For me personally, growing my net worth is a priority this year. But I’ve been less than clear in how to do it rapidly and sustainably. So, I asked around and looked at some of the literature on how people have achieved significant fortunes.
Here are some preliminary observations:
1. Focusing on wealth instead of income is tax efficient. Federal, state and local authorities usually tax income, they’re less interested in taxing wealth. So, focusing on net worth instead of income is more tax efficient personal finance goal.
2. Material advantages accrue to those with higher wealth, this includes ability to buy better quality food, better quality clothing, better medical care. Wealth is also a form of capital. Various forms of capital are translatable, beauty, health, social status – all of these can be translated into dollars. In return, dollars can be translated into beauty, health, etc.
I hit the books and posted comment thread in a couple of online groups I follow – the White Coat Investors and the savingadvice forums. I’ve also included quotes as relevant.
Here are the practical, actionable ways to radically build your wealth.
1. Work in a very high paying profession: Physicians, small business owners
“If you want to be super rich – sales is definitely the no.1 way, might I suggest going to investment banking after going to a “target school” – then private equity/M&A? Or if you can’t cut it – enterprise sales. On the side, you should start your own business.” – White Coat Investor Group Member.
“Become a licensed plumber, get a Sugar Daddy (Mommy), etc.” – Savingadvice Forums Member.
“Work at UnitedHealthcare (Utilization Review Dept), work at Express Scripts, sell medical devices.” – White Coat Investor Group Member.
2. Real estate
Aggressively acquiring real estate has historically been an excellent way to radically build your wealth. Participants in the white coat investors forum agree.
“Invest in multifamily real estate.” – White Coat Investor Group Member.
“Farm ground has done well for me. First place we purchased was $750 an acre (30 years ago), it’s now worth conservatively $5-6,000 per acre, plus it’s been spitting off income the whole time.” – – White Coat Investor Group Member.
3. Invest in equities (stocks and mutual funds)
“Invest in low cost index funds before you even see your paycheck hit. If you don’t see it, you’re not missing it. Live below your means“. – White Coat Investor Group Member.
“I’ve invested in the stock market for years and done just fine but once I started investing in real estate it really moved the needle significantly on our NW. Buying below market with built in equity is the key. Also investing in businesses, keeping them profitable and growing profits will do the trick as well!” – White Coat Investor Group Member.
4. Build A business.
“Our single best investment has been my husband’s business, which we never would started without first following all of the steps you mention“. – White Coat Investor Group Member.
Incidentally, the late Felix Dennis has some excellent advice on building a business. (here).
A couple of great ideas for building a business in 2020 are:
“Shadow someone whose has become a self-made millionaire and learn their strategies“.
“Become famous on a new social media platform/gain a following“.
In fact, building a business is a tried and true way to radically gain wealth. In fact, the Forbes list of the 40 richest Americans under 40 is populated by business owners (here).
5. Marry well
“Marry a girl who is a consultant doing well but still underpaid“. – White Coat Investor Group Member.
“I think studies show that being born into money is the fastest way, and by correlation, marrying into it. Putting in 60-100 hour weeks for 25 years and living below your means sure hasn’t done it. Of course, only the last 5 years have been higher earning, with 21 to go till retirement I might be able to afford extra diapers in the nursing home“. – Saving Advice Forums Member.
6. Avoid having children
High net worth individuals tend to have fewer children. No wonder, as according to the USDA, in 2015 the cost of raising a child was $233,610.
“If you are all about net worth it becomes your life. Kids done right are really not that expensive but they take your time. Time invested in a business is what has the greatest return on investment but not always the greatest return on life“. – White Coat Investor Group Member.
7. Live below your means
This classic, and helpful personal finance advice.
“Beans and rice, rice and beans”, “You sell so much stuff the kids think their next” – White Coat Investor Group Members.
“Live below your means, consistently contribute to retirement and stay the course. It is not quick, but over time it builds and then compounds“. – White Coat Investor Group Member.
8. Improve your income
Improving your income provides a basis for radically building your net worth.
“Improve your income is the fastest way. Jump companies get a promotion, build another income stream. This seems to work best for us. I mean we save from our income, but our biggest boost has been making more money. Without having always been financially prudent DH wouldn’t have leap into a new career and neither would I and it’s paid off in spades for him and it’s starting to look very promising for me as well. So he’s far outstripped what he used to make. I am making less still overall but my job is more flexible and something I can do part-time and potentially longer. So it’s a win we both feel“. -Savings Advice Forums Member
9. Work hard
High net worth individuals regularly work really hard. In 2016 US Trust, the private wealth arm of Bank of America, studied 683 people with assets worth over $3 Million. The people in the US Trust study most commonly said that “hard work, ambition and family upbringing” were responsible for their success (summary here). In short, self made wealth people work really, really hard.
Here is a neat video by Arnold Schwartenegger on this topic. He basically credits much of his life success to “working his ass off”. Estimates are that Schwartzenegger is worth between $400 and $450 Million.
