How to lose wealth (or: How do you turn a large fortune into a small fortune?)

Paul Graham, co-founder of Y Combinator (which has helped to develop many successful, high-profile businesses, including Airbnb, Dropbox, and Reddit), has written a number of essays, which he publishes on his circa-1998 website. I enjoy many of them and have been re-reading several in the past few days.

One article, in particular, strikes me as especially memorable. Its message has stayed with me for many years. It's titled "How to lose time and money"

In short, after selling his startup and becoming wealthy, Graham "started to pay attention to how fortunes are lost", so he could avoid this fate. 

He notes:

If you'd asked me as a kid how rich people became poor, I'd have said by spending all their money. That's how it happens in books and movies, because that's the colorful way to do it.

But that's not, in Graham's view, how most fortunes are lost:

[T]he way most fortunes are lost is not through excessive expenditure, but through bad investments.


It's hard to spend a fortune without noticing. Someone with ordinary tastes would find it hard to blow through more than a few tens of thousands of dollars without thinking "wow, I'm spending a lot of money." Whereas if you start trading derivatives, you can lose a million dollars (as much as you want, really) in the blink of an eye.

In most people's minds, spending money on luxuries sets off alarms that making investments doesn't.

He makes a number of other interesting points. For example, that this is why "people trying to sell you expensive things say 'it's an investment'". He even notes that there is a corollary to wasting time: "The most dangerous way to lose time is not to spend it having fun, but to spend it doing fake work."

But the key point - that fortunes are often lost through bad investments, and not excessive expenditure - is a point worth remembering and reiterating, again and again.

Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.