This Strategy Will Make You Stupid Rich.

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This Strategy Will Make You Stupid Rich

How to build real wealth

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In my opinion, the most common financial advice is bullshit for most people. At least if their goal is to become wealthy before they are sitting in a wheelchair.

It goes something like this:

live below your means, save a part of your income and invest it in the stock market. This way you can expect a return of 8% per year. Compound interest will make you rich in a few decades.
Sounds good, doesn’t it? Yes but also no.

If being rich at 70 is enough for you, then do it. If you would like to be wealthy a little earlier so you can still do something with your money and the freedom it gives you, then read on.

Let me explain what I mean. If you don’t have much money left to invest anyway, this advice conveys the wrong priorities. It works great with a large fortune, but investing $100 a month won’t make you rich.

For this reason, you should divide your asset accumulation into two different systems, to which you pay different amounts of attention depending on the size of your fortune.

Business System vs. Money System

I think it is advantageous to mentally distinguish the following two systems:

  • The income system/ Business system

To be able to invest at all, you first need an income. For most people, that’s their 9–5 job. For entrepreneurs, it’s the profit of their business.
Logically, you should try to achieve the highest possible income if you want to become rich. There are very well paid 9–5 jobs, but they all have one big disadvantage compared to a business: you work your fixed hours and get a fixed salary. You basically exchange time for money. Since you can’t work infinitely, your income is limited. This is not the case with a business.
With a business, your income is not limited as it is not directly linked to your working hours.

Do you want to start a business? In the beginning, a hybrid strategy is probably the best. Especially if your business is not yet generating enough to live on, you should stay in your job and run your business as a side hustle.

Fortunately, today it is easier than ever to build up a business on the side. After all, we have one big advantage over previous generations: the Internet. There are endless opportunities to make money online. If you really want it, you will surely find a way. For example, really hitting the gas here on Medium can be one way.

2. The Money System/ Investments

Your money system/ your investments also bring you additional money. You use the money you earned through your job or business and make it work for you. Passive income, so to speak. Depending on how well you know how to invest and how high your risk tolerance is, you can earn a return on your earned money. The average yearly return of the stock market is about 8%.

But beware! In the long term, the stock market always rises but nothing is guaranteed and you could also lose money.
The same applies to other investments such as crypto, real estate, or commodities.

3. The Right Priorities

Compound interest is powerful, no question. However, it won’t make you much money until you already have a decent amount in your monetary system. Unfortunately, even the most sophisticated investment strategy won’t make us rich quickly if we invest only $100 a month.

Therefore, it is extremely important to set the right priorities. First, you need a good income. So if you don’t have a big fortune yet, your main focus should be to increase your income. Ideally with a business that allows you to decouple your income from your working hours.

Using a side hustle, for example, you can achieve what your investments with a low savings rate would have taken many years to achieve in a short period. In addition, you boost your monetary system enormously, so that compound interest can work harder for you in the future.

The larger your assets are, the more worthwhile it is to take a closer look at your money system and optimize it.

4. Income first.

A goal of many people, which I also pursue, is financial freedom. If your investments yield so much every month that you can easily cover your living expenses, you have reached this goal. Theoretically, you would never have to work again.

Of course, how much wealth you need to be financially free by definition depends heavily on your desired standard of living.

For example, you want a good standard of living that costs you $10k a month. If we assume an average return of 8% per year, you would need $1.25 million.

Summary

The standard advice from financial gurus probably won’t make you rich. Compound interest is powerful, but with a low savings rate every month, it will take a long time until it will make you a substantial amount of money. That’s why you should focus on your income first. Because only with a good income and a decent fortune the compound interest really gets going.

CONTRIBUTED BY Peter White

Read More: Eight Mindset Shifts That Will 10x Your Success in Life

Read More: 7 More Money Cheat Codes

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