I come from a hard-working family. My Dad clawed at the black stuff, working the faces of the coal mines deep under the English midlands. My Mum sewed clothes in a local factory. They taught me the most valuable lessons about not wasting money, lessons which have set me up for life. What they couldn’t teach me though, was how to build a Spiralling Wealth Machine, as they’d not been taught this themselves, few of us have.

Good news though folks! This short blog post will give you the blueprints to said machine! It’s almost as easy to knock up as an Ikea Billy Bookcase. Maybe easier for some of us.

In a United Kingdom where spending money they don’t have has become the norm, most of us are still aware and fearful of the death-spiral which awaits those who gorge on unsecured debt. I’ve assumed you’re not one of those people and you’ve already risen above the average, and have nailed your personal debt down to nothing, or have only ‘good debt’ (a mortgage for example). If you haven’t, what awaits below isn’t (yet) for you – be rid of your debt then come back here, I’ll wait.

Done that? Right, crackin’, let’s go.

OK, first up I’ll fess up. The particular Spiralling Wealth Machine described below isn’t the one we used to achieve freedom. But. If we were to wake up tomorrow penniless, after a hard scramble for jobs, the next thing we’d do is build just this machine. Later on we’d build some others (see below for the actual machines we’ve got running). It would be hard work, but it would be worth it. Here are the steps needed:

1. Save up enough money to ensure you can live in the event your job goes pop. How much you need to save is up to you – a few month’s worth of your living costs maybe. This is your emergency fund. Put it in a bank. Don’t touch it.
2. Save up some more (ha! HOW??? I hear you say – keep watching – we’ll get into that in future posts). This is your Spiralling Wealth Machine money – sadly the machine doesn’t build itself, and you’ll need a steady stream of cash to get it started and to maintain it over time. This ain’t the lottery folks.
3. As soon as you have enough money to start (I’d suggest at least £1000, enough to get you started but not enough to cause you sleepless nights), open an ISA. If you have a partner, open one each, you’ll each have your very own Spiralling Wealth Machine.
4. Use your Spiralling Wealth Machine money, buy shares in a (low cost, passive index tracking, physically invested, broadly spread) fund, like Vanguard’s VWRL – an All World fund. Once you’ve done this, congratulations, you are now part-owner in around 2700 large and medium companies around the world, and they will reward you for helping supply the funds they need to build their future.
5. When Vanguard send you some free money (also known as dividends – the companies give some of the profits to their owners to thank them for their support – which’ll be you), add it to your ongoing savings and buy more VWRL shares. Vanguard pay out dividends on VWRL every 3 months, and every time they pay out, it will (on average!) be higher and higher and higher than the last, as your fund value (on average!) increases.

KABOOM. That’s it. You now own a fully fledged, oiled and shining Spiralling Wealth Machine. Keep the thing running, and it’ll do its damnedest to make you rich, even while you’re asleep, or sat in a boat which you don’t really know how to steer, like this:

Just how much money is this here machine going to create for you? Well, no-one knows. Literally, no-one on Earth knows. As a guess, based on what these kinds of shares have done in the past (a dangerous assumption? maybe, but not as dangerous as blowing all your cash on depreciating assets), it’ll be somewhere (on average!) around 3% to 4% each year of the fund value, in real terms, after taking into account inflation.

Wait a cotton-pickin’ minute, what are all those ‘on averages!’ going on about?

Well, this particular Spiralling Wealth Machine has a peculiar aspect to it. It will occasionally run in reverse for a while. Which is a bit annoying, and fearsome, as it gobbles up lots of that cash it previously printed for you. You might be tempted to pull the plug on the thing during such a period (also known as a stock market crash, or a recession). If you do, you may well see it’s eaten your money for good (the capital value of your shares may be less than you paid for them). If you don’t touch the plug, and you just eyeball the thing every once in a while, it’ll eventually sort itself out and start spewing out cash again. These reversals can be for quite a while – five years maybe – so you’re going to be needing some serious patience. That’s how the stock markets work, and perhaps explains why not everyone has a Spiralling Wealth Machine.

There are, of course, many, many different models of the Spiralling Wealth Machine.

You could take the above one and modify it by buying some bonds alongside your shares – which will slow down how fast the machine runs during those reversal periods, but also slow down how fast it runs during the money-spewing periods. Or you could opt to build a machine with bricks and mortar, buying a Buy to Let property and using the cash it spews out (rental income) to accelerate your savings process so you can buy another Buy to Let, which spews out yet more cash, and so on.

This is how rich people get rich by the way, if you hadn’t noticed.

Which particular model of machine you go for is a very personal choice. Why not aim to have a few different types (asset class diversification)? Unfortunately the easiest and simplest type of machine – cash in an interest-generating account – has been stalled for a loooong old time, so we had to get some more complex machines up and running:

• Machine 1 – rental properties – these are generating most of the cash we’re using to live on.
• Machine 2 – private pensions – these are busily generating wonga, but which we can’t legally access until we’re at least 55. This is a kind of ‘locked away’ machine, in a see-through box, so we can see what it’s doing, but we can’t fiddle with it.
• Machine 3 – shares – as in the above example, only we have them in several different Vanguard and Black Rock funds as we learn more about how all this stock market malarkey works. We’re re-investing the dividends too, as we’ve enough money coming in from the other machines that we don’t actually need to spend them at the moment.
• Machine 4 – solar panels – two of the house roofs have solar panels which generate electricity when the sun shines which the government pays us for. This kind of machine needed to be built a while back though – the government’s reduced the payments for new machines of this kind, so they’re probably not worth building
• Machine 5 – side gigs, this blog and book sales (like this). These generate cash through ads. I like this particular kind of machine, but for us at least, it’s best thought of as a Dinky Toy, than a real grafter of a machine.

There’s a final machine too, which is out there working away on our behalf, but we’ve thrown money at, but we didn’t have a hand in building the thing. It’s called the State Pension. In theory this machine will start to spew cash in our direction in about 22 years time, but it might have conked out for good by then.

How should you decide which type(s) of machine are good for you? GREAT QUESTION! Read about them, that’s how, understand them, then decide, and ideally start small as you get an understanding of the vagaries of each of ’em. There are books, blogs, TV series, podcasts, you name it, all explaining how this stuff works. These machines all have some working parts, and if you assemble them wrong they can be a tad dangerous to your wealth, so you need to know what you’re doing. I’ll give you a few pointers in the coming posts, but for the moment the thing to remember is this:

If you’re not familiar with investing, don’t fear the thing. It’s like a dog. It might bite you if you rush at it waving your wands and shouting YAAABADDDDUNNNN!!!. But, if you get to know the dog and treat it well, it can also be your greatest friend, guardian and companion.

Cheers, Jay