Do you believe that getting rich is something exclusive? That only certain people are entitled to it, but for some reason you’re not? If you do think this way, you’re doing yourself a great disservice. With the information age and all the resources that come with it, there are more wealth creation strategies and opportunities available to us than ever. A financial adviser can help you manage your finances correctly to increase your chances of gaining wealth. Common people like us can take advantage of these tools and build a fortune that will last a lifetime. But the trick is first being able recognize what’s in your face, and then jumping all over them without hesitation.
Your Job is Not (and Should Not Be) the Only Way to Create Wealth:
What brought all this on was a story I was reading recently on CNN Money. There was an article about how young adults are too broke to get a loan for things like houses and cars. Despite stricter loan policies being in place ever since the Great Recession, the main reason cited in the article was the lack of jobs.
Let me be the first to say this: Your job can be not only a very important part of your income, but it can also be a very important part of your life. Money aside, there are lots of people who are very passionate about their careers and the lives they change.
But that’s not what this post is about. We’re going to focus in on just the financial aspect.
Usually when people think about getting rich, they say to themselves “I need to make more money”. This is where the limitations of employment income begin to show through. Here’s a few of the typical challenges you’ll run into:
- Employment income is not infinite. Even with the potential for profit sharing or bonuses, you can usually find some line in the sand where it eventually seems to get capped.
- Your effort is not always proportionally rewarded
- You could lose your job at any time
You might say: Big deal, I’ll just go get a different job that pays more. You could do that, but it could also backfire. Your new job might not have the same overall level of benefits (thereby decreasing your total net benefit). Or maybe you work more hours or have a much higher level of stress. Did you really gain anything then by that transition?
Then there’s the other side of the equation. Even if you did create more wealth, what would you do with it? Put it in the bank? Hide it under your mattress? NO!
There are some strategies that have far more benefits than others. Saving money is only the first step. Knowing which path you’re going to take afterwards can make all the difference.
With that said, let’s go through some very specific things you can do right away that will start building your wealth for the long term.
Wealth Creation Strategies You Can Actually Put Into Use Now:
1. Work on Your Financial Education:
Before you start anything, you need to do this first: Learn to want to know more about money. If you don’t have a natural curiosity and appetite to want to learn more about what can make you rich, then you shouldn’t even bother to read on.
If you want to build wealth, then you’ve got to take it upon yourself to know what you’re doing. You don’t necessarily have to become an expert. You don’t have to know more than a financial adviser.
You should know at least enough to keep yourself out of trouble or to avoid a foolish choice. Learn about your retirement saving options. Learn about market returns. Learn about risk. Learn about expenses. Learn about when you’ll have to pay taxes.
For everything you learn, ask yourself – which of my options is the best and why?
You don’t have to start from scratch. There’s a whole wealth of financial literate out there in books, blogs, etc. If you prefer books, check out any of the great reads in my Top Money Books section. If you like reading blogs, then check out my Start Here page organized with tons of topics and resources.
2. Employer Retirement Plans:
Do you work somewhere that has a 401k or 403b plan? If you do, then this is one of the easiest wealth building strategies you can take advantage of. Here’s why:
First of all, these types of plans reduce your taxable income. The contributions you make get deducted from your paycheck before you pay taxes on them, so the money goes into your retirement account tax free. You don’t pay your taxes on them until you finally retire someday. (If you’ve got a Roth 401k, then the opposite is true. You pay your taxes now and then never pay them again.)
Second, the money you do invest grows tax free. So rather than keeping your money in a regular broker account where you’d have to pay about 25% taxes every year, you end up paying nothing year after year. That just means more money for you.
Third, and perhaps the most important reason: Employer matching contributions! What could be better than your employer throwing in free money just for participating in their retirement plan?
Usually your employer will have some sort of incentive where they might match a quarter to a dollar (or something similar). But the fun doesn’t stop there. If you’ve got an extra generous employer, they might also have some sort of profit sharing or bonus program where they will throw additional money on top of the matching they are already giving you. In my own personal 401k plan, 30 to 40% of my balance is from employer contributions. That’s not bad for just participating!
