Part 6 - Mindset Hacks to build online wealth & keep it

Investing and Managing Your Wealth: Becoming Truly Wealthy

Once you have established a firm financial foundation or put aside a little money, it is time to learn to invest. Many first time investors fall into the trap of waiting, and waiting until they “have enough.” The first thing you have to do is nix that notion, right now. You will find out by reading the tips that even measly amounts can add up to great amounts over time.

Others balk at investing because they think “I do not know enough to be a player.” That is right. You do not. The truly wealthy understand how money works and never start sentences with the words “I do not know.” If you do not understand investing and how it works, it is time to start to do the legwork.

Investing 101

The primary focus of investing is making your money work for you instead of working for our money. Many wealthy people have perfected the art of creating their wealth instead of giving a service. Building wealth also means creating wealth that is sustainable and continues to generate even in the event that you are unable to work.

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Learn the difference between having a high income and being truly wealthy. High incomes do not necessarily mean that you are rich, especially if this income comes from only one source.

The myth persists that you can only be truly wealthy if you come into family money or are born into a home of silver spoons, silk sheets and antique furniture. Continue to believe in this myth, and you still have the mindset of the poor.

Many of the middle class believe that a high income job is the end all of their existence and work their butts off to get to a position that pays in five or six digits but end up baffled at how little they have by the time retirement rolls around.

For example, the average high level manager earns $200,000 a year, with benefits but stands to lose that income in the event of layoffs or illness. Although his income earning potential is high, it only comes from one source. Contrast that with a middle level manager earning $50,000 a year. This middle manager, however, rents out properties in the city for another $500,000 and reaps dividends from stocks and bonds for another $100,000 a year. In the event of illness, death or mass layoffs, half of his earning potential is still secure.

The source of the latter’s income is also easily passed on to future generations, securing wealth for the middle level manager’s family.

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Choose your investment goals as these will decide your allocation strategy later on. A broker or brokerage firm can help you decide on what your plans are, as well as help you begin investing.

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Research the different types of investments as well as how risky they are. In general:

? Stocks – you purchase partial ownership of a company and as part-owner, are entitled to annual profits. However, many people buy stock to sell when the price is high, not for dividends. The practice of buying low and selling high is relatively low risk but the potential for reward is governed by market and highly emotional changes. Yes, stock is considered an emotional asset.

? Bonds – bonds are small loans to companies or governments that the investor pays for. They usually have fixed interest rates and are considered very safe and low risk investments. T-bills, municipal bonds and corporate bonds are some examples.

? Mutual fund – this involves pooling money together with other likeminded investors to buy a full portfolio, usually run by firms or money managers. This type of investment is often the starting point for many first-time investors, simply because it provides a more diverse portfolio from the get-go.

? REITS – these are companies that deal primarily with the ownership of real estate and manage a portfolio for you. They have the advantage of being diverse and easy to sell—as well as reduce the headache of managing your own property.

? Other alternatives – Generally these are the high-risk and high reward securities where the payoff can be huge but the risk is high. Real estate, commodities, FOREX, options and futures fall under this category.

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Create an allocation strategy for your savings or income to minimize risk and spread out your investments to guarantee several streams of income versus just one.

Learn about investing and accounting before you start spreading the money around. Consult with brokers or brokerage firm, especially if you have a lot to invest. Take night courses or read investment books to understand what you are getting into.

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For example, you have $100,000 dollars to invest. 35% ($35,000) could go to property or real estate, another 30% for stocks, 10% for venture capital, etc. An allocation strategy helps you maximize your investments and also gives you the ability to indulge in some high-risk behaviour, if you so wish, without losing all your capital. The financial equivalent of putting all your eggs in one basket, such as investing in all one type of equity, is portfolio suicide.

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Support the traditional and explore the new. Opportunities grow with the growth of the Internet and the advent of technology. The Internet is not just a place to go to. The exponential growth of business and the changing face of technology creates more and more investment opportunities for the modern investor, as well as the modern entrepreneur.

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Account for every cent, every nickel, every dime and quarter. The saying goes you never know the value of money until you have to dig around the couch cushions for it. The truly wealthy know that every penny can be put to good use. Money is stagnant only when you want it to be, or when it flies out of your hands.

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Even small amounts matter. Many people say they will invest only when they have x amount, but even a small investment of $1000 can give you great returns in the future. By thinking of returns instead of instant cash or how much you have on hand, you create your wealth through possibilities.

Saving 10,000 a year with a 10% rate of return and seeding that account with an additional 10,000 per year will yield $128,000+ after 10 years. If you start with $5,000, you end up with about $94,000 after said 10 years. That doesn’t count the interest the account would generate for years after.

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Invest your money as early as you can. The true friend of money is always time and the passage of it. The longer money sits and the more interest it collects, the higher the chances that you will reap thousands of dollars in returns.

A great example for this is the 401(k). Many Americans simply cannot wait until retirement and cash it in as soon as they can. But for what? A faster car, a bigger house or in some cases, that giant flat screen TV everyone else has.

Your 401(k) alone is a savings plan you must NEVER touch. Do the math. If you have an annual salary of $100,000 and contribute 10%, with a 50% employer match rate and no salary increases, you end up with $ 741,184.02 in 20 years. Increase the contribution to 12%, with all other factors constant and the amount rises to $889,420.89. Increase the time frame to 30 years and you end up with $2 million.