If you were to conduct an informal survey asking random people the question “how does one become rich?” I’ll bet the majority of the answers (aside from becoming a famous movie star or professional athlete) would be something along the lines of “get a super high paying job.” The prevailing mantra in society seems to be the higher the job compensation then the richer you should be. That, of course, is only somewhat correct and if I were grading the survey responses, I’d only give partial credit for those answers.
I don’t have any actual surveys or studies at my disposal to back this assertion up. However, based on my observation, people seem to focus on salary as a means to become rich. You see headlines all the time like “7 six-figure jobs that anyone can do” or “5 sure fire tips to get a huge raise.”
While maximizing your salary is generally a wise pursuit, you most likely won’t become rich off salary alone. Exceptions might be a top notch surgeon or corporate executive with cushy stock options, but becoming rich isn’t exclusive to just those professions. So, if earning a fancy salary isn’t the way to become rich, then what is?
How to Become Rich: The Way the Uber Wealthy Do It
The way the ultra wealthy become rich is through capital gains (when assets are disposed at a higher price than the original purchase price). How do they achieve capital gains? The answer is: through their investments. It’s those investments where the real wealth is accumulated and essentially how people become rich. Now, those with higher salaries might be afforded the opportunity to make more and larger investments (provided they aren’t spending most of their salary elsewhere). However, anyone can invest even if their wages aren’t excessive. Start small and work your way up.
Here’s an interesting fact:
“According to the IRS, which recently released 2009 data from the 400 richest individual income tax returns, the real runaway growth in wealth has come from capital gains. In the last years of the bubble, the “Fortunate 400” made nearly half their income from capital gains (a.k.a.: profit from the rising value of an investment, such as stocks or property) and less than 10% of their income from old-fashioned wages.“¹
Using Cap Gains to Become Rich
The odds are against you catapulting into the top of the world’s wealthy elite, but that doesn’t mean you can’t use some of the same methods they employ. Below are a few of the most common investment strategies that are used to become rich.
Real Estate: Real estate, both residential and commercial, are a popular means to become rich. Many of the wealthiest people in the world are real estate moguls. Some ways to become rich through real estate, such as real estate development, require extensive industry knowledge and know how. On the other hand, one of the more common and accessible methods to become rich through real estate includes purchasing investment properties for positive cash flow and then selling once certain appreciation targets are reached.
Market Investments: Investing in stocks and bonds with an intermediate to long term holding strategy can provide significant capital gains and help you to become rich. Many of the super wealthy have investment options not available to everyone else (such as hedge funds). There are still plenty of other alternatives though such as individual stocks or bonds as well as mutual funds. The good thing about this investment choice is that it requires the least up front capital. You can start investing with just a few hundred dollars.
Business Ownership: If you’re ever planning to hit a home run and become rich in a big time way then this likely is your best bet particularly if your business is a start-up bringing a valuable/innovative product or service to the market. That’s not to say you can’t become rich running a plumbing or gardening business. Think Mark Zuckerberg with Facebook or Mark Cuban with Audionet/Broadcast.com though. To achieve success via this approach is extremely challenging, but the returns can be exponential. Even if you don’t end up with billions like Zuckerberg or Cuban, you can still do quite well for yourself. For example, let’s say you start an online business and through diligence, smart work, and good fortune you turn your endeavor into a success. Whether you end up cashing out via an IPO or by simply being bought out, you could end up making a tidy sum.
Have you always considered salary the key in order to become rich? How do you view wealth creation now that you know most of the country’s richest achieve their fortunes via capital gains? How do you plan to follow suit?
Image courtesy of digitalmoneyworld at Flickr.