Creating wealth is a mystery as old as time. Like it or not, there is no guaranteed way to create wealth, and heaven help those who are looking for that guaranteed way because they are not likely to find it.
Wealth can be created in many ways, such as by birthright, pure luck, and sometimes by a process.
Those who have created their wealth generally follow some time-tested principles, which, regardless of the level of wealth accumulated, can be helpful for those who are trying to create it.
The wealthy tend to do these things very well:
- They Focus on Owning vs. Loaning – Most people think you have to earn a great deal of income to become wealthy – i.e. you have to be a doctor, lawyer, or entrepreneur.
Not true – just ask Ronald Read, the world’s wealthiest janitor.
The wealthy know that it’s better to own the company than to loan money to it.
Whether equity is owned through entrepreneurship or a brokerage account does not matter. Equity ownership is where real wealth gets built.
- They Own Real Estate – While owning real estate is certainly not a surefire way to guarantee wealth, it can be a great diversifier of your wealth.
And no, I'm not suggesting you go out and buy real estate and start your own rehab business. Investment real estate can be a money pit, and it can be challenging to become cash flow positive – despite what you see on television.
However, buying a home, living in it, and building equity is an important step in wealth creation. If you're brave enough to own rental properties and lucky enough to be successful at it, then that's an added bonus to your wealth.
- They don’t have a selling mentality. Ask Warren Buffet about his philosophy for selling anything.
Owning and KEEPING good businesses for ten, twenty, thirty, or forty years is a requirement and is not optional.
Most people will sell WAY too early, hitting the panic button at the first sign of volatility, thus unnecessarily interrupting compound interest.
- They prioritize investing over saving – You save for short-term goals and emergencies – you invest to grow your money.
The wealthy understand this distinction.
Make no mistake, knowing the difference between these two is HUGE!
- They Focus on Long-Term Wealth – The wealthy understand that building wealth takes time and very rarely happens overnight.
The wealthy recognize that get-rich-quick schemes and snake oil are one and the same. Their only concern is that a solid percentage of their income gets invested.
- They spend money on what they like – I know it sounds rather silly and obvious, but the wealthy understand themselves enough to only spend on things that bring them happiness.
They don't spend frivolously. They know that vacations with their family, a nice home, and giving to organizations they love will bring them happiness.
Spending just to be spending is a big no-no with the wealthy. The wealthy understand that trying to justify their wealth by buying material goods puts them on a fast track to poverty.
- They lean on experts– The wealthy are smart enough to know what they don’t know.
They know they only have so much free time and knowledge and that others can help them in areas that aren't their specialties.
For the wealthy, egos are cast aside, and trust is given to others. They hire financial advisors, tax strategists, business coaches, and attorneys.
They know that this frees up time to spend elsewhere.
- They have a plan in place – The wealthy make their luck by having a plan in place. More often than not, luck happens because of a good plan.
They also understand that plans should be fluid and malleable, as circumstances can change quickly. No plan is set in stone.
Regardless of how big or small, the plan needs to be reviewed frequently, allowing them to always keep their goals in front of them and continue to optimize the path toward reaching them.
While this certainly isn't the end all be all of how to achieve wealth, taking these few small steps and understanding how closely the wealthy follow them might help you focus on what's important in creating wealth.
Stay the course, my friends.