Real wealth is built when you own assets that produce an income and building wealth is different from building traditional savings. Unless you win the lottery or cash out on an inheritance, serious wealth-building can require a great deal more risk than simply stashing away money in your Tax-Free Savings Account for a rainy day.
If you want your piece of the wealth pie, here are the most common strategies designed for people that don’t have gobs of money to begin with.
Invest in real estate
Becoming a real estate investor, whether it’s residential or commercial, requires a lot of money and effort. If you go it alone, you’ve got to come up with the down payment for the property, qualify for the mortgage and manage tenants (unless you hire a property manager). And if you don’t get your math right, your costs could eat up all the rent you collect and then some.
Still, real estate investing can make you wealthy if you do it right — as long as all the following conditions are met. First, your rental income needs to cover all your costs and then some. Personally I make sure my rental properties produce a minimum of 15 per cent return, or it’s not worth the risk. My money mentor, who is an experienced real estate investor, coached me towards that number. Second, you’re going to need to buy in areas that are growing in value, so that you benefit from appreciation. If you’re not sure about the math or where to buy, hire a broker to help.
Start — or buy — a profitable business
The operative word here is “profitable.” Not all business ideas will make money and the best way to tell if yours will is to test the market before you invest too heavily.
For example, if you’re thinking of opening a coffee shop, survey the neighbourhood to see if there’s any interest in having another local java stop. If you’ve dreamt up a new piece of climbing gear, create samples of your product and get feedback before rushing to mass production. If you’re about to create an e-learning course, ask your proposed audience how and what they want to learn. If no one likes your idea, do not proceed!
The bottom line with business is this: If your idea is good because it solves a real need in the market and you can produce it for the lowest possible cost without compromising the quality, you’re probably going to make money.
Sell your intellectual property (IP)
If you’re a writer, singer, inventor or consultant, you might have an idea or a piece of work that could potentially produce royalties into the future. Certainly, you can market your own work. If this is you, you might benefit from the help of an agent that specializes in the sale of IP.
Own income generating investments
Make sure that a portion of your investment portfolio (how much depends on your risk tolerance) produces dividends (from stocks) and interest (from bonds). You are entitled to this steady income in exchange for taking the risk of owning these assets. Many investors choose to reinvest the income in additional shares or bonds, or allow the cash to accumulate with the intention of investing that money elsewhere.
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You’ve probably heard the phrase “passive income” in association with these wealth-building ideas. But, let’s face it, they all require taking risks, which means they aren’t really “passive.”
However, what all of them do do is put money in your pocket as your reward for taking these risks. And when you layer these strategies together, so long as each is profitable, you’ll really start building wealth.