How to get rich, slowly.

I never had a healthy relationship with money, it always felt more like an addiction.

Like a professional addict, I spent all my days in search of plastic gold, and whenever I would find some, I’d waste it all on …, well …, stuff. I honestly don’t know where it all went.

My life plan was simple: build an insanely successful company and until then, spend all that I earn like there’s no tomorrow.

I’ve been doing this for more than a decade.

It has worked out great so far, minus the insanely successful company. At this moment I’m slightly in debt and spending all that I earn. I’m also afraid that if I ever do come across a larger sum of money, it will only be a matter of time until I’m broke again. After all, it has happened before. Twice.

While I truly believe my current company will turn out great, it’s time to set up a backup plan and learn some financial responsibility in the process.

This post is about what I have learned so far. It’s about the path I’m now following. You are free to disagree with me, challenge me and tell me I’m wrong. Everyone’s life is different and much of this might not be for you. That said, I believe there’s something of value here for everyone.

Let’s begin.

“A part of all I earn is mine to keep”

Six years ago I read the timeless classic “The Richest Man in Babylon” ($1.99 on Kindle or free PDF here). The stories were fascinating (read it!) and their first maxim said:

The book advocated setting aside 10% of your paycheck and only touching it when you find a way to make it grow. Never for anything else. You pay yourself the 10% first and give the rest to other people, usually in exchange for goods and services like food, housing, entertainment, etc.

Then, when a great opportunity comes your way, you’ll be prepared and can decide to use your savings to invest in it. Each investment, if executed successfully, will take you one step closer to financial freedom.

The idea resonated and I started saving. I put aside 120€ two months in a row. Then I used the accumulated 240€ for a loan repayment… and then I stopped saving. The end.

I probably should have reread the book at this point, but, alas, I did not.

What if I had saved 120€ every month for those last 6 years? Then by today I would have 8640€ tucked aside. Looking back, I doubt the quality of my life would have been very different, had I made 10% less every month.

In fact, had I instead made 10% more, I would have surely spent it all. I’m certain my life wouldn’t have been any better.

Let’s assume I did save 8640€ over those years. What if I had also found a way to make it grow? Say a stable 7% per year?

In that case I would have 10,760€ now. That’s 7.5 years of savings in 6 years, an extra 2100€ or 24% of what I put it!

The 7% profit from the first year will go back in the pot and make next year’s gains even bigger. Same for year 2 and so on.

But that’s just theory. Knowing myself, I would have lost most of it gambling on the stock market while calling myself an investor.

What if I still had all of it and continue to save for another 12 years? Time is going to happen anyway and as we learned, a 10% cut does not make a big difference, so might as well give future me a nice surprise.

Over 18 years (6 of which have already passed), I would have saved a total of €25,920.00 and, assuming 7% yearly growth, I would have €51,988.03 on my bank account. I would have doubled the money I put in!

36 years of savings in 18 years. That is the power of compound interest!

Don’t believe me? Play with the calculator here.

If you’re anything like me, you’re probably thinking either “OK, smart-ass, how do I generate a stable 7% yearly return” (we’ll get to that) or the other one:

“That’s great, but I’m never going to save enough from a normal job for it to make a big difference in my life”

Let’s address this first.

When I was younger, I used to think success was just around the corner. “In a year from now, all my worries will be gone,” I kept telling myself. I was constantly looking for the shortcut to wealth, which always seemed very close.

I never found it.

Unless you’re in bed with the goddess of luck, it’s very hard to get rich quick. Everyone who I know who has tried, has failed. While still theoretically possible, it’s not something to bet your future on, at least not without a solid backup plan.

The path to slow financial freedom, however, is very simple. Save enough money, make it grow and eventually live off of interest. The sooner you start and the more you save, the earlier you can retire.

Time is going to happen anyway, so be an engineer and design it.

To get on this path you need to answer three simple questions:

1. How much do I need to retire?
2. How long will it take?
3. How can I make my money grow?

I’ll start with the first one.

“How much money do I need to retire?”

Probably not as much as you think.

There are two sub-questions here:

1. How much money do I need to be financially secure?
2. How much money do I need to be financially free?

Financial security means never having to worry about paying rent/mortgage, utilities, food and transport costs ever again. What would it mean for you to never have to worry about those things ever again? How would your life be different? How much would it cost per month?