If you want free money, the first thing you need to do is find out whether or not your employer has some sort of match. If they do, then obviously take advantage of it by contributing as much as you need to in order to get the full amount. If they don’t, then consider my next tip: The IRA.
3. The Roth IRA and Other Tax-Sheltered Savings:
Similar to your employer retirement plan, a Roth IRA can be used to save money tax free. The amount you can save is usually a lot lower ($5,500 instead of $17,500 in 2013), but the nice thing is that this account is completely under your control. You decide where and what you do with the money.
IRA’s have special rules for usage based on your income. As long as you meet these minimums, you should be able to use these accounts in combination with your employer plan. As you can imagine, that just accelerates the rate of you wealth building.
My preference is to go with the Roth IRA, but you’ve also got other options like a Traditional IRA or SEP IRA if you are self employed. If you’re looking for an easy and really inexpensive way to open an IRA, the investment service Betterment can be a big help. You just tell them how risky you’d like to be and they pick your investments for you.
4. Dividend Stocks and Other Traditional Brokerage Investing:
Outside your tax advantaged accounts, there are still so many other things that you could be doing with your money beyond CD’s and online savings accounts paying 1% interest.
Out of all the regular taxable investment choices you could make, it’s no secret that I am a big fan of using large-cap dividend stocks. Not only do I like receiving that completely passive, semi-guaranteed average 3 to 4% payment, but I can also appreciate their steady growth and relatively low price fluctuation.
You don’t have to take my word for it. There are a lot of other bloggers out there who have built their entire wealth creation strategy on dividend stock portfolios. Their goal is all the same: To build up a portfolio so large that the passive dividend income replaces their employment income. Pretty creative, right?
Despite whether you go with my preference for dividend stocks or go with something more traditional like mutual funds, here’s one very important advantage they have over the tax-sheltered accounts that should be taken into consideration when creating your fortune: There’s no age restriction.
With the retirement accounts, you need to wait until age 59-1/2 to withdraw your money. But with taxable accounts, you can get the money whenever you need it. If you plan to retire early before age 59-1/2, then this could be a very important part of your plan. It’s become almost crucial for my early retirement plan.
5. Online Income:
Anyone who would have told me years ago that I would be receiving money in my Paypal account because people click on a few ads, I would have told them they were crazy! But here we are and that’s what’s happening.
It was just a few years ago that I went to the bookstore to find my next great personal finance read and happened to notice the book ProBlogger: Secrets for Blogging Your Way to a Six-Figure Income on one of the end-caps. A six-figure income sounded good to me, so I decided to give it a shot.
I will say that starting a blog is relatively easy. From there, building it can get a little overwhelming at times and tough to keep up with. You will certainly make a lot of dumb blogging mistakes. But once you start to see the money, it will all feel worth it.
There are lots of interesting ways to add to your fortune from online income. The easiest is something called affiliate income. This is when people click on your ads and it results in some form of compensation. It’s a lot like virtual real estate.
Another example is to build a different type of website called a niche site. The website Niche Pursuits has demonstrated that it is possible to make over $10,000 per month from building and running several niche sites. A niche site is a generally smaller type of website that is more focused on a specific topic; preferably something that people search often but there aren’t a lot of good websites for them to go to. By building a site in this manner, you give yourself the greater opportunity to draw in more traffic, and of course more traffic means more earnings potential.
Taking everything I just said about blogging and take it one step further. Instead of writing articles where people will come to your site, click on an ad, and you make a few bucks, why not BE the ad also?
In order to do this, you need to have an eProduct. An eProduct can be anything from an eBooks to instructional videos, DVD’s, online courses, software, apps, etc. However, the idea is the same as above: Put it on a website where people can pay for it, download it, and receive it without any work or effort from you.
There are lots of people who have figured out this system and are making thousands of dollars through app stores or Amazon.