10. Save Consistently:
“I think saving consistently is the key, especially when you are younger. When I was working, I would encourage the younger teachers to open a retirement account, even if they couldn’t afford much because compounded interest was there friend. Even as a retiree, we try to save money and look for decent interest rates on the cash. But one big thing is we still watch our spending. We aren’t living like misers, but are careful about our spending and not going crazy. We have a friend who makes far more in pension monies and Social Security, but even still, cannot make it and has to constantly borrow money. And it is for more stuff“. – Saving Advice Forums Member.
11. Manage your psychology
“Stop poverty thinking. Pay off debt, and give at least 10 % …. gratitude.”
Often the investor matters more than the investment. Good investing behaviors have psychological advantages that help prevent us from doing stupid stuff. Examples of good investing behaviors include: diversification, dollar cost averaging, minimizing fees, focusing on generating great after tax returns, and aggressively saving.
12. Declutter and sell things you aren’t using.
Clutter sucks up your mental energy and increases your costs. The self-storage market in the Unite States has a total market capitalization of $49.1 Billion. In other words, there is a large industry just devoted to charging people money to store their stuff. Most people would be better off simply selling their clutter – it cuts your costs and frees up mental bandwidth.
13. Automate.
Provided that you have a high degree of regularity in your income, you should automate as much as possible.
David Bach has a very good book on this topic, if you’re interested in it. Its called The Automatic Millionaire.
14. Pay off high interest debts
High interest credit card debt averages above 20% per year. Very few investments pay more than this on an annualized basis. Pay it off ASAP.
15. Be engaged in your community
“Make long term friends, be engaged in your community, volunteer, eat well, commit to meaningful work“. – White Coat Investor Group Member.
Incidentally, social relationships are how information, capital and opportunities flow. So, the more active you are in your community, the better access to opportunities you have.
16. Inherit money
Not everyone inherits money, however when the do it matters. About 20% of American households have received an inheritance. Of those, inheritances account for about a third of their wealth.
“I have not been so effective at building my net worth as of yet but many of my peers have been very successful at inheriting money“. – White Coat Investor Group Member
You may not inherit wealth, but even if your parents aren’t rich you can encourage them to do modest amounts of basic estate planning. Things such as having a will, or converting traditional 401(k) or IRA accounts to their ROTH equivalents can save substantial time or taxes.
17. Build human capital
The more substantive expertise you have, the better able you are to convert that to wealth. This is generally because specific knowledge allows you to command a higher wage in labor markets. This is because when your skills and education improve, then you’re more productive and you can generate more wealth.
“Higher salaries and work satisfaction tend to be associated with significant technical competency in a particular area of expertise“. – White Coat Investor Group Member.
18. Hold Diversified Financial Assets
“Many baskets, many bank accounts- stocks, bonds, real estate, debt deals, and entrepreneurship“. – White Coat Investor Group Member
The concept of diversification, also known as modern portfolio theory, was first discovered by Harry Markowitz in 1952. Markowitz basically found that if investors hold a basket of unrelated assets, the overall return increases and the overall risk decreases. Markowitz’s thesis and subsequent work became the basis for the financial industry’s recommendation that investors diversify. The finding has been verified by dozens of academic studies – its about as close to academic truth as you can come. What is key about diversification is that it results in MORE money and LESS risk.
Diversification should be limited to your investing activity only. In other areas of your life, focus brings better results.
19. Negotiate Hard
Don’t be so nice that you’re short changing yourself. Ask for what you’re worth. Negotiate compensation in every job you take.
20. Have good habits.
The concept of having good habits was made popular by Tom Corley in his book “Rich Habits”. Corley argues the rich do things the poor don’t including: living withing their means, reading for personal improvement, avoiding gambling, etc. His research is based on comparative interviews with a sample of high net worth individuals and low net worth individuals. He basically said good habits are:
- Live within your means
- Don’t gamble
- Read every day
- Avoid surfing the web and watching TV
- Control your emotions
- Network and volunteer regularly
- Go above and beyond in work
- Set goals
- Don’t procrastinate
- Talk less, listen more
- Avoid toxic people
- Don’t give up
- Avoid self-limiting beliefs
- Get a mentor
- Eliminate the term “bad luck” from your vocabulary
- Know your main purpose
Go here for a more detailed discussion. Corley’s best book is ‘Rich Habits”. His stuff on parenting isn’t as good.
21. Keep track
Keeping track is an excellent exercise to keep your mind focused on whats important.
“List your assets (what you own), estimate the value of each, and add up the total. Include items such as: …If you are a high income earner, consistently save a chunk of income. That is step #1 and the most important step. WCI likes to say save around 20% of your gross income“. – White Coat Investor Group Member
“Track your spending, your budget as well as other things that contribute you having a healthy life“. – White Coat Investor Group Member
If you aren’t tracking your net worth – consider starting. It will force you to improve how you think about building your wealth. If you need a template, we’ve got a free one below:
These next radical ways to build wealth are less common, but are effective if you organize them correctly.