Now multiply that by 12 for the yearly total and then by 20. That’s how much you will need to gather, assuming a steady 5% payout thereafter.

For me, assuming I can pay all my basic living costs with 1200€/month (I live in Belgium), I would need to save a total of 1200€*12*20 = 288k€. Depending on your job and location, that number may be significantly higher or lower.

It’s still probably huge, but there’s a clever trick waiting for you in the next chapter!

That was financial security — never having to worry about your living expenses ever again.

Financial freedom means earning enough to do whatever you want. Various studies show that any income above 50k€/year (at least where I live) will not bring you more happiness, so I’ll go with that.

50k€ * 20 = 1 million €.

There’s nothing wrong with having or wanting more, it’s just not going to fundamentally increase the quality of your life.

So, short term goal for me — accumulating 288k€. Long term goal — accumulating 1M€.

Take a moment to run the math and calculate the numbers for yourself. For added effect, write them down on a piece of paper and stick it in your wallet, next to your cash, to never forget them. Do it now!

Have your numbers? Great, let’s go on.

“How long will it take to gather these amounts?”

I’m a big believer in forming habits to automatise repetitive parts of your life in order to have more time and energy for things that really matter. I’ve written extensively about this in a blog post titled How to be Productive.

The habit of saving each month might be the most important one yet.

Like with any other habit, it will take a while to form and can be lost immediately if broken too soon.

In order to avoid that, you must agree beforehand on a period of time when you will definitely do it.

For example, if you wish to develop a habit of reading for 15 minutes every day, commit to doing it for a month. Then mark a big fat red cross in your calendar to track your progress. For added motivation, tell a friend you’ll give him 50€ for each day that you forget. You won’t. After 30 days the habit of reading daily will have become automatic.

If you want to do something once per month, commit to doing it for a year.

Think of a percentage of your salary you can save every month, even if it’s just 1%. Put it aside immediately when you’re paid and do it for at least a year. Also tell a friend that you’re doing this and if some month you forget, that money is theirs, no questions asked.

“OK, but it will still take forever to be financially secure!?!”

I guess by now you have checked the compound interest calculator to see how long it will take to earn your financial security goal.

And it’s probably a depressingly long time.

However there’s a trick you can use: Save more tomorrow!

First commit to saving a small amount today to build up the habit, even if it’s just 1% of your income.

Then commit to saving a percentage of every raise you get. Suppose on average your income goes up 4% each year. Use half of it (2%) to make your life better and save the other half (2%).

Sometimes great things happen in life. You get a 10% raise. You switch jobs and double your income. You get a fat bonus or money as a present. Always add a percentage of those gains into your savings account.

Do this for a few years and your savings will skyrocket. Even if you start with saving just 1% per month, in just a few years that number can grow as high as 20%, with no conscious effort required!

Here is a better calculator that takes this into account, although it only goes up to 16%.

And here’s a video that describes the principle in more detail, by the guy who invented it. I recommend you find time to watch it.

For me, assuming I save 10% of what I earn today and my income goes up 6% every year, if I put aside half of those 6% raises and make them generate 7% yearly, I will be financially secure in 14 years. Put differently, this means I could retire at the age of 43. If I then keep it up for 8 more years, I could have that 1M€ of financial freedom by the time I hit 51.

While I’m still hoping to win the startup-lottery, this is a plan B.

What are your numbers? How long will it take?

Whatever they are, commit to saving a percentage of your income today. Commit to doing it for at least the next 12 months. Start with just 1% if that’s all you can afford, then commit to saving more tomorrow.

It’s really that simple.

There’s just one more question left to answer. And it’s a big one:

“Saving is great, but how can I make my money grow?”

Three months ago I had no idea how to manage my money. A stable 7% yearly growth sounded like science fiction.

I knew it was dumb to keep my money as cash, but I didn’t know what else to do with it.

All I knew about investing was that I could pick a stock of some company, put money in it, hope it does well and then take it out. I did it a few times with various results, but it always felt shady as there were too many factors outside of my control.

