Trying to Build Wealth may appear elusive or exclusive to the rich, but the reality is that many of their tactics are accessible to anyone willing to learn and apply them.
While the wealthy may have more initial capital, leveraging the power of compound interest and implementing strategic financial practices can set anyone on the path to financial success. Here are seven essential steps to start building wealth like the rich.
1. Diversify Investments
Diversifying investments is a cornerstone of wealth-building. According to Khwan Hathai, a CFP and certified financial therapist at Epiphany Financial Therapy, this strategy involves spreading investments across various asset classes to mitigate risk and capitalize on growth opportunities. Instead of putting all your money into one type of investment, consider a mix of stocks, bonds, real estate, and even newer investment areas like cryptocurrencies or ESG (environmental, social, and governance) investments. By diversifying, you reduce the risk of significant losses and increase the potential for steady growth.
2. Focus on Growth Over Gains
Long-term growth is key to build wealth for affluent investors. Hathai emphasizes that wealthy individuals look beyond short-term market volatility, concentrating instead on assets and ventures that promise sustainable growth over time. This means prioritizing investments that appreciate steadily over years or decades rather than chasing quick profits. Patience and a focus on the big picture are crucial for building lasting wealth.
3. Utilize Tax-Advantaged Accounts
Maximizing contributions to tax-advantaged accounts is another effective strategy used by the wealthy. Hathai points out that by leveraging accounts like IRAs and 401(k)s, individuals can reduce their taxable income and promote the growth of their investments in a tax-efficient manner. Understanding the benefits and limitations of various retirement accounts and aligning your contributions with your broader financial plan can significantly enhance your financial standing.
4. Try House Hacking
House hacking is a strategy that can dramatically reduce housing expenses and increase investment capital. Larry Zhong, a personal finance expert and founder of YieldAlley.com, explains that this approach involves purchasing multi-unit properties, living in one unit, and renting out the others to cover the mortgage. This method effectively reduces living expenses, freeing up more money for savings and investments.
5. Invest in CDs and Money Market Funds
Wealthy individuals often take advantage of high-yield savings options like Certificates of Deposit (CDs) and money market funds. With interest rates skyrocketing in 2023 and remaining high into 2024, Zhong notes that many rich individuals regularly save and invest a portion of their income in these secure and high-yielding financial products. This strategy provides a stable return on investment and can be a reliable component of a diversified portfolio.
6. Start Early
Starting early is a piece of advice that has proven effective for many who have built substantial wealth. Alex Skijus, owner of True Life Wealth Management, emphasizes that many wealthy individuals began saving and investing early in life and maintained consistent strategies. The key takeaway here is to avoid delaying action. The sooner you start saving and investing, the more time your money has to grow through the power of compound interest. Even if you didn’t start early, the next best time to start is now.
7. Stay the Course
Consistency and perseverance are vital for long-term wealth building. Skijus highlights that the wealthy understand the importance of staying committed to their financial plans and investments, regardless of economic or political fluctuations. They recognize that the stock market’s long-term health and growth potential are separate from short-term economic events. By staying the course and adhering to their investment strategies, wealthy individuals continue to build and preserve their wealth over time.
In conclusion, building wealth like the rich is not about having a financial magic touch or extraordinary luck. It’s about applying sound financial principles consistently and strategically. By diversifying investments, focusing on long-term growth, utilizing tax-advantaged accounts, trying house hacking, investing in high-yield financial products, starting early, and staying the course, anyone can start their journey towards financial independence and wealth accumulation.
