Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Maximizing Income: 15 Strategies for Accelerated Wealth Creation

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Photo by Karolina Grabowska on Pexels

We’ve gathered the wisdom of successful entrepreneurs and financial experts to reveal their strategies for accelerating wealth accumulation. From focusing on high-leverage activities to applying the 50/30/20 budgeting rule, explore the diverse tactics shared by fifteen professionals, including founders and CEOs, on how to maximize income and expedite wealth building.

  • Focus on High-Leverage Activities
  • Diversify Your Income Streams
  • Live Beneath Your Means
  • Invest in Real Estate
  • Turn Passions Into Online Business
  • Leverage Offset Mortgages with Stoozing
  • Build a Collaborative Business Model
  • Pursue Passionate Side Hustles
  • Specialize in In-Demand Niches
  • Invest Earnings in Business Ventures
  • Hire a Specialized Tax Specialist
  • Automate Savings to Investment Transfers
  • Document Achievements in a Brag Book
  • Combine Education with Financial Investing
  • Apply the 50/30/20 Budgeting Rule

Focus on High-Leverage Activities

The best way to maximize your income and expedite the process of building wealth is to focus on your highest-leverage activities and outsource everything else. When you’re doing everything yourself, you can only do so much. But when you delegate as much as possible, you can focus on your core competencies and grow your business faster. This is something I’ve learned the hard way. In the past, I used to do everything myself.

But as my business grew, I realized that I was spreading myself too thin. So instead of trying to do everything, I hired people to do the things I didn’t enjoy or wasn’t good at. This allowed me to focus on my strengths and grow my business faster. For example, I used to spend a lot of time writing blog posts and creating content. But now I have a team of writers who do that for me. This has freed up a lot of my time and allowed me to focus on marketing and growing my business. — Matthew Ramirez, Founder, Rephrasely 

Diversify your Income Streams

One effective approach I’ve used and recommend is diversifying your income streams. By expanding your sources of income beyond a single stream, you can create a more stable and potentially higher-earning financial foundation. Explore avenues such as investing in stocks, real estate, or offering freelance services.

One way I diversified my income streams was through investing in stocks. I researched and identified companies with strong growth potential and invested a portion of my savings in their stocks. Over time, as the companies performed well and their stock prices increased, I earned capital gains and dividends.

This additional income from my investments complemented my primary source of income and contributed to building wealth. By regularly monitoring the market and making informed investment decisions, I was able to maximize my earnings and accelerate my financial goals. — Sacha Ferrandi, Founder & Principal, Source Capital

Live Beneath your Means

Eschew lifestyle creep, which can hamper you from building wealth. Instead, live beneath your means by comparison shopping, creating and sticking to a budget, and funneling savings, raises, and additional monies received into an emergency fund, savings vehicles, and investments.

For example, comparison shopping for your auto and home insurance can save you hundreds of dollars a year. The same goes for negotiating interest rates with credit card companies and rates for other services. Instead of spending that extra money, boost your savings account or open a CD account.

If your employer offers a 401(k) plan, build your wealth by increasing your contribution to it whenever you receive a raise. Be sure to take advantage of the maximum amount if your employer offers a 401(k) match. — Michelle Robbins, Licensed Insurance Agent, Clearsurance.com

Invest in Real Estate

Making real estate investments became my cornerstone strategy for building substantial wealth. Strategically acquiring properties in prime locations and astutely capitalizing on market trends paved the way for a transformative financial journey. Through shrewd decision-making, I cultivated a stream of passive income from rental properties and witnessed significant appreciation in property values over time. The enduring nature of real estate investments proved to be a resilient and effective avenue for wealth accumulation.

By leveraging the power of property ownership, I secured a reliable income source and tapped into the wealth-building potential inherent in real estate. This strategic approach allowed me to navigate the complexities of the real estate market, aligning my investments with long-term growth prospects and contributing significantly to the acceleration of my overall wealth-building objectives. — Bill Lyons, CEO, Griffin Funding

Turn Passions into Online Business

I developed my personal finance site into a thriving business that has been instrumental in helping me build wealth. After paying off my student loans, I launched the site to help other millennials manage money by sharing the frugal tips and repayment strategies that worked for me.