I learned I could never invest my life’s savings this way, as it all seemed like gambling. It felt like in a roulette game, where you can never know if the ball will land on the red, or on the black.

There had to be a better way.

I thought the only way was to find a financial advisor, as I could never be smarter than a full time professional in the field.

Then I read the latest book by Tony Robbins called Money, Master The Game. This massive 689 page behemoth expanded my view of finance more than I could have imagined.

Tony spent the last 5 years interviewing more than 50 of the most legendary financial experts in the world (e.g. Carl Icahn, Warren Buffett, Ray Dalio, Steve Forbes, etc) — people who consistently beat the market and whose advice is normally off limits to the common crowd — and distilled it all into a single, albeit big, book.

In short, it’s pretty good! (That was an understatement)

While I’ll list my key takeaways below, you owe it to yourself to actually read the whole thing! I read it all using just the Kindle app on my phone, and you could do the same mere moments from now. Here’s the link to Amazon.

I hope you’re now asking this:

“What do the top minds in finance have in common?”

You weren’t? Well… let’s pretend you were!

It turns out they share quite a lot. Here are my top 3 takeaways:

1. They all preach about never losing any money. The most important thing is to protect what you have made at all costs, and never gamble it away. Always protect the downside, even and if this means not earning as much as you could.

2. When a “normal investor” (e.g. you or me) buys $1000 of stock, he’s in for a wild ride. If the stock goes down 33%, he loses a third of his money and must then make a 50% profit to be back where he started from. If the stock goes up 33%, he makes a decent gain. The trouble is you never know which way it’s going to go. Nobody does. If you think you do, you have a gambling problem and should never invest in stocks again.

All the top minds look for opportunities with asymmetric risk-reward. For example opportunities where you’re promised 90% of the upside of the market and guaranteed to never lose more than 10% of your initial investment. If you invest $1000 and the market goes up 33%, you get $300. If the market goes down 33%, you lose $100. That’s asymmetric risk-reward.

I don’t know how one can seek out such opportunities, but keep this in mind when evaluating anything new that comes your way.

3. Asset allocation is key. They never, ever put all their eggs in one basket. They also know they can’t predict the future. Thus they anticipate different financial climates and allocate their assets accordingly.

The phrase “different financial climates” is key. If you know it’s going to snow eventually, you’ll buy a winter coat and a shovel. How would you protect yourself from a blizzard in the stock exchange? What if it starts to rain instead?

“I don’t know. So what should I do? You still haven’t told me how to make my money grow!”

We’re almost there, but first we must let’s look at the available options.

There is a number of different financial instruments where you can place your money. Here are some of them:

1. Cash under the mattress or in your savings account. Even if your bank’s savings account earns a whopping 0.5% yearly interest, it’s probably less than inflation. While the 1000€ cash you had in 2014 will still be 1000€ cash in 2015, it will be worth less. Around 3% less, or 970€.

Here’s an inflation calculator.

You’re actually losing money if you keep it around as cash. On the plus side, it’s a stable loss!

2. Individual stocks. This is what I call gambling. While you’re free to buy them, you’re delusional if you think you know how the market will turn out. Nobody does, not even the top minds in finance. The difference: they know they don’t know.

This is where you’ll hear friends saying things like “Facebook is having an IPO, should we buy?” or “If I buy RIM and Nokia when they’re single digits, there’s a high chance one of them is going to go back up” or “I always bet against the market” or “With the new management changes Yahoo’s value might go up”.

Half of the time you (or they) might be right, the other half of the time you’re wrong. It’s your financial security we’re talking about, so why gamble?

3. Mutual funds. Instead of personally picking stocks, you can invest in a portfolio of stocks hand-picked by professionals. These are called mutual funds.

These professionals buy and sell inside their portfolios as they see fit, charge huge hidden fees, which make sure they get paid regardless of the stock’s performance and take no personal risk as they’re gambling with your money. Sounds bad?

What’s more, 96% of mutual funds do not beat the market within any 5 year timeframe and those that do are not the same ones 5 years later. The ones that consistently beat the market are run by people you wouldn’t have access to even if you tried.

This category is like giving your life savings to a friend with a gambling problem, hoping he will make the right bets. There’s a 4% chance he will!

