“Wealth Creation—Part 3: Invest Like a Millionaire”
To achieve higher levels of wealth you’ll need to start by learning three basic things:
- Learn to love saving. A wise lady once told me ‘Sleep on it before you buy it!’ Much of what we spend money on adds very little value to our lives in the long term. It’s simply ‘impulse’ buying. Your best strategy here is to ‘automate’ your savings by setting up automatic withdrawals from your paycheck or checking account to your investment or savings account.
- Learn the difference between bad debt and good debt. Bad debt is anything that you borrow money to buy that goes down in value. Examples include cars, furniture, appliances, and most credit card debt. Good debt is anything you purchase that goes up in value or at least holds its value. Examples include a home, money for a business and, perhaps, student loans. To create wealth, you’ll want to avoid bad debt.
- Learn how to invest. Investing can be complicated but it doesn’t have to be. Start with an automatic monthly investment program described in my last post, Wealth Creation—Part 2. Now, if you’re really ready to improve your investing skills, commit to reading 15 minutes per day about investing. Are you willing to do this? Because this is the minimum it takes to become a great investor. You’ll be amazed at your knowledge in just one year. There are lots of books and Internet resources about investing but if you need a good place to start, visit Vanguard.com. Vanguard is a low cost no-load mutual fund company that has excellent information for the beginner investor.
To become rich, study the rich
My upcoming book, “THINK Like a Self-Made Millionaire”, is based on interviews I had with self-made millionaires. It is the first book in my upcoming Get Rich on Purpose® book series. I wanted to find out how self-made millionaires created their success. What I found out was that their success paths generally fell into one of three categories:
- The systematic saver. I recently met the sweetest lady in her early seventies who was seeking help managing her investments because she had just retired. She had a great life story and one that epitomized the systematic saver. After graduation, she took a secretarial job with a start-up bank and stayed with that company her whole career as a secretary. She made a habit of living well below her means and took advantage of all the savings and investment programs the bank offered. Here’s a person who never made a lot of money but who had the good sense to save for her future. Amazingly she accumulated over $1 million! I have seen so many cases of people who simply save their way to financial independence. This retirement savings approach tends to take twenty to forty years depending on how you invest and how much you save along the way.
- The real estate investor. In studying self-made millionaires, two groups achieved the highest level of wealth in the shortest amount of time. The first group is real estate investors. One of the reasons real estate has so much potential for growth is that it uses leverage so effectively. For example, if you have a $100,000 to invest and invest in the stock market, typically you’ll buy $100,000 worth of stocks. However if you buy real estate you could put down, say, $20,000 and finance the balance then use the rental income to pay the mortgage and expenses. With $80,000 left to invest, you could do this four more times and therefore control $500,000 worth of property. Eventually your mortgages will be paid off and hopefully, your property will appreciate in value. For example, if the property grew in value at 3% per year, in thirty years the property would be worth over $1.2 million mortgage free…not to mention substantial monthly cash flow.
- The business owner. By far the biggest winners in the wealth accumulation game are people who own their own businesses. Owning a business allows you to use leverage in multiple ways including financial leverage, people leverage and systems leverage. Lisa Renshaw was age 21 and $3,000 in debt but she decided she would become a millionaire. She scraped together enough money to purchase a failing parking garage in the Baltimore area. Not having the money to hire a twenty-four hour attendant, she moved into the garage using a carpet remnant as a bed and kerosene heater for warmth. She focused on great customer service but she persisted for three years before she was able to move out and buy her second garage. Today, she owns or operates over 30 garages and is a multimillionaire! Persistence and determination are key character traits of successful business owners.
Choose your path to wealth and do whatever it takes to learn what you must learn to succeed. My best tip is to find a mentor, someone who has done what you want to do, and ask them to help guide you. For more information on my upcoming book, THINK Like a Self-Made Millionaire, and other upcoming books in the Get Rich on Purpose® book series, visit GetRichOnPurpose.com.