Wealth is no accident -- even if you're lucky enough to inherit money, it takes some amount of diligence and common sense to keep it. We've all read about the rich and famous who are in foreclosure and the lottery winners who have lost their newfound fortune within a matter of months.
Most entrepreneurs will tell you they made and lost money many times before striking it rich, so a cast-iron stomach for risk and an ability to keep striving despite the odds would seem to be important traits. But beyond that, if you are seeking to improve your wealth steadily until the time you can retire and enjoy it, take some cues from the rich:
1. Use your money to make money
You have to spend money to make money, right? The key is to spend and invest wisely. To do that, work the numbers on the projected return of your investment, factoring in your time frame. You'll have to judge when an investment is too risky for you to stomach: but play it too safe, and you'll lose to inflation. If you have 20-plus years until retirement, your portfolio will earn more in stocks versus CDs because traditionally over the long term, stocks will return more.
In a housing market where prices are depressed, speculators and investors are buying again, but this strategy isn't for everyone. Once again, it's risky, long term, and requires an investment of both time and money.
2. Take calculated risks, but learn to recover and regroup
Back to the entrepreneurs: Business ownership has been the traditional path to wealth in this country, and many entrepreneurs say they tried and failed many times before hitting it big. Key to their wealth strategy is that the potential reward is bigger than the risk. You could spin your wheels and work hard on a venture that ultimately returns very little, so you have to be ruthless in crunching the potential return numbers and leave emotion out of it. As physicist Richard Feynman said, "the first principle is that you must not fool yourself and you are the easiest person to fool."
3. Spend quality time on your finances
You might be practically a full-time resident of your gym, and you keep your weekly bridge game and standing hair appointment, but do you employ the same diligence to your finances? Do you know how much you spend and what your fixed costs every month are? If you do, you can be nimble enough to make changes when necessary, maximize your money by cutting out excess (not spending on things that don't matter and seeking lower rates on necessities like car insurance, for example) and rebalance your portfolio as you move closer to retirement.
There are many paths to wealth, but you can't know what they are if you don't take the time to plan. What are your plans for achieving wealth?
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