4. Index funds. Instead of trying to beat the market, how about actually buying the market?

Index funds are like mutual funds, but they are controlled algorithmically. Thus they have lower fees and are usually smarter.

For example you have a fund called the S&P 500, which consists of the stocks of the 500 largest US companies based on market capitalisation (the sum value of all their shares) at any time. This and other similar funds mimic markets as closely as possible. Instead of hoping a professional will beat the market, just buy the market.

What’s more, the entire economy works on growth. Every time there has been a crash and the market went down, a few years to a few decades later it’s higher than it has ever been before. Warren Buffett says it best:

5. Bonds. Bonds are a way for governments, corporations and other parties to raise money for specific needs. You loan them money and they agree to pay a fixed interest rate over a certain period of time. Normally you don’t buy them directly, but instead buy shares of low-cost ETFs — index funds of commodities and other assets, including bonds.

Government bonds are thought to be the least riskiest assets, as short of a country going bankrupt (like in Russia in 1998 and in 2015) you are guaranteed never to lose your principal. The rate of return is usually lower than with stocks, and so is the risk. There are even bonds whose payout is fixed to the inflation rate.

6. Real estate. This is a very traditional model. You buy a house or a flat and then rent it out. If your monthly payments (mortgage, repairs, etc) are less than income from rent, you win!

Then there’s the housing market. The price of your property can go up and down at random and if you’re not protected in some way, it might be a wild ride.

In any case real estate can be a good vehicle to place your money as rent from tenants is a great source of passive income. Pro tip: if you get into the business, read at least 5 good books before making any decisions. You’ll thank me later.

7. Annuities. These are securities by insurance companies. You give them a lot of money and they guarantee they will pay out a certain percentage annually. Some are for fixed terms (e.g. 10 years) and return the principal upon completion, some are eternal and don’t.

It’s like real estate without actually having to own or manage property. Great if you want a steady payout until the end of your life. Investigate the market and see what’s out there.

8. Gold and commodities. Gold is a funny thing. It’s a precious metal that costs a lot. Unlike the other asset classes you have to keep it in a safe. Sometimes its value goes up, sometimes it goes down. You never know. There are other commodities as well: silver, diamonds, trees in a forest, bitcoins, etc. It might be good to have some in your portfolio, but not too much.

9. New: Peer-to-peer lending. After this post went live, many people mentioned crowd-lending sites. They work like this: you put in some money (100€), they divide it into parts (20 x 5€) and lend it to people who want a loan. The 1000€ somebody borrows might be composed of 200 5€ investments. Over time they pay you back and you make a profit from interest. Your earnings can be as high as 20% per year.

I have some ethical issues with this, as I’m not a big fan of giving people money to buy things they don’t need and can’t afford otherwise. On most of the sites, however, you can see who you’re lending to, so you can only give money when you think it makes sense, such as starting a business or for a very strategic purchase. To gain some experience, I now put 100€ in and divided it between 20 5€ loans. Let’s see how it goes.

10. New: Forex. Some people make money trading currencies. You buy Swiss Francs, hope their value goes up, change them back to your main currency and then do something wild with your money. For me it’s a highly speculative field, so I’ll just keep away.

11. Anything else I’m missing? Leave a comment below.

These are the basic financial instruments available for everyone. It’s by no means an exhaustive list, but it will do for now.

“So, tell me, where do I invest my money to make it grow as much as possible?”

Here’s a plot twist: turns out you’ve been asking the wrong question.

Remember what the financial experts interviewed for Tony’s book had in common? What was Warren Buffet’s #1 rule of investing?

That’s right, always protect the downside.

The question you should be asking is “how do I invest my money in order to minimise the risk of losing any while still making a sizeable profit in the long run?”

And for that we need to look at asset allocation.

“Ok, fine, how do I invest my money in order to minimise the risk of losing any while still making a sizeable profit in the long run?”

Glad you asked!

Normally when people think of asset allocation they imagine diversifying their cash between 5 different stocks and hoping some will do better than others. This is comparable to creating your own small mutual fund. This is not the way to go.

If you remember that 96% of all professionally managed mutual funds don’t beat the market over 5 years, then it’s very unlikely that your hobby fund is going to do any better. If it miraculously does, you’ll think you’re a market genius and will be more likely to take foolish risks in the future. That can end in a disaster.