7. Rental Income:
Rental income is simply one of the oldest ways to make money on the side and build your wealth. People will always need a place to live, even if it’s just temporary.
Adding rental income to my wealth building strategies is something I’ve toiled around with for a while now. You can read a whole post I did where I crunched all the numbers for how much money I could make.
There are two main things I like about the possibility of rental income:
- There’s the direct benefit of receiving a payment each month from your tenant. The bulk of the money usually goes towards covering the mortgage and fees associated with the rental property.
- The other and more long term gain is the fact that with each of your tentant’s mortgage payments, you’re building equity in a property that belongs to you. So after a few years in and the mortgage is paid off, you could potentially sell your rental property for cash. To some degree you could think of it like a small accruing retirement account just waiting to be cashed in.
Of course unlike stock investments or even online sales where the money is completely passive once your system is in place, there is actually a lot of physical work and maintenance that goes into owning a property. And especially if you have nightmare tenants, this could only make the situation less desirable.
8. Simply Living Frugal:
The equation for wealth is always two sided: Income and Expenses. All of my other tips have focused on the Income side. But we still must always consider the Expenses side, and that starts by living frugal.
Example: If you make $60,000 per year, then you’ll probably just naturally figure out how to live off of that income. Now in 5 years, what happens if you jump up to $80,000 or $100,000? Should your expenses go up with it? If you’re smart, they won’t. You were probably perfectly happy living at the $60,000 level.
But this is a major problem for our society. It’s called lifestyle inflation. When your income goes up, so does your expenses if you’re not careful.
Now consider this: Suppose two people are saving for retirement and they make the same amount of money. However, Person A lives on $50,000 per year while Person B lives on $100,000 per year. Who is going to have an easier time building their fortune and hitting their retirement goal first? Person A of course!
Take Action Now:
No matter which of these tips you use, my number one request is this: Do something about it NOW! Don’t wait for the perfect opportunity. Don’t wait for someone to show you how. Be hungry. Ask yourself what YOU can do to build your wealth to the maximum potential. Remember: No one cares about your money the way you do.
Image courtesy of suphakit73 / FreeDigitalPhotos.net
Glen @ Monster Piggy Bank says
My biggest regret when it comes to diversifying my income is not trying to do it sooner and instead focusing too heavily on my career.
As you said, you could lose your job at any minute and then what? You might be without work for months or even years. I just don’t like the thought of that, and so I take as many opportunities as possible to add to my income streams.
Same here. I was lucky to jump into investing and get my feet wet there. But I wish I had started blogging or some other venture years ago. I’d love to add at least one new lucrative stream each year.
[email protected] says
Increasing your own personal knowledge about finances can be the single most important factor in becoming wealthy…as long as you put what you know into practice. Great tips!
Very true and probably one of the more subtle points to this whole thing. It does you no good to read a thousand books about money (or anything really) if you don’t actually use what you learn and do anything about it.
John S @ Frugal Rules says
Good post MMD! I could not agree more on not waiting around and simply get starting. Way too many people do this for one reason or another and in a large majority of the cases they do not need to be waiting. Great point on the education as well. There is so much information available, and much of it free, that it’s a shame not to use it. A little of it can go a long way to get you started.
Thanks John. If there’s anything I hope people get out of this, its that they just DO something – whatever that might be for them.
Lance @ Money Life and More says
What a beast of a post! I definitely follow a lot of these principles but you must take control of your future to become wealthy! I am not a big fan of dividend stocks but have other items to offset it.
Thanks Lance. BTW – This might have been my longest post ever. It topped out over +2,300 words. Hopefully the search engines love it as much as I liked writing it, and people get a lot of value out of it.
Rental and online income are my favorite. If the bank would lend me more I would buy more properties and leverage wealth buildings. Looking forward to seeing how it goes with your niche site.
Thanks Pauline. Good for you for being so ambitious with your real estate purchases. You are wise to use other people’s money to fund your own wealth.
Chris @ Stumble Forward says
Those are some great tips, especially building an online business. This is were I was able to get ahead in life a lot faster because I was able to earn an extra $500 to $1000 a month and sock it away for a rainy day.
