Today I’m wrapping up the Ask The Experts series with a bang! The series finishes out with 5 personal finance bloggers answering this question:
What does building wealth mean to you? What advice would you give to someone on how to start building wealth? What tools do you use and recommend to accomplish this?
In case you missed it, be sure and go back to read Part 1, Part 2, Part 3 and Part 4 of this series! There is a lot of great information and a lot of knowledge packed into this series. You won’t want to miss it!
Six years ago, in my second year as a freelancer, I started to really appreciate the challenge of working for yourself. It’s circular. First you have plenty of work, but it can be weeks or months before you get paid. Then the checks finally come in, but you find yourself without more work.
One month, I was at the bottom of one of these cycles, and I was nervous about paying the rent. Finally my phone rang. For a half hour, I spoke with a client who I knew would lead to too much work, too little money, and nothing but hassle. But I felt I had no choice. I needed the work.
Two months later, I found myself on the phone with the client again, being yelled at for something I wasn’t even involved in. I did the math and realized I was suffering this indignity for minimum wage. Something had to change. I fired him and vowed to never again be so desperate that I didn’t have a choice.
That was the beginning of my understanding of wealth. If I had enough money in the bank to feel stable under the worst circumstances, I would always have a choice. I would be able to say “no” next time the wrong client called, and wait for the right one.
I made it a priority. While it’s taken a great deal of hard work and a bit of luck to save up a nest egg, it has allowed me to find wonderful, solid clients, and create a stable, successful business.
Name: Doctor Stock
Website: Doctor Stock
Building wealth is more than about money… it’s also about lifestyle, family, values, etc. When investors think about building wealth, I think their first inclination is to amass money… but at what cost? Building wealth is about investing your current resources in a manageable manner in order to improve your quality of life. There are a few things that are essential to building wealth: First, know your destination (i.e. why are you trying to build wealth? what is a picture of success); Second, write down what you’re not willing to sacrifice (i.e. more than a certain amount of time or measuring risk capital); and, Third, invest time (i.e. simply checking your statement once a quarter or year will not produce as much success as a more attentive approach).
For those just starting out, concentrate on protecting your capital, minimize your risk, and maximize your returns. Finding a reliable resource, without paying ridiculous fees, can really help you “pay yourself.” Investing in the stock market is not a risky, or at least does not have to be, a risky venture.
I find most tools out there take unnecessary risks… so I developed my own strategy. I use free tools such aswww.freestockcharts.com and www.reuters.com for research and then listen to people like Cramer for ideas, but not to follow blindly. I also find those with similar interests to dialogue with… and I’d be happy to talk with anyone interested in investing in the markets.
Name: David T. Domzalski
Website: Financial Bin
Before beginning any discussion about building wealth, I think we must first point out that you can no longer rely on your house or your 401(k) as your main sources for wealth accumulation. So, get that thought out of your mind right away. Your focus must shift toward income-producing assets. This is essential if you do not want to be working when you are 70. Since the Financial Bin’s focal point is Generation Y, this advice will be geared toward those individuals.
The first income-producing asset I would advise looking into is real estate. No, this is not your home. This is rental property. My wife and I plan to invest in income-producing rentals that will generate positive cash flow for us each month. If you decide that being a landlord is not for you, you could always hire a property manager to do the dirty work for you.
Another asset I would recommend is dividend-paying stocks. While I do not always recommend the stock market, unless you commit yourself to watching charts all day, I do like stocks that pay a dividend. The reason behind my logic is that even if they lose money, these stocks will allow you earn some money each year. Plus if you set yourself up to automatically re-invest any earnings and buy more stock, you are setting yourself up for a nice additional source of income.
A final recommendation, and the one I am going after with starting the Financial Bin, is having your own business. Sure, you could consider real estate investing a business. However, I am talking about anything other than that. It has never been easier to start your own company from scratch. If you are able to create something for yourself that can supplement or even replace your income, it is definitely worthwhile. From there, you can focus on making the business more than just another outlet that “employs” you and grow it into an entity where you can hire people. This way you get out of the self-employment realm and into the real business sector.
As for tools, I must go with You Need a Budget. The company is featured in our book, “Entrepreneur Intervention.” If you are looking to invest in stocks and real estate or looking to start a business, you must have a handle on your finances. If you’re not sure how to budget or completely lost, YNAB is a great place to start to get yourself situated.
Name: Casey Bond
Website: Go Banking Rates
A lot of people seem to equate being wealthy with being rich, but I think you can build wealth without having a whole lot of money. Building wealth is about making smart, strategic choices in order to maximize what you have, not figuring out a quick and easy way to amass more money than you’ll ever need.
There are really two tips I can offer for building wealth. The first is to start putting money away now—not when you’re a little older, not when you get a raise—now. When I got my first “real job,” I was only making $8 an hour, part-time, but I still managed to set aside $20 out of every paycheck and put it in my employer-sponsored IRA. I hardly noticed it was gone, received a quarterly match, and by the time I left that job I had a few grand set aside for my retirement. I may not have been rolling in dough at 20-something years old, but I sure got a good head start on my peers.
Secondly, you have to make your money work for you and the only way you can do that is by investing it. That doesn’t mean you need to subject your life savings to the whims of the stock market. You should be seeking a variety of ways to earn returns on your money. At the very least, open a high-yield savings account for short-term savings goals. But don’t be afraid to put long-term savings into investments with some risk—remember, unless you’re earning more than 3-4%, you’re not even keeping up with inflation and essentially losing money. It’s kind of scary at first, but remember that you don’t have to go at it alone and can always consult a professional.
I’ve always had sort of a cynical view towards the term “building wealth”, and even more so, what it implies. Ask people why they want to build wealth and 9 out of 10 times the response will be, “security”. You don’t need wealth to have security, you just need not be poor. There is a certain sense of security that comes from knowing you have enough money in the bank (or assets) to take care of even inflated needs, but is security really why we want wealth? I don’t think so. I think most people just want to be rich, and they want people to know they are rich. Don’t think this is the case? Let’s try this: Imagine that you have $100 million in the bank, however you can’t tell anyone that you have the money. Furthermore, you can’t suggest, or buy anything that would suggest, that you have the money. In other words, from the outside, and to everyone else, you are just a regular Joe. Does having that $100 million still have the same allure? No, let’s be honest, of course it doesn’t. Financial security is only a small reason why people strive to become wealthly.
For me, what wealth really means is the sum of one’s creations. What have you brought into this world through the use of your mind, the expression of your creativity, and the result of your labor? My recommendation for anyone who wants to build wealth is to create a business. A business is one of the best ways to bring something great into the world –give the world something that wasn’t there before and the world will give back. Creating a business is also one of the only ways you will ever become rich. You aren’t going to win the lottery, and you’ll probably have a hard time investing your way into riches. Nonetheless, your potential is unlimited –it truly is, you just have to make things happen.
I want to give a HUGE THANK YOU to everyone who participated in this Ask The Experts series! It was a lot of fun and very informative. I plan to continue this series in the future!