Our job is to advise on the creation and maintenance of people’s wealth. As a result, we have spent countless hours studying high net worth (HNW) individuals. From our experience, we have found the wealthiest individuals to display 6 common habits.
1. They Make Money in Their Sleep
As kids, we are taught that we need a high-paying job to be wealthy. Conventional wisdom suggests climbing the corporate ladder to land a cushy executive job. While aspirational, most people aren’t going to make it there. Even if you do, you reach a point where your corporate earnings plateau.
If your greatest asset is your ability to earn an income – why limit yourself to a salary? Would you buy a house that stopped appreciating in value after 5 years? Even if you plan on owning it for 40 years?
Instead of renting their time for money, HNW individuals make money 24/7. They do this by investing in assets that produce passive income. Some examples include real estate, businesses, dividend-paying stocks, and/or life insurance contracts.
2. They Have Equity
One way to earn passive income is to own a business. Take a look at the Forbes Billionaire List, a majority of it consists of business owners. Now you don’t need to be a billionaire to be wealthy. The point is that once you work for yourself, there is no longer a cap on what you can make.
3. They Play the Long Game
Even the world’s best investors know they can’t predict tomorrow’s stock market. Instead, the best investors win by being patient and having a long-term strategy. By doing this, they let compound interest work its magic.
When investing, patience can act as a counterbalance to irrationality. This is essential as the greatest wealth creation opportunities occur during market corrections. With the luxury of being able to be patient, long-term investors have a competitive advantage. This was something we covered in our article, “How to Capitalize on Today’s Markets” during the stock market declines in March, 2020.
4. They Leverage Other People’s Money
A common misconception is that HNW individuals pay for everything with cash. When in reality, most of their wealth is locked in other investments and is illiquid. So what do they do when investment opportunities arise? Often, they resort to borrowing other people’s money. This could be from financing institutions (such as banks) or finding investment partners. Ultimately, this allows them to make bigger investments and enhance their returns.* One example of this is the bomb shelter investing strategy.
*Note: While leverage may maximize your returns, it can also maximize your losses. Leverage may also impact your ability to borrow in the future. Consult with your financial advisor before implementing any leveraged investing strategy.
5. They Understand Value
This might be obvious, but most HNW individuals are frugal. But don’t mistake this as being cheap. Rather, consider the power of compound interest. At a 6% annual rate of return, $5,000 saved today can grow to over $30,000 after 30 years. So while packing a lunch may feel insignificant, the future value of each dollar can add-up.
Knowing this, HNW individuals look for any opportunity to save dollars today to create future value. The easiest way to do this is to cut costs. This could be as simple as renegotiating a contract or refinancing debt.
6. They Have a Plan
Finally, the wealthiest individuals have a (written) financial plan. Because if your plan is not written down, it doesn’t exist. Unfortunately, 46% of Canadians don’t have a financial plan.
Financial plans addresses complex subjects like taxation, estate planning, and investing. Since our finances are always changing, they need to be dynamic. This is why it’s important to build a flexible plan with your team of advisors.
Want to Learn More?
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