...and some not so good ways.
We tend to assume that if we work hard and save money then one day we will end up wealthy. This is wishful thinking. We are more likely to end up with some modest but useful savings. If you want to accumulate serious wealth then there a number of approaches you can use and some are much more effective than others. The best ways are as follows:
- Start your own business and eventually sell it.This is the most effective and proven way to become rich. If you can find a new approach to a customer need and build a profitable business that addresses that need then you have created real value. It could be a cleaning business, a hairdresser’s, a consultancy or an investment bank. It will probably take years of very hard work to build up the enterprise. Most new businesses fail so the risks are high. You need all the skills, dynamism, perseverance and diligence of an entrepreneur. But if you can pull it off the potential rewards are huge. This is how many of the seriously wealthy people did it.
- Join a start-up and get stock. If you can accumulate equity positions in one or more start-up companies then there is an opportunity for a serious capital gain if the company thrives and either floats or is sold to a larger enterprise. Only a small minority of start-ups succeed in realising large capital gains so the odds are not good. However, you can use your judgement to see which business idea and which management team are likely to succeed. Early employees in Apple, Google and Microsoft became millionaires on this basis.
- Exploit your skill as a self-employed expert. If you can develop a marketable skill and retain your independence then you can reap considerable rewards. This is how sports stars, authors and entertainers become rich. In general the self-employed expert has greater earnings opportunities than one who works for a company. There are risks and you have to have something special. Your success is in your own hands so this is a popular route for people who have developed a skill and want to strike out on their own.
- Develop property. Buying, developing and selling property is a well-established way to build a significant capital position. One of the key elements is that by borrowing money you can gain leverage on your investment. Say you borrow $200,000 and put in $50,000 of your own to buy a property for $250,000. Then you develop the property and sell it for $400,000. The property has increased in value by 60% but your $50,000 has now grown fourfold to $200,000. You have to select the right properties in the right areas and develop them wisely. You are at risk from booms and busts in the property market. However, in the long term this remains a proven way to accumulate wealth.
- Build a portfolio of stocks and shares. If you can make steady investments in stocks over a long period, choose wisely and reinvest the dividends then you can build a large store of wealth. Of course stocks can go down as well as up and many small investors lose heart when their portfolio plunges. But over the long-term equities are as good an investment as property and much more liquid. Stock market crashes represent great buying opportunities for those with cash and strong nerves.
- Inherit wealth. It helps if you were born to successful or wealthy parents but failing that, you could marry fortuitously!
Here’s a few more ideas that are not necessarily bad but are somewhat riskier if your goal is wealth:
- Work in a steady job, cut back expenditures and save in the bank. This is prudent practice and reduces your financial risk but is not an effective method of becoming rich. You should keep your expense within your income but if you want to make serious money then you must significantly boost your income or find ways to multiply your capital. Revisit some of the ideas above.
- Be an inventor. Invent a something that everyone needs and patent your invention. Then licence out your invention and watch the royalties roll in. This is another very difficult route to wealth. Some inventors do get rich this way but securing the patent is arduous and signing a good licensing deal is not easy. However more big companies are looking outside for innovations they can market so it is not impossible.
- Gamble.We hear about lottery winners and poker stars so this approach can sometimes work but the numbers are so unfavourable that it represents a lousy plan for becoming rich. You are strongly advised to avoid this method and use one of the first six above.
There are more important things in life than accumulating wealth. Who wants to end up rich, unloved, lonely and in poor health? However, if you can enjoy a balanced life and at the same time become rich, why not do so? Plan your route and relish the journey!