“I will spend the first half of my life earning a fortune and the second half of my life giving it all away.” ~Andrew Carnegie
When I lived in Miami, a financial firm wanted to hire me as an advisor. It wasn’t my dream job, but it sounded good. This firm was a bit different. They claimed that their clients were made up of families that were in the top 5% in America and other countries. You needed a minimum of five-million dollars to open an account with them. The average account was around the fifty-million dollar range.
This was all foreign and interesting to me since my family came from meager beginnings. I learned a lot about wealth in the five months I interviewed with them. The thing that stood out the most for me was the multiple streams of income these families had, and their mastery of tax optimization.
Recently on a webinar I heard that most penta-millionaires have at least five streams of income coming in. This might be the very reason why they’re rich. A few days later I read a blog that said the magic number was seven.
There Are Many Streams
This got me thinking. What are these streams or ways to get rich? One will do, but five is better than one, right? As trivial as American greed is, I still think it’s an intriguing subject. And I’m not alone. The rich lists top Forbes most popular issues. We seem to be fascinated with the super-rich and how they got there. What I realize now is the ways to get rich is simple; it’s actually getting there that is the hard part. Let me break down the former.
All the ways to make money can be narrowed down to about seven unique streams of income or less. For example, capital gains, dividend income, and rental income can all be conveniently put into one generic category. The same for the many forms of alternative investments. However, I decided that some ways of making money were so distinct that they merited an entire category on their own. To simply say that people should invest more was too generic. I also listed ways to make money that were indeed streams, not one-hit wonders. I wanted to make sure it was possible for a constant flow of income to come in.
Leverage And Scale
Another consideration I had was seeing the big picture to accumulate wealth. You can’t do it by yourself and to make the big bucks, it has to be scalable. As Mark Victor Hanson and Robert Allen point out, all the ways to scale hinge on leverage. These five ways of leverage make up a nice alphabet soup:
- OPM — Other People’s Money: Examples, The entire finance industry and creating a company.
- OPE — Other People’s Experience: Examples, Freelancer, educators, and creating a company.
- OPI — Other People’s Ideas: Examples, Startup incubators, mass media, and patents.
- OPT — Other People’s Time: Examples, Leasing, time shares, and creating a company.
- OPW — Other People’s Work: Examples, Factories, publishing, art, and creating a company.
Do you see a trend? I’m not biased here (well, maybe a little), but all point toward creating a company. And notice I didn’t list the solopreneur. Working with other people is key. You could be a self-employed specialist, but you lose the compounding and scale effect when you do everything on your own. Yet can you get rich being a solopereneur? Absolutely because it falls under the general and ubiquitous “create a company” category. The point here is that no one builds a financial empire alone.
Of course, the “OP” soup is not complete. There are a few others ways to get rich without have nothing to do with business. I listed those as well, but please don’t get offended. They mainly have to do with someone else mastering the money-making part for you. No one said life was fair.
It should go without saying (but I will say it to be thorough), there are just as many ways to get rich the wrong way too. Sex, drugs, and illegally downloading rock-and-roll come to mind. (OPP was not mentioned above for a reason.) I also failed to list a few others like donating organs, winning the lottery, winning betting events, saving a rich person’s life, or finding buried treasure. Those didn’t make my list either, so just stick the following tried-and-true list on how to make money instead.
- Create A Company. One of the hardest ways, but certainly proven way to lots of money. Most of the ways to get rich include creating or being a part of a company because the goal of a business is to make money. Period. Stock and income make the founders rich. Many figure out how to not trade time for money.
- Help Build A Business. This is a lot easier than #1, but more competitive. The best-paying companies only hire the best people. Earned income and stock options make these employees rich.
- Become An Expert. This will take above-average grit, intelligence, and willpower. However, experts and specialists in any field command the highest wages when trading time for money.
- Manage People’s Money. The tallest buildings in every major city are owned by banks, investment firms, and insurance companies for two reasons: 1) Wal-mart and oil companies would look silly with their HQ downtown, and 2) collecting a few percentages of other people’s money goes a long way.
- Invest In Stocks and Bonds: Market trends are hard to spot, but economic cycles aren’t. Invest this way to retire on time or early.
- Invest in Real Estate. Investing in real estate is unlike anything else and each market is even different. Your choices are Commercial, Residential, and Land.