I remember back when I first read Problogger that I thought making an extra $500 to $1000 per month would be great. It would be almost like a free car payment or mortgage payment each month. And now here I am. This has definitely been a worthwhile venture.
Budget and the Beach says
Great article! When I worked my comfy full time job all those years, I didn’t even think about doing this kind of stuff. Of course some things have just improved with technology advances and weren’t always possible, but I think it’s important for EVERYONE, not just the self-employed to think about diversifying their income and create opportunities for themselves. One thing the layoff taught me is that no one is safe, and you always need to look out for yourself first.
Amen to looking out for yourself first! No one cares about you the way you do. I think that for everyone: the sooner you get to work on one (or more) of these systems, the more security you’re going to have when it comes to your finances.
I just started another niche site. Since my first is breaking even I thought another one was worth trying. I bought Long Tail Pro after you reviewed and it makes things much more simple for me. I’d like to have a minimum of five good niches sites up this year.
NOW that’s ambitious! It sounds like someone has a magic formula for making these work!
Good for you. I really hope they make it to the first SERP and you can sit back and collect some handsome affiliate income. I’ve got an update post coming up on my niche site within the next few weeks. The wheels are also turning for my “next” niche site project.
I hope you like using LTP!
[email protected] says
This is an idea that I have just been introduced to. This year we plan on finding alternate sources of income, The Frugal Path included. It’s pretty exciting. Right now it’s just a little cash, but who knows what the future holds. Plus I love my new mindset.
I agree. It is kind of an invigorating mindset to know that you’re creating your own safety net as well as building a fortune. With how quickly TFP has developed, I’m sure you’ll be able to grow your site into something pretty substantial in terms of income.
I agree that working on financial education is one of the top steps. I’ve learned so much more since I started blogging about finances simply from what other people do or have done. I think we need to take responsibility for our knowledge instead of saying “I didn’t know I was spending more than I earned” as an excuse because it’s not. I think rental income is great and something we hope to do in the future. I believe the more one learns the rest will come. They will make their path along the way. Great post.
Thanks CBB. And you’re right – we all need to take responsibility. There is a lot of great information and resources out there. But its completely on us to make sure that we are using them as opposed to just making the same excuses that everyone else falls back on.
[email protected] says
I think we area conditioned to depend on our salary as the defining factor in whether we have wealth or not. I certainly is a big factor, but if you are smart with money any calculation will show you that doing some of these tips allows you to retire wealthy. The salary faucet can get turned off at any time for a number of reasons. It’s best to make other plans, but so few actually do.
.. And doing what few others do is where we will truly become wealthy.
Thanks Kim! A few more rental houses and you won’t even need that salary faucet anymore.
We’re focused on increasing our dividend incoming and our rental income right now. We’ve been pretty frugal for several years and we’re at a frugal-comfortable level of spending right now.
Those elements combined are likely going to pay off handsomely for you later on. Essentially you’re working both sides of the equation in the right direction, which is exactly what you should be doing to build your wealth.
[email protected] says
Great post for creativity and thinking outside the box. Great ways to utilize one’s skill set in ways that are not often thought of. Thanks for this!
You’re welcome Tony. Hopefully other people can get something out of this.
[email protected] says
I’m a big believer in ‘attitude is everything’. What you said in the beginning was spot on. If you think you can never be rich, then you’re right. We have always tried to diversify our income to generate cash from various sources. I’m amazed that most people don’t think about doing this. Great post.
Thanks Samantha. I’m a big believer that without the right mindset, everything else is trite.
My Financial Independence Journey says
I wish I would have started dividend growth investing earlier. But I’m glad I started it eventually. I love the idea of buying up assets every month which produce more money. Eventually this strategy will negate the need to even show up for work.
Precisely the reason I started investing in them. Instead of investing in just stocks, why not invest in stocks that 1) pay you and 2) are more likely than other stocks to go up because they are from solid companies? It just seemed like a win-win for me!