Wealthy people may appear to have financial magic or luck that ordinary people don't have. However, most of their strategies are not that complex.
The wealthy may have more money than you, but through the power of compound interest and other strategies, anyone can build wealth if they learn how.
Read 7 steps to start building wealth like the millionaires in 2024.
1. Diversification of investments
According to Kwan Hatai, CFP and certified financial therapist at Epiphany Financial Therapy, smart investing and portfolio diversification were hallmarks of wealth-building strategies over the past year. “This approach is rooted in the principle of not putting all your eggs in one basket and involves diversifying your investments across different asset classes to reduce risk while capitalizing on growth opportunities.”
For those looking to imitate this in 2024, Mr. Hatai recommends that depending on the risk, you can start investing with a combination of financial products such as stocks, bonds, and real estate, or invest in cryptocurrencies or ESG (environmental, social, He suggested exploring new areas such as governance (governance) and investments. Generosity and financial goals.
2. Focus on growth rather than profits
Hatay said focusing on long-term growth over short-term profits has always been a hallmark of wealthy investors as well. “[The rich] We focus on assets and ventures that promise sustainable growth beyond market volatility. ”
She encouraged a patient and focused investment approach that focused on interest growth over years or decades rather than immediate wins.
3. Tax-advantaged accounts
Hatai pointed out that leveraging tax-advantaged accounts is another strategy that wealthy individuals are effectively using to strengthen their financial position. “By maximizing contributions to retirement accounts such as IRAs and 401(k)s, individuals can significantly reduce their taxable income while promoting investment growth in a tax-efficient manner. .”
To adopt this strategy, you need to understand the different accounts available and the benefits of each, and align your contributions with your broader financial plan.
4. Try house hacking
Larry Zhong, a personal finance expert and founder of financial startup YieldAlley.com, says the wealthy in 2023 will adopt strategies such as house hacking to eliminate housing costs and significantly increase their investment capital. said.
“This approach involves purchasing a multi-unit property, living in one unit, and renting out the other units to cover the mortgage. This effectively reduces the cost of living. , your savings rate will improve,” he said.
5. Invest in CDs and money market funds.
Another strategy used by wealthy individuals is to park their money in higher-yielding CDs or money market accounts.
“Savings and CD rates will skyrocket in 2023 and remain high. Many wealthy individuals are taking advantage of this by regularly saving and investing a portion of their income in money market funds and CDs. ,” Zhong pointed out. “With interest rates remaining high in 2024, this strategy will continue to be a favorite of wealthy individuals.”
6. Start early
It depends on when you start building your wealth, but one piece of advice that not everyone accepts is to start early, says Alex Skijas, owner of True Life Wealth Management. “Rich people started early. Some people have inherited property, but people who have become financially independent by saving and investing their own money are the ones who have made the most of their lives without ever playing the stock market game. We started early and kept the same strategy.”
The biggest mistake you can make is “delaying your actions,” he said, adding: “Start now to save, invest and develop a long-term financial strategy.”
7. Stay the course
Finally, Skijus pointed out that wealthy people continue to build wealth by staying on track with their financial planning and investments.
“Wealthy people understand that the economic impact of things like presidential elections and geopolitical turmoil is completely separate from the health of the stock market and long-term growth.”
Therefore, they do not deviate from the strategy of building wealth, buying stocks and holding them for the long term.
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