- Invest as an Angel. Accredited angel investors must have a net worth in excess of $1M or earn over $300,000 a year in household income. Most startups fail, but angels diversify hoping at least one investment will be over 10X to cover their losses and walk with a huge profit.
- Invest in Basic Alternative Investments. This mixed bag includes Gold, Futures, Derivatives, Bitcoin, Vintage Corvettes, Wine, Art, etc. These alternatives help diversify your portfolio, but some would argue they’re not necssary.
- Invest in Major Alternative Investments. These include Private Equity, VC, and Hedge Funds. If you have $250,000 to $10M to part with, then this is a one way to be part of an inner-circle of investors. VCs fund companies who have been around longer than start-ups and are larger-scale. Just like investment banks, they seek to invest hundreds of millions into companies.
- Serve As A Board Member. Are you an industry influencer with over 15 years experience in your niche? Serve on a couple boards. Help make all the lights turn green for a great company.
- Be a Public Speaker. Bill Clinton made a modest salary when in office considering he was running the entire country. However, after he left the White House he made over $25 million in speaking fees with his wife. He toured the world giving speeches on leadership and such. You don’t have to be the president; any true expert can do this.
- Be A Consultant, Advisor, or Coach. If you’ve been a specialist for a topic in demand and can practically guarantee your results, this is for you.
- Create Digital Products. The sale of digital media is a huge movement for online businesses and solopreneurs. And it shows no signs of stopping. Create products like eCourse, eBooks, and videos. Create something once and resell it over and over. You trade value for money, not time.
- Be An Inventor. Solve problems with a device and patent it. Sell it to a company or create a company around it.
- Create A Non-Profit. These include charities, university, and hospitals. You often see people create or join non-profits in addition to owning a business. They do the world good and there is a tax benefit. Most non-profits don’t make the big bucks and they depend on federal financing or donors. So look at billion-dollar industries combined into one entity. For example, a hospital’s ecosystem include the pharmaceutical industry, medical industry, insurance industry, technology industry, and more. What’s the financial payoff for creating a non-profit organization?Laurance Hoagland, Jr. of the William and Flora Hewlett Foundation earns $2.5 million dollars a year.
- Be A Celebrity. It takes a lot of luck and skills to get to the top. But once you’re there, all you have to do is stay out of trouble and invest your earnings. Included in this lot are sponsorships and royalties, since that’s how these people make additional income. By the way, small-time YouTube celebrities have figured out this business model too.
- Inherit Wealth (And Reinvest). All you have to do for this one is have the right last name and be nice. Trust fund and insurance beneficiaries are included here.
Let’s Do Some Math
First meet my neighbor, “Bob”. I am lucky enough to live in the second wealthiest zip code in my state. Neighbors talk. A few blocks away Bob has a modest house like me, but his portfolio is a lot more impressive. I picked Bob’s brain about his wealth one evening and this is what he said (all figures are after taxes):
Bob takes home a yearly salary (#3) of $115,000 as a corporate director (plus stock options not included here). How did he get there? He graduated at the top of his class and started working at a big company. From there it was a race to the top.
Bob gets an additional $100,000-$150,000 from investing in stocks and bonds. This is what surprised me the most, but he said he started investing when he was very young. You gotta love the law of compounding.
So how does he invest? Forgive me, but this is exactly what he said: “95% of my portfolio is invested aggressively in small and mid-cap stocks from category leaders only. Each company can only occupy 6% or less of my entire portfolio. I use Options with 10% of my stocks, and I never borrow on the margin. International Bonds make up the remainder of the portfolio.”
I got a little lost here, but whatever he said set him up for a 15% average return on investment. (Which means he doubles the typical set-it-and-forget-it way of investing in indexes.) He did not tell me the real value of his portfolio for obvious reasons, but he did say to just stick with the a nice round figure like one-million dollars. So hypothetically Bob made another $150,000 that year in stocks alone!
By the way, I asked him if he ever considered doing #4 on my list (managing others’ money) and he said he had no interest. Go figure.
But it didn’t stop there. He had more streams of income coming in.
- Real Estate: (#6): $30,000 from two rental houses. Only one house is paid-off.
- Serving On Boards (#10): $20,000 from three boards (one pro-bono).