Years later, My Millennial Guide now earns steady revenue through affiliate partnerships and digital consumer banking offers relevant to my audience. I’ve built a sizable audience by providing quality and engaging money advice for free.

My own journey to financial freedom after conquering student loan debt has proven firsthand how lucrative launching an online business around your passions can be. The flexible income from My Millennial Guide provided the runway to leave my corporate job and focus full-time on site growth.

Now, rather than relying on a single income source, multiple automated revenue streams from this one company allow me to maximize earnings while making an impact by sharing financial advice. The wealth-building opportunities entrepreneurship provides are limitless.

I’m proud that the free resources and recommendations I’ve shared on My Millennial Guide have empowered thousands toward financial freedom, while also securing my own prosperous future. Turning my purpose into a business became the ultimate wealth vehicle. — Brian Meiggs, Founder, My Millennial Guide

Leverage Offset Mortgages with Stoozing

A pivotal strategy in my journey to Financial Independence was leveraging an offset mortgage with ‘Stoozing.’ This method, while requiring discipline, has the potential to drastically lower mortgage payments and accelerate wealth accumulation. Taking advantage of 0% interest credit card offers, I redirected these funds into an account linked to my mortgage. This not only reduced the mortgage balance but also minimized interest expenses significantly.

The essence of Stoozing lies in its ability to turn credit into a tool for savings. With over $100,000 deposited from credit cards, my mortgage interest payments plummeted. This approach demands meticulous management to clear the credit card balance before the 0% interest period expires. By doing so, I could fast-track my path to financial freedom by a decade, demonstrating the power of innovative financial strategies in wealth building. — Shane McEvoy, MD, Flycast Media

Build a Collaborative Business Model

To make more money and get rich faster in the legal field, it makes sense to encourage cooperation and build a group law firm instead of a solo practice. Lawyers with different types of skills can work together in collaborative law firms. Because they have different skills, their members provide a range of legal services.

Collaboration allows firms to offer more services, which speeds up growth. When the team is more diverse, the firm can assist more clients and handle more complex legal cases. Working together can bring in more money and help individuals get rich faster. Help desk workers and lawyers share computers, filing cabinets, and office space in a collaborative law firm.

By using the same resources, firms may be able to reduce costs and operate more efficiently. Collaborative lawyers can retain more of their earnings by cutting down on individual expenses. You can get rich faster and make money through smart investments if you know how to manage your finances well. Lawyers can become leaders in their field by focusing on their expertise if they work together. People with specific legal needs should choose this firm because it specializes in those areas of law. Dominating a niche might enhance your legal reputation. Wealthy individuals are drawn to the firm because it has a large market and charges a premium for its specialized services.

Collaborative law firms can showcase their array of services and lawyers’ expertise by representing themselves as a one-stop shop for all your legal needs. This branding strategy makes the firm stand out in the competitive legal market. Effective branding positions the company as an authority, which attracts more clients. As more clients and business opportunities arrive, you make more money and build your wealth. — Martin Gasparian, Attorney and Owner, Maison Law

Pursue Passionate Side Hustles

What I have learned is that as you grow in your career and acquire new skills, this will help you to think about other avenues to travel to bolster your income. Take, for instance, I always wanted to be an adjunct professor, but it was a true process. It did not happen overnight. It took time. We can’t rush the process because once we get there in a hurry, then we can’t stay there. The goal is to get there and have the foundation to remain. Continue Reading…

Managing a Windfall: Sudden increases in Net Worth and how to handle them

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Image courtesy Pexels/Tima Miroshnichenko

By Devin Partida

Special to Financial Independence Hub

The initial excitement of suddenly receiving an inheritance, lottery win or large bonus is palpable, presenting what seems like endless possibilities. However, this euphoria gives way to the daunting reality of managing significant amounts of money.

You face complex decisions that involve managing your new wealth responsibly and planning for your future in ways you might not have considered before. This transformative moment calls for careful consideration and strategic financial planning to ensure your sudden wealth leads to long-term security and success.

The Reality of Sudden Wealth

Many people believe sudden wealth is a one-way ticket to lifelong happiness, but the reality is far more complex. Despite the number of U.S. adults in the upper-income tier rising from 14% in 1971 to 20% in 2019, managing significant financial resources introduces many new challenges.