22. Become a CEO
If you decide to go this route, you’d need to answer two questions. How do you become a CEO? and, how do you lead your company? The answers to these questions are pretty straightforward. To become a CEO you can either build your own company or you can run someone else’s. To lead a company, one good approach is to lead from the front. This means show up, take care of people and be there, early and late. Your clients, customers and team need to be believe that you care about them, your job is to make that happen. However, CEOs at big firms tend to get highly compensated via salary stock options and deferred compensation.
23. Seize Control Of A Small Country
Another mention in the list of radical ways to build wealth which is probably a long shot – gain influence and take over a small country. A great example of someone who could have done this is Bob Denard. Denard was a French cold war era mercenary who for two decades played king maker in the Comoros where he undoubtedly would have taken power if given enough time. He is reputed to have owned substantial property including hotels, land and a small private army (1).
This kind of thing seems fantastic and far fetched, but its possible where state control is weak. The Italian political philosopher wrote about it extensively in his work The Prince. I also witnessed similar processes happening several times when in in Afghanistan. Local leaders with sufficient wealth and power could claim a regional governorship and divert tax revenue to their own pockets.
24. Sue Someone And Take Their Fortune
Many torte attorneys commonly do this. Typically what happens is a torte firm will identify a sympathetic client, such as a child with an illness, then they’ll build a class action suit against a large target – typically an asset rich company in pharma, tobacco or securities. The odds are usually stacked in favor of the Torte firm as it typically costs more to defend against suits than it costs to settle.
A classic example of a Torte Lawyers who’ve been able to extract large sums for handling disputes is Joe Jamail. In 1985, Jamail represented Pennzoil corporation in a suit against Texaco. Pennzoil won the suit and Jamail collected a contingency fee of $335 million dollars – making his fortune and landing him a place in legal history.
A good way to implement this is to sign up for all the class action suits you can find. Or could you canvass the major torte law firms and see if you could partner with them.
25. Buy A Controlling Interest In A Small Capitalization Company
Small companies with publicly traded stock are vulnerable to takeover. For who aren’t familiar with the concept of market capitalization, a companies market capitalization is the dollar value of all its shares multiplied by the number of issued shares. If a company’s stock trades for $1 and it has 1,000 shares, then its market capitalization is 1 x $1,000, or $1,000. If a company has a market capitalization of under $5,000,000 its possible to buy enough shares to effectively control the voting rights of the company – putting you in charge.
Typically companies that are publicly traded but have a small capitalization are marginally profitable – you can get around this by doing your homework or by hiring new management to improve the companies profitability.
Here Are Some BAD Wealth Building Ideas
A) Engaging in illegal behavior. Initiating pyramid schemes, cocaine trade, embezzlement are all a seriously bad idea. The US courts and police are highly efficient and will eventually catch you.
So, don’t do this:
Well, bank robbers rob banks because that’s where the money is at. So, there’s that. Give it a go. – SavingAdvice Forums User.
B) Associating with thieves or others of low character. Trusting thieves: Giving money to Nigerian scammers.
C) Trying MLM business models. These almost never work. Or if they do, they benefit only a small percentage of the sales staff and leave the bulk of the product representatives with financial losses.
D) Inflating your assets. One thing I am doing is starting to over-estimate my assets. That increased my net worth in about 10 minutes. – Saving Advice Forums Member
E) Playing the lottery. This is a bad idea for two reasons. First, statistically speaking you’re almost certain to lose money in the long run playing the lottery. Second, if you do win the lottery its hard to hold onto the cash because you haven’t developed the capacity to successfully manage the wealth.
F) Trading: In a 2011 paper in The Journal of Finance Barber and Odean found that individual investors typically underperformed standard benchmarks, sold investments they should have kept and held diversified portfolios (here). Trading is typically a bad wealth building idea.
Is Finding Radical Ways To Build Your Wealth Really What You Want?
Lastly – do you even want to go hard on building your net worth? Many people who accomplish great levels of wealth often have significant costs. Wealth also tends to amplify character. So, if you’re generous – having more money makes your more generous. If you’re vindictive, having more wealth will make you more vindictive.
There are massive opportunity costs associated with radical ways to build your wealth. Time spent building your assets is generally time spent away from family or time spent way from other pursuits, such as participating in religious or community events.
Wealth also magnifies bad behavior. For example, late billionaire Felix Dennis famously said:
“Making Money…wreaked chaos upon my private life. It consumed my waking hours, it lead me into a lifestyle of narcotics, high class whores, drink and consolatory debauchery. As a philosopher put it – all the dreary afflictions of the seeker after wealth“. – How To Get Rich
Here are some more excellent articles on net worth:
Our Top Ways To Make Extra Money
Building Wealth On $600 Per Month
Yes, You Can Invest In Oil Wells
The Pros and Cons Of Mutual Funds
Finally, if you want some non-radical ways to build wealth, here is some good basic advice from Trent Hamm over at The Simple Dollar.
Or if you want some data driven models of how real people have built wealth, consider reading Tom Corley’s work on Rich Habits.
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By: James Hendrickson
Title: Radical Ways To Build Your Wealth
Sourced From: www.dinksfinance.com/2023/05/radical-ways-to-build-your-wealth/
Published Date: Sun, 21 May 2023 15:50:36 +0000