- Speaking Fees (#12): $5,000 as a guest speaker at annual convention (He said he could easily triple that figure with more bookings.)
- Consulting Fees (#13): $10,000 as a consultant for companies in similar industries (non-competes).
— — — — — — —
$325,000 / year in Total
By this time in our conversation I was really impressed how he had the time and know-how to do it all. I always wondered how people made money at that level and now I know. But apparently there were still a few stones unturned that wouldn’t sap more time from him.
I told him that he could be a #7 (angel investor) and possibly #8 (private equity). He said the former was was a joke because he liked spending time with his kids, and the latter was a pipe dream. I think he still has it good.
So with Bob, I got a three big take-aways:
- Become an expert at your craft as soon as possible so options start to come your way.
- Be relentless about knowing how every dollar is invested and the best way to maximize it.
- Show frugality even when you’re rich. (Bob still drives a car that’s over ten years old and he has the smallest house on his block.)
I think I’ll be hanging out with Bob more. Okay, so good for him. So what about the other 99% of the world?
As Robert Kiyosaki pointed out in his Rich Dad Poor Dad series, the Average Joe takes home a salary (#2) and basic investing (#5). (Don’t count your home as an asset until it’s paid off and/or the rental income exceeds the mortgage). It’s no wonder that this is the longest path. This sounds like a thirty-year stretch. If you hold a steady job and get annual pay increases, you can easily get to a $1M+ retirement portfolio. But since your job is never safe, I can see why everyone’s in a rush to accumulate massive wealth as soon as possible. In this context obtaining multiple streams of income is quite relevant.
During and after the recession, people got creative with ways to pick up some extra cash. Now we’re more entrepreneurial than ever.
What’s $1 Million Today?
With all this talk about making millions, what’s it really worth? By the time you factor in taxes and inflation, it’s not that much. (In 1993 a hamburger was around $1. Today it’s around $5). Just try out Bankrate.com’s retirement calculator to get some real numbers on retirement. You’ll find that most people should retire with over a million dollars set aside. It’s not a big deal to be a millionaire like it used to be. Maybe $3 million really is the new $1 million.
I volunteer all across America and I help a lot of people in various financial situations. Many don’t even have a savings account, so I don’t mean to sound over-the-top here. On the contrary, it’s one of my goals to empower people from all walks of life to achieve their financial and vocational dreams. It starts with education and action. Day by day, dollar by dollar, people can become self-made and independent. There are few things more American than that.
8 Things You Can Do To Get Richer Today
- Read about Andrew Carnegie to get a better perspective on building wealth. People forget that he accumulated nearly half a trillion dollars in his lifetime. But they do remember all the buildings he donated to the community. Again, here are the words he said and lived: “I will spend the first half of my life earning a fortune and the second half of my life giving it all away.”
- Pick up Ken Fisher’s book The Ten Roads To Riches. Ken started from nothing and made the Forbe’s Billionaire list. Few people have his kind of direct access to billionaires.
- Learn about insurance and taxes. Both are forms of keeping more of your money (asset protection and optimization).
- Learn how to add greater value at work so you can negotiate a higher salary and move up the chain of command.
- Live frugally and start investing more. If you haven’t started investing, read all about it for free on http://www.investopedia.com. Start a Stock Simulator account to test out the waters. When you’ve come to the conclusion that the market is unpredictable, invest in a few Vanguard ETFs and forget tracking the stock market altogether. (Read Malkiel’s A Random Walk Down Wall Street for a great perspective on this.)
- Cash is king. If you can’t buy it with cash, don’t buy it at all. I didn’t use a credit card for eight years to rebuild my credit and save money. It worked.
- Find a mentor doing what you want to do and living how you want to live. As they say, success leaves clues.
- Create a microbusiness. Creating a successful business is typically the fastest way to riches. So what if you fail your first few tries (or ten even)? You have several years to get it right, and in business you only have to get it right once. (BTW, err on application, not theory.)
Wealth creation is a wonderful thing because it brings people freedom and security. With it, you can live better and help others live better too by giving to charities. We all want more money for one reason or another. Now you know the ways to get it. Is it in you to really make it happen?
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Thank you for reading! My goal here and at J2R is to write content people really want to read and share. I encourage your responses, comments, and questions. If you liked this, please hit the Recommend button below and Share it so others might stumble upon this article. Be well! ~PEYTON