You might think money will solve all your problems, but it often brings issues, including increased responsibility, potential isolation and the need for meticulous financial planning. Instead of viewing wealth as a simple solution, recognize it as a valuable tool requiring savvy management to benefit your life. This approach ensures you handle your finances wisely, considering the intricate balance between enjoying your wealth and maintaining it for the future.

Understanding the Psychological Impacts

When you receive a sudden windfall, confusion and stress quickly cloud the initial rush of joy as you face unexpected financial decisions. People sometimes refer to this whirlwind of emotions as “sudden wealth syndrome” — a phenomenon that can lead to anxiety, poor judgment and hasty financial decisions.

Taking deliberate steps is crucial to maintaining emotional stability. They include the following:

  • Pause and allow yourself time to adjust
  • Consult with a financial advisor and tax expert
  • Seek support from professionals or support groups

These help you manage your new circumstances wisely and guarantee you make the most of your windfall without emotional turmoil.

Practical steps to manage a Windfall

Create a budget tailored to your new financial situation to manage a sudden windfall adeptly. Start by calculating your net worth to gain a clear understanding of where you stand money-wise. Before making any major decisions, place your funds in a temporary, safe location like a high-yield savings account to ensure they remain secure while you explore your options.

Additionally, take the time to educate yourself on financial management and investment strategies. Enhancing your knowledge in these areas will empower you to make informed decisions that align with your long-term financial goals. This proactive approach will help you maximize the benefits of your newfound wealth.

The Importance of a Structured Financial Plan

A comprehensive financial plan is essential to manage and sustain your wealth effectively. Harness the power of technological advancements like AI and machine learning, which can predict upcoming financial trends and assess investment risks precisely. Moreover, seek the expertise of professional financial advisors who can tailor a plan specifically suited to your unique needs and goals. Continue Reading…

Inflation is getting to retirees and some pre-retirees, Fidelity survey finds

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2024 Fidelity Retirement Report (CNW Group/Fidelity Investments Canada ULC)

More than four in five (82%) Canadian retirees say inflation is having a negative financial impact on them in retirement, according to a just-released report from Fidelity Investments Canada ULC.

The 2024 Fidelity Retirement Report also found that 43% of pre-retirees say the rising cost of living is delaying when they think they will retire. In addition, 59% of retirees report helping their non-student adult children in retirement: both with day-to-day expenses as well as big-ticket items like home purchases, weddings and even education savings for their grandchildren.

“It comes as no surprise that retirees are feeling the bite of inflation. Other macroeconomic issues such as a slowing economy, rising rates and volatile markets are also common factors that have negatively affected retirees financially,” says the report, “Pre-retirees are also feeling the pinch. We find that compared with last year, a larger share of pre-retirees are considering delaying their retirement in response to the rising cost of living.”

As you can see from the graphic below, the percentage of pre-retirees who plan to retire later than originally expected rose from 37% in the 2023 survey to 47% in the new 2024 edition.

While less than a third of those already in retirement have worked in some capacity once they have left full-time work, most pre-retirees anticipate that they will work at least part-time once they’re retired, according to the report.

While Fidelity cites rising inflation as one reason for this trend, it also says “most pre-retirees would like extra money for recreational purposes.” Further, the report says, “We also find that there isn’t a clear relationship between those working in retirement and their level of household income, suggesting that in general, many Canadians may be working or anticipating working to maintain a higher material standard of living, rather than just to keep up with the rising cost of essentials.”

 

Continue Reading…

Capital Gains Tax Increase? This new Calculator helps Corporation and Trust accounts

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By Ted Rechtshaffen, CFP

Special to Financial Independence Hub

As you may know, the recent Federal Budget announcement had a few important changes that can have an impact for some, but certainly not all.  The most discussed has been the increase to the capital gains tax.

The most directly impacted are those with investments in a Corporation or a Trust.  Not only will they face an increase in taxes on every dollar of capital gains (not just after $250,000 as it is on personal accounts), but this is forcing some important near term decision making.

For many people in this situation, the question for investments with unrealized capital gains is whether to hold those securities longer term or sell them prior to June 25th to avoid the new higher tax rate.

To help with that choice, we have just launched a new calculator aimed at this group.

It is free for anyone to access.  They don’t have to provide any details.

