Building wealth demands time, patience and discipline — if you’re not born into it. But it also can require using specific strategies that can help you get there faster.
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Wealthy individuals are using several techniques that can be accessible to most people and that you can use, too, according to experts.
“Earn, save, grow — repeat,” said Samir Shergill, co-founder of financial tech company Highbeam. “Building a business, like building personal wealth, is a marathon and not a sprint. Being disciplined and patient allows you to ride the inevitable ebbs and flows while giving you the flexibility to invest in areas of opportunity as they arise.”
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Think of Your Personal Finances as a Business
According to Shergill, this means you have to not only focus on how much money you earn but also on how much you spend.
“After all, it’s your bottom line (profit), not your top line (revenue), that will allow you to build wealth and invest for the future,” he said.
In turn, track and forecast your cash flow regularly — knowing where and how your money comes and goes and identifying areas of overspend is critical.
Spend Within Your Means and Reduce Your Reliance on Debt
In today’s high-interest environment, do whatever you can to avoid new or unnecessary debt, according to Shergill. For instance, if you have a high or variable rate loan — especially for something like credit cards or car loans — do whatever you can to reduce your debt exposure before investing anywhere else, he added.
Build a Financial Team
Rich people also have financial teams, which may include CFPs, CPAs and lawyers.
“The key is to have a group of professionals that they can rely on as their finances grow and become more complex,” said Jay Zigmont, Ph.D., CFP and founder of Childfree Wealth. “When you are first starting out, you may be able to manage everything yourself, but over time using professionals can help protect you from ‘unknown unknowns’ and optimization strategies that may be overlooked.”
Consider Maxing Out Your Roth IRA
Although not tax deductible, the capital gains — if you refrain from early withdrawals — are tax free.
“Imagine beginning at the age of 25, saving $6,500 annually for 35 years and earning 6% annually in inflation-adjusted returns,” said Joel Griffith, former professional trader and economic research fellow at the Heritage Foundation. “At 60 years old, that Roth IRA is worth more than $700,000 in today’s dollars — and all the income from capital gains on this account is tax free.”
Consider rolling over your traditional IRA account to a Roth account. While you will pay federal income tax on the IRA rollover amount, future gains will accrue tax free, he added.
Have a Long-Term Perspective
When we talk about a long-term perspective, it means having the patience to weather short-term market fluctuations and focusing on the potential for growth over several years or even decades, said Avis Berg, CIO at Berg Capital.
Real estate, for instance, can be a great example here, he said.
“Historically, real estate tends to appreciate over the long term, making it a suitable investment for those willing to hold property for extended periods,” Berg added. “Institutions often take a long-term view of investments, and this approach can be invaluable for retail investors as well.”
Berg added that patience can be a key factor in wealth accumulation. Avoiding impulsive decisions and staying focused on your long-term financial goals can pay significant dividends over time.
He also noted that these strategies are not exclusive to the rich, and they can be adapted to suit the needs and circ*mstances of everyday individuals.
“By taking a page from the institutional playbook and applying these principles in your personal finance journey,” he said, “you can increase your chances of achieving financial success in 2024 and beyond.”
Effective Tax Planning
This is a cornerstone of wealth management for the rich, according to Taylor Kovar, CFP, CEO and founder of Kovar Wealth Management.
This involves utilizing tax-advantaged accounts such as IRAs and 401(k)s and strategies such as tax-loss harvesting, charitable giving and trusts to minimize tax liabilities, he explained.
“Regular investors can also benefit from tax-efficient investing,” he said.
For instance, maximize contributions to retirement accounts, consider the timing of selling assets to manage capital gains, and explore charitable donations to reduce taxable income.
Zigmont echoed the sentiment, saying the goal is to save money on taxes across decades, not just this year.
Don’t Stop Investing
Rich folks are all about investing, and in 2024 they’re still doing it, but smarter.
“They’re saying, ‘Let’s put 60-70% into stocks, 10-20% in bonds and another 10-20% into real estate or startups,'” said Jeff Rose, CFP and founder of Good Financial Cents. “That’s diversification, my friend. And it’s not just talk. Check out the S&P 500’s average annual return of around 10% over the past 90 years.”
Diversification
As Berg noted, one of the foundational principles institutional investors adhere to is diversification — a strategy involving spreading investments across various asset classes to reduce risk.
“For everyday investors, this means not putting all your eggs in one basket,” he said. “Diversifying your portfolio with a mix of stocks, bonds, real estate and alternative investments can help mitigate risk and improve long-term returns.”
Kovar also argued that even with more modest means diversification is achievable and individuals can also consider low-cost index funds or ETFs to gain exposure to a broad range of assets.
He added, “Real estate investment trusts (REITs) and mutual funds that focus on alternative assets can also be accessible options.”
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This article originally appeared on GOBankingRates.com: 8 Strategies Rich People Are Using in 2024 — and How You Can, Too
