It would be nice to put your money into more than just an emergency fund or retirement plan when it comes to your long-term financial picture and goals. Building wealth takes time, but with a few steps in the right direction, it may not take as long as you think.
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An obvious way to help your financial situation is to pay off debt, but what if you have already done that and now want to work on multiplying your wealth? No matter which credit cards you prefer or how much you can save each month, there are many ways you could emulate the rich. If you want to follow in the footsteps of the wealthy, here are 12 tips to put your money where your mouth is.
1. Diversify Your Portfolio
Diversification is key when it comes to how and why you invest. Don’t put all of your eggs in one basket. Spread out your money into a variety of assets and investments. Not only does this allow for multiple money growth opportunities, but it also saves you from losing everything if one investment fails. Here are some different places you should consider investing in:
If you’re not sure where to start with diversifying your portfolio, Robert R. Johnson, PhD, CFA and professor at Heider College of Business, Creighton University, shared the following advice: “For most investors, diversifying across two asset classes (stocks and bonds) is enough diversification “People should invest in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down, or sideways.”
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2. Focus on Exponential Returns
“Financial mistakes begin early in life and the biggest financial mistake people make is taking too little risk, not too much risk,” noted Johnson. “Unfortunately, many people allocate retirement savings to money market accounts or low-risk bonds.”
Don’t let your money just sit in a checking account. Put it somewhere it can earn compound interest or better gains. In other words, you want to earn interest on interest to more quickly accumulate money. Over time, this new interest paid will earn interest automatically over time and it’s a great way to make your money work for you.
The following are good places to start for receiving paying interest and earning compound gains:
3. Be Strategic With Your Taxes
It’s said that the two things you cannot avoid are taxes and death, but at least the former has some room for editing.
As the rich can attest to, when it comes to paying taxes you could be shelling out more than you have to. It may make sense for you to pay a tax expert to help you find available deductions, incentives, or strategically organize your investments to see where you can save a lot of money or even turn it to your advantage.
4. Create Opportunities for Better Investments
If you have been dabbling in investing more and want to increase your investment opportunities, you could become an accredited investor. This will give you access to exclusive options that are often higher risk. These investment opportunities typically only are available to the more experienced investors as though they are high risk they are also high reward.
Here are some examples of exclusive investments for accredited investors the general public may not know about:
- Premarket IPOs
- New startups
- High-yield ventures
- Private equity deals
5. Pay Yourself First
Treat yourself as an employee to make sure funds are getting allocated to the appropriate high-interest investment account or savings for retirement your employer offers automatically.
For example, this means you could set up direct deposit for your paycheck to automatically deposit 20% of your funds into the designated savings account of your choice. You could set this up yourself or use a budgeting app to help, but either way, paying yourself first ensures that you are multiplying your money with intention.
6. Adjust Your Risk Tolerance
A basic high-yield CD in your online bank isn’t a bad thing by any means, but there’s only so much room for your money to grow. Sometimes you have to take bigger leaps to go from living paycheck to paycheck to becoming comfortably rich.
Johnson added, “Someone with a long time horizon should not have exposure to money market instruments, yet many investors do because they fear the volatility of the stock market.”
Your mindset plays a major role in how much money you can accrue. It might be time to start taking more calculated risks and be okay if there are some failures along the way. Think of these as learning experiences you can apply to your next big investment.
7. Build Generational Wealth
Starting with a cushion is always great, but most millionaires come from humble beginnings. Even if you inherited money, to grow it you need to be strategic. Generational wealth is a mixed bag because if you do not come from wealth, you’re hungry for it. And if you do come from it, you may take it for granted.
However, no matter your current situation a good financial goal to set is to establish enough money that future generations of your family after you are comfortable. Having this nest egg will allow them to get a better education or earlier start with their own investments. Wanting to grow your generational wealth keeps you in the mindset to continuously grow your wealth and not blow through it on extravagances now.
8. Never Pass on Passive Income
Even if you make a good living, this is not to say you can’t experiment with a side hustle or two. Your time and talent are always worth something, but the super-rich know how to earn income off assets without having to be actively involved.
“The wealthy know how to set up multiple streams of passive income, whether through dividend-paying stocks, rental properties, or other investments,” remarked Mason Jones, a passive income expert.
The more wealth-building ventures you involve yourself in the better, because multiple sources of income grow your money exponentially. Here are some passive income examples:
- Buying a rental property
- Investing in a business as a silent partner
- Selling intellectual property to gain royalties
Jones noted that the key to building wealth is letting your money work for you across different streams, so you’re not just relying on one source or constantly hustling to keep things afloat.
9. Leverage Where You Can
Leverage is a bit tricky, but when used correctly can help you greatly increase your gains. No one knows this better than the rich because they often borrow capital from other investors’ money to then reinvest it in other ventures. This is on theme with other get-rich money tips as it is both high risk and high reward.
Johnson added a warning, “If you try and magnify your returns by using leverage, you may not have the financial wherewithal to withstand the interim volatility before the wisdom of your decisions pan out.
10. Take Advantage of Your Network
Everything, including multiplying your money, is easier with help. Surround yourself with people who are financially successful to learn from them and mimic their best practices. You’ll notice that the wealthy are often in cliques or clubs of peers who are of the same ilk.
This is no mistake as building a network of friends and mentors that can give you the first shot at an opportunity or an inside track look at how they’ve grown their wealth will only amplify yours. The more you grow and take advantage of your network the more your money will multiply.
11. Live Below Your Means
“The most common mistake people make that prevent them from becoming rich is letting their spending increase commensurate with their new salary,” said Johnson. “For instance, people move into a bigger apartment or buy a more expensive car or home to reward themselves for receiving the raise. What happens is they’re unable to improve their financial condition because they spend everything they make.”
Sometimes you won’t know a person is a millionaire or billionaire because they don’t flaunt their wealth with extravagant purchases. Just because you can afford something doesn’t mean you necessarily need to buy it. For example, you can live in a more modest house than you can afford to make smaller monthly payments and save up for other investment opportunities.
Johnson elaborated, “People are wise to effectively invest any money from a raise as if you didn’t receive the raise. That is, continue to live the same lifestyle you led before receiving a raise and invest the difference.”
12. Further Your Financial Education
If you’re trying to do as the wealthy do you may need to extend and enhance your financial literacy.
Investing in yourself by taking classes on how to navigate the stock market and its trends or how to improve your investing and trading strategies. This will only bolster your chances to greatly improve your financial education and situation. Knowing how to better make your money grow is the first step toward doing so.
Final Take To GO: Mind Over Money
The bottom line is that there is not just one way the rich multiply their wealth so you can pick a choose a few strategies that best work for you. Whether it’s the simple act of taking advantage of compound interest or leveling up to a more involved investment strategy make sure your mindset matches your goals.
Martin Dasko contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: 12 Key Ways the Rich Multiply Their Wealth — And You Can Too
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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