What is the Quickest Way to Wealth?

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, spending less than you earn, or live a meager life, instead of compounding.

It’s actually the compounding that is the most important.

By that I mean what is the rate at which you can compound?

Warren Buffett, who became one of the richest men in the world, grew his company, 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%.

Wealth Building is About Compounding

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.

How? Three ways.

1. 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.

2. Be a good saver

A good goal is to save at least 10% of your income and “pay yourself first”, meaning put the 10% into your savings account, then live off of the rest of your monthly income.

Chances are, you won’t even miss the 10% you saved. If you can save more than 10%, do it! It will only help you reach your goal of becoming a millionaire faster.

3. Get started investing

You have to invest and grow it, so the money can compound and earn more for you. Wealth is a result of making the right choices and decisions. Two people making the same amount of money can end up in two very different places, depending on the choices they make.

Let me show you what I mean.

In this example, two women are each earning $40,000 per year, but are making different choices with their money that will lead them to a very different result.

Woman A saves 2.8% annually (the average savings rate in America) or $1120 per year, for a total of $33,600 saved over 30 years. Each year she puts it in her bank account, earning 2% annually.

In 30 years, her money will grow to $48,374.

Woman B saves and invests $5500 per year (maximum allowed if you are under age 50) in an Individual Retirement Account (IRA) which averages a 10% return (the long-term historical return) in the stock market for 30 years.

In 30 years, her money will grow to $1,091,160.

To summarize, in 30 years, Woman A will have $48,374 and Woman B will have $1,091,160, yet they both earned the same amount of money!

The conclusion is, it’s not about how much money you make, it’s about making the right choices, decisions and actions that determine whether or not you will achieve financial freedom.

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 make your million.