So how do you structure your portfolio? The answer: you structure it in a way to balance risk between all asset classes.

I repeat: you balance the risk, not the cash value of your assets.

Let’s say you put half of your money in long term US government bonds and the other half in the S&P 500 (an index fund that mimics the US stock market).

Could you say this is a balanced portfolio?

Well, no!

With a split like this, you’ll have 95% of the total risk in stocks and only 5% in bonds. One half of your savings will carry 5% of the risk, the other half will carry 95%! Quoting Tony Robbins:

That doesn’t sound balanced to me!

For a 50/50 risk division you need to have more money in bonds than in stocks. Much much more.

It’s hard to wrap your mind around it at first, but once you do, you’ll know more about managing risk than most investors ever will!

I hear you ask.

Again, everyone’s different and it all depends on your investment goals and risk tolerance. My personal goal is to enjoy a modest return over the long run while holding on to my savings.

If you really want to gamble, divide your capital between two buckets: security and risk. Keep at least 70% of your portfolio in the security bucket and get creative with the rest.

“Ok, balance the risk. Got it! But I still don’t know how I should invest my money!”

Now we’re getting to the interesting part!

The value of a stocks and other assets depend on several things, not all of which make sense.

For example, if it’s assumed that Apple will have a killer next quarter, its stock will go up today. However if the company then earns less than predicted, while still making billions of profit, its stock will go down. On the surface this doesn’t make any sense.

Stock prices are highly dependent on the future growth potential of a company and the economy as a whole.

Another similar factor is inflation. Some asset classes (e.g. gold or inflation protected bonds) do well if inflation is higher than expected, some (e.g. treasury bonds) do well if its lower.

Combine this and you get four financial seasons: higher than expected economic growth, lower than expected economic growth, higher than expected inflation, lower than expected inflation.

Unlike the real world where this is (mostly) predictable, you never know what season is coming up next in the financial world. Thus you need to be prepared.

This approach was pioneered by Ray Dalio of Bridgewater capital. He’s one of the few people with a mutual fund that consistently beats the markets. Google him to learn more and then watch his 30 minute video about How the Economic Machine Works.

While the full strategy employed by Bridgewater is very complex and not shared publicly, for his book, Tony managed to get Ray to share a simple asset allocation strategy that anyone can use. It’s called the .

When Tony and his team tested it extensively all the way back to 1925, rebalancing each year to keep the percentages right, they were shocked to see the results!

Looking at a historic period from 1927 to 2013 (87 years spanning many depressions), it lost money just 14 times (73 positive years), with an average loss of just 3.65%, compared to the S&P 500 losing money 24 times with an average loss of 13.66%.

When looking at a more modern era, 30 years from 1984 to 2013, it performed even better! It averaged a 9.72% annualised return and lost money on only 4 years, with an average loss of 1.9% and the biggest in 2008 at 3.93%, when the S&P 500 itself fell by 37%.

That’s pretty good! (Again an understatement)

Keep in mind that past performance is by no means a predictor of future success.

That said, as the system is built on solid principles and has withstood the worst market crashes so far, it’s as good of a strategy that I know. It’s certainly better than anything I could ever come up with on my own.

It’s the way I’m now investing my own money.

“So… what is the All Seasons portfolio?”

It’s surprisingly simple. Allocate your assets accordingly:

30% in stocks (S&P 500 and other indexes)
15% in immediate term bonds (7–10 years)
40% in long term bonds (20–25 years)
7.5% in gold
7.5% in commodities

That’s it.

It works better than anything I could come up with on my own.

Before you run off to your financial advisor (or to a friend who plays poker), I strongly recommend you read Tony’s book to get a better overview of how it works. He goes into much more detail about everything in his 689 pages than I could ever do here.

He also talks about many other essential things you should know before you invest in anything.

“Like what?”

Well, read the book. But since you asked nicely, here are some of them:

First, avoid high fees at all cost. A high fee is anything over 1.5%. A lot of mutual funds have hidden fees that aren’t shown anywhere, and in a year when the fund went up 10%, your account balance is up just 6%. Do your research and if in doubt, prefer Vanguard ETF’s to other funds. They are known to have low transparent fees. Even Warren Buffett suggests them (read the quote above).

