From the outside looking in, many people think the wealthy have some complicated algorithm running 24/7 on a supercomputer locked away in a backroom for making them rich.
The reality is, self-made millionaires, live by one simple rule:
DON’T RELY ON SALARY ALONE TO BUILD WEALTH
In a revealing article in Business Insider by Thomas C. Corley who studied the habits of self-made millionaires for five years, the key distinction between the wealthy and everyone else is the wealthy seek out and generate multiple streams of income – not only for protecting income but more importantly for compounding wealth.
Corley found that most self-made millionaires generated their income from multiple baskets:
- 65% had three streams of income.
- 45% had four streams of income.
- 29% had five or more streams of income.
Having these multiple streams of income is why the wealthy keep cool during times of crisis while those who rely on one stream of income struggle. The Covid-19 recession has brought this key distinction between the wealthy and the rest of Americans to the forefront.
Most people are not self-made millionaires and only have one stream of income – their job.
Remember that most self-made millionaires all started out like the rest of us – with only one income stream. Many recognized early on the importance of having additional streams of income – not only for building wealth but also for preserving income.
Not surprisingly, many grew up in homes where the economic struggle was real. Many probably saw parents laid off and saw the ensuing financial struggle without another stream of income to compensate for lost wages.
Income-generating assets are the key to building wealth. It’s the key to not being held hostage by your job and economic forces, not in your control.
If you do not save and invest your savings in assets that generate additional streams of income, you could find yourself in the situation of many of your peers who have lost their jobs – living with a relative.
We’ve always been taught not to put all our eggs in one basket. If that basket breaks from a financial crisis, what are you going to do?
What advice would these self-made millionaires give you?
- SAVE. Increase the gap between your income and expenses by either increasing the income from your job or current business, reducing expenses, or both. Then save 10-20% of your net income to allocate to opportunities for generating additional streams of income.
- KEEP AN EYE OUT FOR OPPORTUNITIES. Keep an eye out for opportunities that will help you achieve your goals of creating additional streams of income.
- SEIZE THESE OPPORTUNITIES. Don’t pass up on the opportunities to further your financial goals. Be relentless in your pursuit.
- EXPAND YOUR HORIZONS. Look outside the box for generating additional income streams. Consider different geographic markets and asset classes.
- CREATE MULTIPLE BASKETS. Invest your savings and any additional income into investments that generate passive income such as private equity, precious metals, and energy interests, commercial real estate, agricultural interests, etc.
This is valuable advice for anyone, including top earners because as we have seen all too often, even lawyers, doctors and athletes can live paycheck to paycheck and if they don’t have additional streams of income for when they get sick or hurt, they will be in a world of financial hurt just like the poor and middle class when they lose their jobs.
For the non-doctor, athlete, or lawyers, putting aside a portion of your earned income into income-producing alternative assets that grow over time and reinvesting that income over and over again is a winning formula for generating wealth and also for preserving income in a time of crisis.
There’s no reason why someone who makes $25,000 a year can’t become a self-made millionaire.
Saving alone will not get you there. Unless you have a passive income stream, you will always be bound to your job.
Only when your passive income exceeds your earned income and you reach the point in time where you only because you choose to work, not because you have to will you achieve true financial freedom.
To get to where the self-made millionaires are, you will have to make an honest assessment of where you are today:
- How many income streams do you currently have?
- If you’re injured or your current industry changes, will you have a backup income source if your income stream is interrupted?
- Are you willing to save in order to generate additional income streams?
- Are you willing to venture beyond your comfort zone in order to invest in alternative passive income streams?
