Yesterday someone asked me what was the quickest way to become a millionaire?
Although getting rich quick is not recommended because it’s usually accompanied by high risk of loss, I want to talk about something related to it that is important for you to know.
First, let’s talk about what creates wealth?
When creating wealth, the one thing that matters the most is the rate at which you compound money.
It’s not all about how much money you have to start with.
Compounding grows your money and creates additional money.
Money begets more.
Let’s come back to this.
There’s a big misconception about money that I see talked about all the time.
It’s repeated in blogs and social media posts because it is how some people THINK wealth is created.
The misconception is you have to be a cheapskate to become rich.
They tell you to focus on not spending instead of compounding.
It’s actually the compounding that is the most important.
By that I mean what rate can you compound at?
Warren Buffett, who became one of the richest men on the planet, grew Berkshire Hathaway at about a 21.6% average annual compounding rate.
He became a billionaire along with many of his shareholders.
Twenty-one percent is considered an extraordinary long-term compounding rate for a diversified portfolio, yet many individual small businesses have grown at that rate or higher.
Certainly some companies that became the largest publicly-traded (on the stock market) companies today grew at an even higher rate from their inception.
Long-term the stock market has averaged around 10%.
This is my point: wealth building is really about compounding, not about hoarding money.
So next time you’re told to not spend money and live in a shed (really), don’t buy into it.
Make smart spending choices, yes, but don’t miss out on life by living like a miser.
You don’t have to and you can still become wealthy.
Pay attention to the compounding rates that are possible around you.
The stock market, residential real estate, commercial real estate, commodities, oil, technology, green energy, agriculture, precious metals, entertainment, virtual reality, your own business.
There are many places to invest.
Start noticing where growth is because growth will likely lead to compounding.
Ask yourself, what’s growing fast and is likely to keep growing fast for a long time?
Is there a product or service you use a lot?
Is there a change in technology (like maybe electric cars) that is just beginning?
If you can identify a high growth rate that has a long time (cycle) to compound, now you’re talking about creating wealth.
It’s likely right around you and something that you’re spending money on or thinking about spending money on.
Food delivery. Escape rooms. Subscription boxes.
New ideas or old ones that are being “disrupted”.
Financial services. Vacation stays. Anti-aging products.
There are companies providing these new technologies that you can invest in.
There are so many wealth building opportunities everywhere, you just have to start recognizing them and being aware.
So back to money begets more…
Money creates money and that money creates even more money.
The wealth building concept behind it all is the rate at which you can safely and consistently compound.
Focus on that and you’ll shorten the time it takes to become wealthy.