Then, once each year you should rebalance your portfolio. Suppose you had a 70/30 split between bonds and stocks. Now suppose the stocks did really well and the ratio went to 60/40. Great, right? Yes, but you should now sell 10% of your stocks to keep the original 70/30 balance. Your portfolio should always be balanced for risk. Rebalance when needed.

Third, never keep all of your savings as stocks, bonds or other assets. Always have some cash at hand for unexpected emergencies.

And finally, there is an amazing system that you can use to literally cut your retirement time in half. The system is simple: start a company or become an independent and invoice your employer instead of receiving your salary directly. This way you’ll get the money any taxes.

Then transfer a part of it to your company’s savings accounts and use the rest to pay yourself (salary plus taxes) and your bookkeeper (who manages the increased tax complexity, so you wouldn’t have to).

When you have saved enough to withdraw a percentage, you can pay it out as dividends once a year. Those are normally taxed much lower than a salary.

This system is not applicable in all countries nor for all industries, but when it is, you can really save a lot.

If you want to start a company, I recommend doing so in Estonia. The fees and taxes are low (e.g. there’s no yearly company profit tax) and if you invest in getting an e-residency card, you can do everything online afterwards. Accounting is very reasonably priced as well, starting from 30€+VAT/month. Here’s a recommendation. She can also help set up your company and get the whole thing going.

“So what do you do?”

My current strategy is to invest according to the All Seasons portfolio.

Every month when I send an invoice to my employer, I use a part of it to buy stocks.

As there are transaction fees with everything, I’m not going for a fully balanced portfolio from the start. Instead I take 10% of my income and buy just one thing, depending on what I’m missing the most.

The first month I bought ~240€ worth of Long Term US Government Bonds. Then I bought about the same amount of Short to Medium Term US Government Bonds. Next time I’ll buy a piece of the S&P 500 and so on, until the number are big enough to justify rebalancing.

It’s not perfect, but it works for me. As long as I’m saving anything, I’m already doing better than ever before.

I made a handy spreadsheet that tells me what to buy next. If you’re interested, grab a copy here.

“But it’s still going to take forever to get to my goals!”

If you wish, there’s a way to kick it up a notch, but you will need to make some sacrifices.

The way is best illustrated in the writings of Mr. Money Moustache, who advocates one simple truth:

He promotes cutting back as much as possible, not with the intention of being extremely frugal, but with the intent to live an all-around healthy life full of memorable experiences, and not a life where you mindlessly buy things in order to feel fulfilled.

I believe his philosophy is best illustrated with the following (lengthy) quote:

Read the full post here and then subscribe to his blog! You’ll be grateful you did.

Once you learn the Mustachian attitude, integrate it in your life and you’ll start saving like crazy. If you do this well enough you’ll retire sooner than you ever thought possible.

One last thing.

There’s an extra step you can take to reach your financial goals even faster: start making more money.

To do so you need to increase your value. Companies have no problem paying good money to people who make them good money. Learn a new skill, switch jobs, increase your productivity, etc. Make a list of 25 ways you can be more valuable to your company and then act out on some of them.

“A part of all I earn is mine to keep”

If you’re already saving money, that’s great. I hope you still found something in this post valuable.

If you’re not saving, then I want you to make a commitment now. Commit to paying yourself first and saving something, anything, the next time you get paid. If nothing else, transfer 1% to a separate account and never touch it again, except when investing in something better.

Commit to doing this for at least a year and to saving more tomorrow.

Then come back and tell me how your life has changed.

That said, don’t forget to live and don’t be an eternal tight-ass. Avoid stupid things like spending money you don’t have on a car you don’t need (save it instead), but if hoarding cash becomes the only goal in you life, you have lost.

Go out, enjoy life and seek out as many new experiences as you can. Try to figure out what you want to do once you retire and have all the time in the world… and maybe you’ll realise you don’t actually have to wait until then.

And remember, a part of what you earn is yours to keep!



Here’s a collection of articles I wrote a long long time ago…

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Marius Andra

I used to write about things I learned. Now I write about things I don't want to repeat in meetings.