Ten Commandments of Financial Wisdom #6 – Thou Shalt Avoid Get Rich Quick Schemes

Hello Friend!

I am so happy that my email has reached you. I am the Crown Prince T’Challa, heir to throne of Wakanda. When my father King T’Chaka died, he left me an inheritance of over $100m. However, to receive these funds I need to pay $10,000 in legal and banking fees. As I am currently exiled from my country, I do not have access to the royal funds. If you were to help me by paying the legal and banking fees of $10,000, I will give you 50% of my royal inheritance.

Thank you in advance friend for helping me reclaim my rightful place on the throne.

T’Challa

Crown Prince of Zamunda

If you have been using the internet for any period of time, the chances are that you have probably received an email similar to the above. In the cold light of day, such a proposal seems ridiculous, however a lot of people keep getting burned by such schemes. In 2006, a report in the United Kingdom claimed that these scams cost the economy £150 million per year, with the average victim losing £31,000. Monetary loss is only one form of suffering. Shame, embarrassment and relationship breakdown is often also accompanied with such scams.

So, what causes people to lose common sense and literally throw away their money? The urge to get rich quick. Throughout history, it has been shown that the most probable way to build wealth is through hard work, discipline and patience.

Dave Ramsey interviewed 10,000 millionaires in the USA and 79% did not inherit a penny. The majority built their wealth through buying a house, paying it off and contributing to a pension. Yawn. How boring. But that’s exactly how building wealth should be. Step by step, brick by brick and eventually amassing significant wealth.

Despite the well-established slow and steady path to wealth, people are always looking for shortcuts. Proverbs 21:5 (NLT) says:

‘Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.’

Here the Bible clearly states the proper way to build wealth and that any attempt to circumvent this path will be doomed to failure. What do these shortcuts look like? In addition to the 419 scam or advance-fee fraud described above (which is NOT limited to only one country you might be thinking of!), I believe that gambling, buying single stocks or overly complex investment schemes are just a few of the shortcuts that should be avoided.

Gambling

In my humble opinion, gambling one’s money is not wise financial stewardship of one’s resources. We have all heard the phrase, ‘The House always wins,’ yet people continue to gamble hoping to ‘win big’. This is not an investment strategy. At best, it’s ‘fun’ or entertainment, at its worst it causes financial ruin, relationship breakdown and psychological trauma. There are so many stories of how gambling has ruined lives, such as in the following article. Gambling, like a drug, is very addictive and the damage it causes is very real.

Buying Single Stocks

Buying a stock or share of a company can be perceived as a more appropriate investment strategy than betting on horse racing etc. However, if you are pouring significant amounts of money into individual companies, you face a significant risk of losing a lot of money. In simple terms, you should not be putting all your eggs in one basket. This is effectively what you’re doing when you decide to invest all your money into one company.

A good example of the risk of buying single stocks was seen earlier this year with the GameStop saga. This was a rollercoaster ride where some people made money, but a lot of people also got burned.

A better strategy is to invest in a fund that invests in lots of companies. For example, if you invested in a fund that tracks the FTSE 100, your investment will be spread across the 100 biggest companies on the UK stock market. 100 baskets for our eggs seems a lot more sensible.

Please note that I am not giving specific investment advice above. Your investment choice will depend on your personal circumstances. Please be aware that as markets fluctuate, the value of investments will go up and down over time.

Complex Investment Schemes

As a rule, if you don’t understand how an investment works, don’t put your money into it. The number of weird and wacky schemes that are hoovering up people’s money because they don’t understand what they are doing, is too many to count. I’m often listening to Gospel/UK Grime on YouTube and then a trading advert comes up and it really gets me angry. Why are these sophisticated financial products being marketed at the regular Joe? The irony is that on these adverts they even have to disclose that 70-80% of people lose money, yet more go ahead as lambs to the slaughter. Please just stay away!

But what if I do win big?

The mathematical fact is that if the majority of people are losing money in their attempts to get rich quick, there are a small number who win big. Do they really win though? Or is sudden influx of riches really just a poisoned chalice? In America, they surveyed individuals who had won the lottery and found that their divorce rate was TEN TIMES the national average. Not only that, the number of lottery winners who were bankrupt within ten years was also TEN TIMES the national average. I don’t know about you but being worse off than when I started does not really feel like ‘winning big’ which almost makes you wonder, why bother?

In conclusion, the only place success comes before work is in the dictionary. True riches (not just financial) come from honouring God first, living within our means and saving and investing over the long term. Proverbs 10:22 (NLT) says:

‘The blessing of the Lord makes a person rich, and he adds no sorrow with it.’

The great Philospoher Notorious B.I.G. once said ‘Mo’ money, mo’ problems.’ However, God has said with His blessings, ‘Mo money, NO problems.’ I know what I would choose.

God bless

Ten Talents