There are five primary ways people become wealthy. Many times they are steps in a process that build one on top of another to create the capital to invest for wealth creation.
Let’s look at each of the five steps.
The first step to wealth is having goals on what it is exactly you want to accomplish, how much money you want, and how you want to get there. While most self-made millionaires don’t know exactly how they will reach their financial goals they do know what they want. Most want freedom and financial security and they know a job is not something they want to do for forty years.
Financial goals should be written down to be more quantified and also to tell your subconscious mind what you want and let it know to be on the lookout for all opportunities to achieve the goals. The first step on any journey is to know where you are going, then you can start to draw the map and follow it. You will know you are on the right path as it gives you passion to pursue and leads to the energy for execution on the plan.
Use your earned income to buy or create cash flowing assets
Most people start with a job but that doesn’t mean that is where you stay. You should be converting your paychecks to capital by investing it in things that cash flow over and over. You can start small and build and grow your cash flow by reinvesting your returns into buying new assets.
Cash flowing assets can be as complex as covered calls, dividend stocks, or high yield bonds or as simple as book royalties, a YouTube channel, or a website. Physical cash flowing assets are things like vending machines and businesses like storage units, laundromats, and car washes. More expensive popular cash flowing assets are rental properties with many using AirBnb nowadays or even renting out cars with Turo.
Use debt for assets not consumer goods
Using consumer debt to buy depreciating assets will leave you both trapped in a job and also broke as you become a company’s cash flowing asset. Using debt to purchase things like real estate, businesses, and cash flowing assets can raise your net worth over time, increase you income, and lead to building wealth.
Wealthy people own assets worth more than their debt. Debt is a tool that can either speed up your wealth creation used correctly or make you broke by creating bills that stop your ability to invest.
Build A Business
If you look at both the wealthiest people in the world or self-made millionaire studies the majority of both built a business and used the leverage to build wealth. The bigger the business the greater the wealth.
The successful billionaires built a business, took it public, and continued to own a huge percentage of shares as they grew it into a large cap company.
Most successful millionaires built an everyday business most people don’t even think about like a concrete company, plumbing business, pest control and others that created huge profits for them as the owner and they were able to eventually sell for millions to larger companies. Few understand this path.
The primary path to wealth with the biggest upside is building a business because you create value in services, products, and investments that people want to give you money for. Businesses allow the owner to leverage other people’s time, energy, and effort.
Investing or trading a quantified strategy with an edge
Many millionaires achieved their status by building their investments into a million dollar portfolio through compounding and investing their earned income into a 401k with an employer match speeding up the process of growth. A tax deferred 401k also helps you put in capital without losing it to income taxes and it also grows tax free until you take out.
Investing in the stock market enables you to build wealth along with the growth of publicly traded companies and billionaires holding their own stocks in their companies. There are many different strategies that tend to work over long periods of time like value investing, growth investing, and even buy and hold investing in an index fund can work over most 15-20 year periods.
There are also many rich traders that took a more active approach to their entries and exits based on a quantified system with an edge that allowed them to speed up the process of wealth building and avoid the large losses during bear markets and crashes.
Also people that develop great investing and trading strategies can manage other people’s wealth for large fees and become wealthy much faster that way.
There are many paths to wealth the question is simply what is the best one for you, and are you willing to do the work to get there.