Sunday, June 28, 2015

The tortoise and the hare, or how to save 2 million bucks

I hope you’re doing well!  Last week, I shared how small things can mean a lot in personal relationships.  This is just as true in a professional context.  The key is to move forward little by little.  Rick, a personal role model, who often talks about the power of incrementalism.  Small steps can be powerful.


Let me share a story, then suggest concrete steps you can take to achieve seemingly impossible goals.  (And a story of small, big investing.)


The Fable of the Tortoise and the Hare


Consider Aesop’s story of the tortoise and the hare.  In the Wikipedia synopsis:


Tired of the Hare’s boastful behaviour, the Tortoise challenges him to a race.  The hare soon leaves the tortoise behind and, confident of winning, takes a nap midway through the race. When the Hare awakes however, he finds that his competitor, crawling slowly but steadily, has arrived before him.”


What lessons can you draw from this story?


If you’re the rabbit,
  • Don’t be an ass (or hare)
  • Don’t slack off
  • Pride can lead to self-destructive behavior


If you’re the turtle (or more generally in life):
  • Be relentless in pursuit of your goal
  • Show up consistently, every day
  • Small steps applied consistently can lead to big outcomes
  • Don’t be afraid of tackling big challenges, even if you don’t have a natural talent for it (whatever you assume that to be)




Life Application


I can share a telling example of how this story plays out in life.


In 2007, I started reading a blog by an anonymous IT engineer at IBM who wrote about his goal of saving $2 million for retirement.  His blog is called 2MillionBlog.


The engineer had only a modest income, earning around $50,000 working full-time for a big company (decent salary in 2007).  At the time, he had saved over $350,000, so I imagined he had been saving for a while.  Gains in stock market and his employer stock options helped him get to that point.


I then stopped following his net wealth updates as I went back to school, and then had a career roller coaster for several years.  Basically, I had better things to do.


Fast forward to 2015, and I check in on this personal finance blog.  As of May 2015, this engineer now has a networth of around $1.3 Million, including equity built up on 4 houses!  


His salary had not changed much, and he did not have a side income to supplement his paycheck.  Plus, he had gotten married and had a child, and his wife does not work (she had worked for a while as a pre-K teacher, earning a modest salary).




So, how did he do this?  I gathered these key points:
  • First, he had a goal; he wanted $2 million.  “If you don’t know where you are going, any road’ll take lead there.” (Lewis Carroll)
  • Next, he measured.  Unlike the tortoise, navigating most modern endeavors is more complex than walking.  Measuring the right things is a prerequisite to the behaviors that will help you achieve your goals.
  • Third, he learned.  This engineer didn’t start with a master plan.  Hell, he probably didn’t even know about investing basics when he started with his desire to save up for retirement.  But, he learned well, and applied the lessons.  He learned to buy and manage multiple properties.  He learned about retirement savings.  He took advantage of credit card promotions, traveled cheap on reward points, and a host of other techniques.  “Plans are useless, but planning is indispensable.”  (Dwight Eisenhower)
  • Finally, be the tortoise.  Don’t snooze.  I acted like the hare.  In the intervening years, I lived like how most Americans live.  Working, saving a little, spending more.  While the IT engineer tortoise inched along, I took this detour and that detour, and took long naps.


Behind the simple story, you can see many texts between the lines.  The first three steps don’t lead to big outcomes on their own, but the fourth (be the tortoise) is like the magic recipe.  By sticking to the daily behavior toward the goal, this IT engineer let powerful forces of compounding do the heavy lifting.  


At first, he despaired that he may never get to $2 million.  But, after a while, the monthly gains from dividends and rising asset prices helped him add to his wealth far beyond his monthly income.


(By the way, there’s a great book about this kind of small things leading to big savings in a book called The Millionaire Next Door, by Thomas Stanley.)


Counterpoint


Of course, there’s no sure thing.  The markets could come tumbling down.  This post isn’t a howto on getting wealthy.  Rather, I wanted a reminder of the power of consistent and properly directed small effort.


How can I work so that I am a little better than I was yesterday?  And how can I let that build on itself?


And all of this should be done with a degree of humility about the bigger forces (beware of hubris).  I found this captured in ancient wisdom from Ecclesiastes 9:11 (King James translation):


I returned, and saw under the sun,
that the race is not to the swift,
nor the battle to the strong,
neither yet bread to the wise,
nor yet riches to men of understanding,
nor yet favour to men of skill;
but time and chance happeneth to them all.


Exercise


Think of a big goal you had struggled to achieve in the past.  Break it down:
  • Write down the goal
  • Take a stab at what you want to measure to ensure you’re moving toward the goal
  • Resolve to learn from the journey so you can be better than you were yesterday
  • Stick with it; don’t give up!
  • Perhaps you’ll want to pick up this FREE Kindle copy of Aesop’s Fables.

Further Reading

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