You might get a different answer from every expert you ask about building wealth. Some might say: build a real estate investment portfolio for passive income, become a disciplined investor in the stock market to see your wealth grow over time, live below your means, and possess the right kind of debt. The list goes on and on, but you get the point. I believe there isn’t just one strategy that’s the best but a combination of these strategies that make for a significant impact on the condition of an individual’s financial life.
I have built my wealth by exercising all of these strategies. While I don’t have a portfolio of real estate properties, I do have one investment property that currently provides me with a yearly net profit of about $13,500. That number increases as rents rise, and when I can also keep my expenses as low as possible. I have always made a yearly profit on this investment property, but because my mortgage is now paid in full, it’s generating almost triple what it used to. For me, I don’t have a desire to own and manage a large portfolio of real estate properties. It’s not my passion or how I want to spend my time, so most of my wealth has come from living below my means, consistently investing in the stock market for the last 25 years and being wise about the type of debt I’ve chosen.
A little more information for you on each of these wealth building strategies:
Build a real estate rental investment portfolio
If you like real estate and find it interesting, seek to learn more about earning income from this strategy. Be sure to calculate your anticipated ROI (Return on Investment) before purchasing an investment property you’re interested in. ROI measures the profitability of a property and is calculated by subtracting your investment cost from your sales price, then dividing that number by the investment cost. This strategy might not prove to be a good one right now, depending on where you live. Also, owning an investment property means you’ll need to be diligent about setting aside funds to pay for yearly expenses and repairs. A side note: you might consider renting out a room in your home or renting your entire home for a certain number of weeks every year, if you live in an area where people love to visit. This additional income could be used to pay for your personal expenses, or you could add it to your emergency or wealth building investment savings.
Become a disciplined investor
You can build wealth by choosing to be a disciplined investor. You don’t have to know a lot about individual stock picking or the best options for bonds and mutual funds, but you’ll need to work with a trusted and knowledgeable financial advisor/planner who does. What’s important with this strategy is that you place a high priority on putting money aside to build your wealth every month or year. The result of dollar cost averaging and compound investing, over time, can provide big returns and significant wealth.
Live below your means, always!
Always, always, always! This is one of the most important strategies. Living below your means yields perhaps the most amazing benefits. I say this because there is no price we can put on our emotional and physical health and wellbeing. What is the stress of overspending costing you on an emotional and physical level? What is ignoring the state of your finances costing you? Living at or above your means is a poor person’s mindset, not a wealthy one. When you make the choice to get a grip on your financial life and step into your money power–know what’s coming in and going out, as well as becoming more aware of specific behaviors that are working against you and the financial path you truly desire to be on, and changing behaviors to align with your new financial identity, you’ll begin to see and feel wealthier, not to mention you’ll probably: sleep better, feel better emotionally and physically, and show up in your life and relationships in a whole new way.
Embrace the right kind of debt
This is also a biggie. Debt is okay when it’s the right kind. Credit card debt isn’t the right kind of debt. What I’m referring to is debt that’s carried from month-to-month with accumulating interest. Such debt holds people back from building wealth. Ongoing lease or loan payments on a vehicle because you have convinced yourself that life is just better with a new shiny car every 4 or 5 years isn’t the right kind of debt either. You might think it’s enhancing your life in some way, but it’s just an ego-driven way of life. Driving a car for 10 or more years (which I happily do) saves a crap load of money–on registration and insurance costs, and monthly payments (once the vehicle is paid off, there are many years of zero monthly payments due). That means more money to build wealth. A house mortgage is the right kind of debt as long as you can afford all the expenses associated with owning one and still have enough money to build your wealth.
Give some thought to implementing some of these strategies in your life and see where it takes you. If you need support, reach out anytime at cindy@moneysenseforlife.com.
Cheers to your financial wellness!
