Secrets Of The Wealthy, Part 2
Last week we covered Part 1 of the secrets to becoming financially independent and wealthy. This week we will cover the secret strategies the wealthy use.
* Get a Mentor. Surround yourself with millionaires and learn from them. The best way to learn how they think and what they think is to be with them when they think. You want to follow their examples: What do they invest in? How do they invest? What do they read and learn? A mentor’s hindsight can be your foresight, where you can learn from their mistakes and emulate their success. A mentor can open up opportunities you wouldn’t otherwise have, and also help widen your assumptions in order to make better decisions. You can’t learn to be wealthy from someone who doesn’t know how to do it.
* Dividends, Residual and Passive Income. Instead of looking for a one-time payout or commission, they look for projects and investments that generate income for years, if not decades. The most successful businesspeople were able to start several businesses over time, automate and hire or outsource people to run them, then collect the residual income. They look for streams of income that are continuous and, once set up, don’t need a significant amount of work to actively maintain them. Time is important, so passive income is the best way to free up time and pursue things you want to do. This gives you the flexibility to continue working on other business ventures, redeploy the cash into investments such as stocks, bonds and real estate, or for acquisitions.
* Diversify. Diversification of investments and sources of income lowers your risk and maximizes your return. Who would you rather be, an executive making a $200,000 salary or a middle manager earning a $100,000 salary with another $100,000 in real estate rent and other investments or sources of income? Diversification helps you survive the ups and downs of the economy. It also helps you buy assets when they are undervalued. When you have alternative sources of income, you can be in a position to buy investments at their low and wait for them to appreciate. By diversifying your income sources, you will be in a much better situation if you lose a job.
* Understand Taxes. IRAs, 401(k) and other retirement qualified accounts have significant tax advantages. You want to put inefficient investments (investments that have high turnover) into qualified accounts to avoid the potential taxes. You want to put efficient investments (investments with low turnover) into non-qualified accounts. The wealthy don’t pay unnecessary taxes and are able to have their money work for them all the time. They are able to sell losing investments for tax harvesting so they can offset their winners. Also, by understanding the difference between long-term and short-term capital gains, as well as ordinary income, they are able to strategize income types to keep more of their money.
Next week we will cover the secret types of investment they use!