The calculator can be found at New Capital Gains Tax – Sell or Hold Calculator – TriDelta Private Wealth

Continue Reading…

Private Equity Returns

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Image via Pexels/Markus Winkler

By Michael J. Wiener

Special to Financial Independence Hub

One of the ways that investors seek status through their investments is to buy into private equity.  As an added inducement, a technical detail in how private equity returns are calculated makes these investments seem better than they are.  So, private fund managers get to boast returns that their investors don’t get.


Private Equity Overview

In a typical arrangement, an investor commits a certain amount of capital, say one million dollars, over a period of time.  However, the fund manager doesn’t “call” all this capital at once.  The investor might provide, say, $100,000 up front, and then wait for more of this capital to be called.

Over the succeeding years of the contract, the fund manager will call for more capital, and may or may not call the full million dollars.  Finally, the fund manager will distribute returns to the investor, possibly spread over time.

An Example

Suppose an investor is asked to commit one million dollars, and the fund manager calls $100,000 initially, $200,000 after a year, and $400,000 after two years.  Then the fund manager distributes returns of $200,000 after three years, and $800,000 after four years.

From the fund manager’s perspective, the cash flows were as follows:

$100,000
$200,000
$400,000
-$200,000
-$800,000

So, how can we calculate a rate of return from these cash flows?  One answer is the Internal Rate of Return (IRR), which is the annual return required to make the net present value of these cash flows equal to zero.  In this case the IRR is 16.0%.

A Problem

Making an annual return of 16% sounds great, but there is a problem.  What about the $900,000 the investor had to have at the ready in case it got called?  This money never earned 16%.

Why doesn’t the fund manager take the whole million in the first place?  The problem is called “cash drag.”  Having all that capital sitting around uninvested drags down the return the fund manager gets credit for.  The arrangement for calling capital pushes the cash drag problem from the fund manager to the investor.

The Investor’s Point of View

Earlier, we looked at the cash flows from the investment manager’s point of view.  Now, let’s look at it from the investor’s point of view.

Suppose the investor pulled the million dollars out of some other investment, and held all uncalled capital in cash earning 5% annual interest.  So the investor thinks of the first cash flow as a million dollars.  Any called capital is just a movement within the broader investment and doesn’t represent a cash flow.  However, the investor can withdraw any interest earned on the uncalled capital, so this interest represents a cash flow.

The second cash flow is $45,000 of interest on the $900,000 of uncalled capital.  The third cash flow is $35,000 of interest on the $700,000 of uncalled capital.  The fourth cash flow is a little more complex.  We have $15,000 of interest on the $300,000 of uncalled capital.  Then supposing the investor now knows that no more capital will be called and can withdraw the remaining uncalled capital, we have a $300,000 cash flow.  Finally, we have the $200,000 return from the fund manager.  The total for the fourth cash flow is $515,000.  The fifth cash flow is the $800,000 return.

The cash flows from the investor’s point of view are

$1,000,000
-$45,000
-$35,000
-$515,000
-$800,000

The IRR of these cash flows is 10.1%, a far cry from the 16.0% the fund manager got credit for.  We could quibble about whether the investor really had to keep all the uncommitted capital in cash, but the investor couldn’t expect his or her other investments to magically produce returns at the exact times the fund manager called some capital.  The 10.1% return we calculated here may be a little unfair, but not by much.  The investor will never be able to get close to the 16.0% return.

Others have made similar observations and blamed the IRR method for the problem.  However, this isn’t exactly right.  The IRR method can have issues, but the real problem here is in determining the cash flows.  When we ignore the investor’s need to be liquid enough to meet capital calls, we get the cash flows wrong.

Conclusion

Some argue that we need to use the IRR method from the fund manager’s point of view so we can fairly compare managers.  Why should investors care about this?  They should care about the returns they can achieve, not some fantasy numbers.  Any claims of private equity outperformance relative to other types of investments should be taken with a grain of salt.

Michael J. Wiener runs the web site Michael James on Money, where he looks for the right answers to personal finance and investing questions. He’s retired from work as a “math guy in high tech” and has been running his website since 2007.  He’s a former mutual fund investor, former stock picker, now index investor. This blog originally appeared on his site on Feb. 15, 2024 and is republished on the Hub with his permission.