Do you dream of getting rich? For many of us, the pursuit of becoming financially independent is our overall life aim. Yet while striking it rich is undoubtedly a challenge, a far bigger challenge is learning how to stay rich.
A 2016 study by Cornell University found that over half of all Americans will find themselves in the top 10% of earners at least once in their life, while 11% will find themselves in the top 1%. However, very few can remain there, and the turnover in these categories is huge, with 72% of the top 400 earners retaining their position for just one year between 1992 and 2013.
So why are so many people struggling to stay wealthy? It’s because getting rich, and staying rich, are two very different skills which require a completely different way of thinking.
How to get rich
There are many different methods that people use to get rich. The traditional way of working hard in your career, saving your money, and enjoying a comfortable retirement is a clear goal for many Americans. However, it is not always the most effective method for building wealth quickly. That is why there are many different ways to strike it rich, with some of the most common including:
- Be an Entrepreneur / Start your own business: Working hard, building a successful business, and selling it (or going public) is a fantastic way to make yourself a lot of money.
- Investing: Whether you are looking to build an impressive portfolio of stocks and shares or purchasing and developing property, investing is a great way to get your money working for you.
- Work hard and save harder: Focusing on your job and working your way up the career ladder, coupled with frugal living and high savings rate, can help you build up a significant pot of money.
- Real Estate: Start small with a rental property, rehab it, put in some sweat equity and slowly build to another property and bigger properties. Build your fortune with a real estate empire!
How to stay rich
Earning your riches requires some big risks; however, once you have achieved it, staying rich is a different type of challenge. It is only natural that as we become successful at something, the more convinced we are that it is the route to success, meaning we double down on following that same path.
However, this is not the best solution in this case because the narrowing of focus and doubling-down to build wealth is exactly the opposite approach to keeping that wealth. It becomes easy to get complacent when we are successful, which can have devastating consequences when something unexpected sideswipes your business. The COVID-19 pandemic is a prime example; however, throughout history, there have been many downturns that have seen countless people lose their wealth.
That is why in order to stay rich, you need to adopt an almost opposite approach to your business decisions. Instead of the high-risk strategy, you need to start taking fewer risks, and the most important thing to do is to start diversifying your portfolio across a variety of types of assets so that no one "thing" can bring you down.
By spreading your wealth, you will be able to insure yourself against any downturn that might come in sideways and wipe your wealth out. Diversifying does not mean you should stop focusing on your skillset and expert domain, instead, it means taking a portion of your wealth off the table and investing it into a different area.
This could be anything, from investing public and private companies to entering the real estate market. Helping to diversify will spread your savings and ensure that you will not lose your lifestyle no matter what happens.
If the current global crisis has shown us anything, it is the need to recognize that whatever “got you here” is not necessarily what will “keep you here”, so now is the time to take a different approach and retain your hard-earned wealth.