Plan to Grow Rich? Americans’ Success Strategies Analyzed

by Brian Davis on June 4, 2009 | Articles

Wealth Misconceptions Rampant Among Americans

In a recent survey among Americans from all walks of life, more than a third of them reported that they believe they will one day be “rich.” Given a chance to define this slippery term of “rich,” few could agree on a definition: some defined rich as no longer having to work for money, others as no longer having to worry about their personal finances, still others by a specific dollar figure or a material dream (“when I can afford to buy a yacht and sail the Mediterranean”).
Even if they had agreed on one of the definitions above, the threshold for becoming “rich” would still be different for each person: one American might be able to quit their job and live happily ever after on $25,000/year fixed income, while another might not be satisfied with less than $120,000/year.
And then there’s the question of how they would attain these riches. A disturbing 15% of respondents listed inheritance or the lottery as their path to riches (as unlikely a path as can be conceived), while only 9% listed real estate investment, despite its historically strong returns and the high public interest in it. Some respondents listed entrepreneurship as the most likely way they would attain riches, which shares several critical advantages with real estate investment, and proves another statistically promising path to wealth. Another 15% of Americans believe saving money and living frugally are the best paths to riches; while frugality can help prevent loss of assets, it can’t generate wealth in itself, a fundamental fallacy in this widely-held belief (another fallacy – frugality is simply not practiced as often as it is preached, as evinced by national credit card statistics).
Two of the routes to riches listed by Americans do deserve a closer look: entrepreneurship and real estate investment.
Real estate investment and entrepreneurship share two absolutely critical advantages: both allow the investor/owner to leverage small amounts of personal wealth against much larger amounts of others’ wealth, and both have substantial tax advantages. Leveraging one’s money allows someone with limited resources to create a mass of wealth through the careful investment of borrowed funds, which exponentially increases the return potential for the amount of personal funds invested. Likewise, tax benefits may seem a small advantage, but the ability to reinvest 40% of one’s income instead of paying taxes with it means a much faster accrual of wealth. It’s also worth noting that the wealthiest 10% of Americans overwhelmingly achieved their wealth through entrepreneurship or real estate investment (or a combination of the two).
Consider finally that those who invest in a business or in rental lease real estate have already created a vehicle for sustained income even after they stop actually working. The entrepreneur can simply hire a savvy and capable manager to manage his business, and the successful landlord with a few solid rental lease properties can hire a property management firm to manage her properties, allowing them to continue to collect income even though they themselves no longer have to put in long (or any) hours. Those who wait on the lottery, or try to live frugally on salaried income, or invest in traditional securities such as stocks have no vehicle for sustained income, once they no longer wish to work.
Sadly, most of the one-third of Americans dreaming of becoming wealthy will remain dreamers, not rich, but a look at the most statistically reliable avenues for wealth can at least offer a few conclusions:
  • Invest money in tax-advantageous ways
  • Leverage others’ money for your own investments and wealth creation
  • Find investment vehicles that offer not only a strong return, but returns that continue coming back to you indefinitely
  • Use frugality to maximize the amount of money you invest
  • The younger you invest, and the more you invest, the younger you can retire.
Good luck achieving your own dreams of wealth creation, and be aggressive in your approach: the wealthiest 10% of Americans didn’t grow rich by sitting on the sidelines!

Brian is a real estate investor and rental trend analyst, who contributes content to EZ Landlord Forms, an online hub offering rental forms.

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