I have been reading a ton of books, blogs about how people have amassed an incredible net worth over $10M+ (in the top 1% NW in US).
It’s incredibly hard to get to $10M NW club. Even if a person makes $1M in salary and is able put aside $400K / year and invest diligently, it will take 15 years to grow to $10M NW. Most people don’t have $1M salary.
Achieving $10M NW is a lot about having the right mindset, setting and executing long term goals, having perseverance and not giving up.
Here are the the 7 habits to grow NW to $10M+:
1. Focus on high income skills:
There’s a lot of talk in the web about passive income. Passive income is definitely needed to increase wealth longer term but one thing I found consistently among HNW individuals is they have skills that generates them high active income. I quantify high income as $300K+/year. The $300k could be a combination of cash + unrealized gains. Here are some examples:
- Entrepreneurs/CEOs/Managers that run a successful business:- Their expertise is executing vision, managing people and able to run a high performance Team.
- Real estate investors in Apartment buildings:- Investors that specializes in acquiring Apartment buildings (50+ units), typically below market value, renovate/fix them and rent them out. Having 50+ units on each building allows such investors to increase cashflow very easily. Example: Raising rent by $100 each unit translates to $5K increase in cashflow per building.
- Stock/Quant Traders:- Successful Stock market traders. Keep in mind that 95% of traders loses money.
Other examples could be Athletes, Celebrities, Doctors, Lawyers, Specialized Engineers.
Summary: Acquire high income skill(s) that can generates $300k/year.
2. Take More Risks:
To exceed $5M NW, one needs to take massive risks. These are actions that majority of the population would consider risky. Examples of such risks:
- Taking bets on risky stock: Stocks such as TSLA, SQ in the past 3 years have gone up 3-6 times. For example, a $50k Investment in $TSLA stock in 2018 is worth $300k today. Similar investment in $SQ is worth $150K.
- Investing in Crypto: Many people considers Crypto such as BTC, ETH very risky. But, some people have amassed massive fortunes in Crypto currency.
- Starting a business or Joining a Pre-ipo company: There are many stories of early employees becoming multi-millionaires after a company IPOed.
Some people buys lotteries and win million dollars overnight, but that is not sustainable.
Summary: Put aside a percentage of your income and invest in taking more Risks.
3. Live Below your means:
Most Wealthy individuals lives below their means and delay gratification. It’s important to preserve capital/cash allowing one to invest and grow their NW.
Even after achieving $5M+ NW, people continues to live well below their means.
The trinity study shows one can live off 4% of their NW forever, but, UHNW (Ultra high Net worth) individuals lives on 1-2% of their NW.
Summary: Live well below your means and delay gratification
4. Increase Passive income:
It’s difficult to build long term wealth when one’s income is tied with the number of hours they are working. Human beings have a finite number of hours and we will run out of hours we can put in.
One needs to find ways to increase passive income. I define passive income as one having to put a max of 10 hours per month. The 3 examples of passive income sources are:
- Stock dividend:– Invest in blue chip companies such as MSFT, Apple, JNJ, ETFs etc. that a track record of paying & increasing dividends over past 20+ years.
- Rental income:– Invest in A or B+ class neighborhoods. Rental income can be passive income if one avoids investing in crappier neighborhoods and focuses on A or B+ neighborhoods. These would lead to lower yields but sustainable ROI.
- Online recurring income:- Writing Books, online courses on topics that will be relevant for 5+ years and generates recurring revenue. This path needs a ton of initial investment but later on, these tend to become passive recurring income.
Summary: Start early and slowly build up passive income.
5. Lowering Taxes
In addition to focusing on income, another way of keeping more money is to lower taxes. Some strategies of lower taxes:
- Move to a state (or province) with lower Taxes: If one is working remotely, move to a place with lower or no income tax.
- Incorporate LLC allowing to do more write offs: If one is into trading stock, trade stocks under a trading LLC which would allow one to write off rent as a business expense.
Summary: Find ways to reduce tax and keep more capital/cash in hand.
6. Avoid debt
UHNW have manageable debt. Most of them have their primary home paid off and many even buys home outright cash. The only form of debt UHNW keeps is their investment properties or apartment buildings or typically they have no debt on their business or short term debt that will be paid off quickly.
Summary: Avoid debt
7. Set Goals and reward yourself:
Most successful people focuses on goals and not NW. NW is the outcome of achieving their goals. Some examples:
- Stock trader – Stock traders could set a goal of achieving 25% ROI that year on their capital.
- Business owner – Sets a goal for acquiring X% number of customers.
- Real estate investors – Sets a goal of acquiring X number of units/properties with 8% cash on cash ROI etc.
Focusing on goals is key to scaling up. NW increase will come as a by product.
Rewarding yourself
- Every company rewards their top performing employee. Its super important to reward oneself when they achieve a certain goal.
Summary: Focus on goals and reward yourself when your goal is met.
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