like to pretend that they are risk-free: a sure bet to make money. But if they claim this, then it almost certainly isn’t true. Entrepreneurs are constantly looking for the lowest risk enterprises to sink their money into. The chances that somebody else has found one of those opportunities and wants to share it with you is next to nothing.

The Critical Difference Between Making Money And Building Wealth

There’s a big difference between making money and building wealth. Making money is all about generating as high an income as possible by getting a high paying job or running a business. Building wealth, on the other hand, is about creating a stock of value that goes up over time.

Recently, US Trust went and asked more than 600 people with a net worth of over $3 million how they built their wealth. The report, entitled, Insights on Wealth and Worth, generated a significant amount of data which made clear the difference between making money and building wealth.

Here are some of the insights from that report that we can all use.

Build Wealth Slowly

The widespread perception of wealthy people is that they grew up with a silver spoon in their mouths, having rich parents and ample opportunity to do well in the marketplace. But it turns out that that is a bit of a myth. According to data from the study, 58 percent of respondents said that they had humbled middle-class beginnings, and a further 19 percent said that their families were outright poor. Further evidence indicated that only around 10 percent of the wealth of people in the study had actually come from inheritance. The rest of it (more than half) had been earned through income, and around 30 percent of it had come from investments.

handful of money image

Wikimedia Commons

What this showed, therefore, was that most wealthy people got to where they are today through traditional methods, like saving their money and making sensible investment decisions. Many said that they had a lifelong history of saving and investing, some beginning to do so as early as age 14.

Go With Basics Rather Than Newfangled Investments

What was so interesting about the survey was that the majority of individuals didn’t do anything innovative when it came to their investments. 89 percent invested in stocks and bond and in their businesses. Only 11 percent attributed their success to alternative forms of wealth management.

What this indicates is that the simplest methods are still probably the best. Yes, big investment houses might have complicated algorithms that make millions of well-diversified transactions every second on the stock exchange, but most people built their wealth through simple mechanisms, like a cash advance online to kickstart their businesses. It’s about having a great business idea or a well diversified portfolio – not looking for some get rich quick scheme using an unreliable investment product.

Ride The Market, Don’t Guess

Most people who get into investing think that they have to regularly predict where the market will head next. Sell high and buy low, right? Well, although that might sound like a great idea, it’s not usually how it works in practice, and it certainly isn’t how the majority of wealthy people in the study made their fortunes. According to the report, only 14 percent said that they made the bulk of their money by timing their investments. The rest said that it was just a case of “buy, hold and wait” for the stock price to go up.