How To Make Your First Million

By David McEwen

Sunday 21st October 2001

One of the fascinating things to emerge from a recent television programme about New Zealand's richest people was how many of them started out with nothing.

The traditional image of millionaires in this country is well-connected, well-educated people doing deals over mahogany board tables.

However, the reality is that half of this country's wealthiest people have no tertiary education and often held down menial jobs until achieving success.

The comforting thought from this revelation is that anyone in New Zealand has the potential to make a lot of money. But that's not to say achieving wealth is easy.

While the programme focused on the palaces, sports cars and luxury yachts owned by some of our wealthier citizens, these people also gave some useful tips.

Based on their comments, here are some suggestions on how to make that first million.

Take Risks

Like any sort of moneymaking effort, whether it is starting a business or buying shares, there is a firm relationship between risk and reward. Most of our millionaires took substantial risks in pursuit of their wealth - and the risks paid off. There are many more people out there who have taken risks and lost money as well. Therefore, having a reasonable degree of risk tolerance is important - although this can be developed with practice.

Persevere

The road to success is never smooth and all millionaires have faced setbacks along the way. Where the wealthy are different from others is that they believed in their ability to succeed and kept on plugging away until they achieved it.

Use Leverage

Millionaires generally make a lot of money by spending other people's. One would-be millionaire imported 100 cars from Japan without the cash to pay for them unless he sold the cars first - and quickly. Fortunately for him, he did.

By taking out mortgages, borrowing from relatives or even relying on credit from suppliers, one can boost returns on capital. Let's take the example of someone who starts with $10,000 and borrows another $100,000 at 10% interest. After investing it for a year, they make a 20% profit. Once the loan and interest is repaid, they are left with their $10,000 capital and $10,000 profit - a return of 100%.

The principle also applies to using other people to do the work. Employees who generate income above their salary are generating profit.

Work Hard

While our millionaires seemed to be taking it easy on their boats or by their pools, most took many years to reach that enviable position. Long hours were the norm when they were starting out and the pressures often enormous.

Having money is one thing but many people are not prepared to make the sacrifices necessary to achieve it.

Develop an Obsession

Many extremely wealthy people came from very humble backgrounds. A desire not to return to that state drives them to make more and more. When most of us would settle for a million or ten, the seriously wealthy won't stop until they have billions. Sometimes the money comes as a side effect of being obsessed with another activity that happens to generate profits.

Follow these suggestions and you might make some serious money. But beware, many successful people say the real hard works starts once you've made your first million.

David McEwen is an investment adviser and author of weekly share market newsletter McEwen's Investment Report. He is commissioned by the New Zealand Stock Exchange to write an independent personal investment column. He can be reached by email at davidm@mcewen.co.nz

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