There are five main ways for people to become wealthy. They are frequently steps in a process that build one on top of another to generate capital to invest in order to create wealth.
Let’s take a closer look at each of the five steps.
The first step toward wealth is to set goals for what you want to achieve, how much money you want, and how you want to get there. While most self-made millionaires are unsure of how they will achieve their financial objectives, they do know what they want. Most people want freedom and financial security, and they know that working for forty years is not something they want to do.
Financial goals should be written down to be more quantifiable, as well as to tell your subconscious mind what you want and to alert it to any opportunities to achieve the goals. The first step in any journey is to know where you’re going; after that, you can start drawing a map and following it. You will know you are on the right track when you have a strong desire to pursue your goals and the energy to carry them out.
Use your earnings to purchase or create cash-flowing assets.
Most people begin with a job, but that does not guarantee that they will remain there. You should be converting your paychecks to capital by investing them in things that generate consistent cash flow. You can start small and gradually increase your cash flow by reinvesting your profits in purchasing new assets.
Cash-flowing assets can be as complex as covered calls, dividend stocks, or high yield bonds, or they can be as simple as book royalties, a YouTube channel, or a website. Vending machines and businesses like storage units, laundromats, and car washes are examples of physical cash flowing assets. Rental properties are more expensive popular cash flowing assets, with many people now using AirBnB or even renting out cars with Turo.
Use debt to acquire assets rather than consumer goods.
Using consumer debt to purchase depreciating assets will keep you both employed and broke as you become a company’s cash flowing asset. Using debt to buy real estate, businesses, and cash-flowing assets can increase your net worth over time, increase your income, and lead to the accumulation of wealth.
Wealthy people have assets that are worth more than their debt. Debt is a tool that, when used correctly, can either accelerate your wealth creation or break you by creating bills that limit your ability to invest.
Create a Business
When looking at the world’s wealthiest people or self-made millionaire studies, the majority of both built a business and used leverage to build wealth. The larger the company, the greater the wealth.
The successful billionaires built a business, took it public, and kept a large percentage of the stock as it grew into a large cap company.
Most successful millionaires built everyday businesses that most people don’t even consider, such as a concrete company, plumbing business, pest control, and others, that generated huge profits for them as the owner and that they were able to sell for millions to larger companies. Few people understand this path.
Building a business is the primary path to wealth with the most upside because you create value in services, products, and investments that people want to pay you for. Businesses enable the owner to capitalise on the time, energy, and effort of others.
Investing in or trading a quantified strategy with a competitive advantage
Many millionaires became millionaires by compounding their investments into a million dollar portfolio and investing their earned income into a 401k with an employer match, which accelerated the process of growth. A tax-deferred 401k allows you to invest money without paying income taxes on it, and it grows tax-free until you withdraw it.
Investing in the stock market allows you to accumulate wealth alongside the growth of publicly traded companies and billionaires who own stock in their businesses. There are many different strategies that tend to work over long periods of time, such as value investing, growth investing, and even buy and hold investing in an index fund.
There are also many wealthy traders who took a more active approach to their entries and exits based on a quantified system with an edge, allowing them to accelerate the process of wealth accumulation while avoiding large losses during bear markets and crashes.
People who develop great investing and trading strategies can also manage other people’s wealth for a high fee and become wealthy much faster.
There are numerous paths to wealth; the question is simply which one is best for you, and are you willing to put in the effort to get there.