I often write on Quora.com, where I am the most viewed writer on financial matters, with over 264.4 million views in recent years.
Table of Contents
In the answers below I focused on the following topics and issues:
- Is it true that the only path to real wealth is entrepreneurship?
- How do successful people really think?
- What are four of the most essential elements of success?
- Does owning a business always add to your net worth?
- What are the biggest risks people should consider before investing?
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Is it true that the only path to “real wealth” is entrepreneurship?
Most private business owners fail.
One reason for the failure is that even very successful firms tend to face external shocks they don’t prepare for.
In 2020, it was the turn of restaurants, travel firms and airlines:
The majority of millionaires, and even multimillionaires, come from salaried positions.
The middle income (teachers, accountants etc) and higher income (some dentists, doctors and so on).
Most have just saved and invested for decades, avoided divorces and lived below their means.
With that being said, a very tiny fraction of private business owners become super rich.
So, if you define “real wealth” as being a billionaire, you do have a better chance by starting your own business.
It is still a very small chance, but most self-made billionaires started their own business.
What will be interesting is to see what happens in the future. We are moving into a world where starting your own business is getting easier, and fewer people want the traditional career path.
That could mean that in twenty years, the lions share of millionaires are business owners, because more will try, which means more will fail but also succeed as well.
What are the most common ways of thought among successful people?
I have noticed the following commonalties.
- I only try to control what I can
- I know what I want to achive. I know whether I want financial , spiritual or other forms of success, and I won’t let general society pressure me into the direction they want.
- What matters is what my money earns me, not what my money can buy me.
- The world is full of opportunity (abundance) rather than scarcity.
- I am responsible for my own failures and successes. Yes, other people can contribute, but blaming others for failures is pointless.
- What matters is impressing a small number of people (myself and those around me/key people) not general society.
- I celebrate other people’s success rather than envy it.
- I don’t know it all. I can learn from other’s, especially the successful.
- If I am the least intelligent person in my company, I will probably earn more than if I am the smartest person in the room. Leveraging other people, technology and other things can be a key to my success.
- If I have failed, I will come back. I can learn a lot from failure
- Life is risk. There is no such thing as a zero risk option. I need to take calculated risks.
- I am happy to play the long-term. It isn’t all about the quick buck.
- Life isn’t always fair. I can deal with that.
- Speaking, and thinking, in the affirmative, which is how I have written this answer. Thinking “I am trying to lose weight”, isn’t as good as “I am losing weight”. Same with business, making money or anything else. Thinking positively and confidently is good, provided it isn’t arrogance and complacency. Self-belief + confidence + focus + persistence = a winning combination.
With that being said, the above list of commonalities doesn’t tend to apply to the newly or inherited wealthy as much as people who have stayed successful for a long time.
What are the 4 essential habits to generate wealth and achieve the desired success?
It is quite difficult to narrow it down to four. If I am forced too I would say
1.Living below your means and investing the surplus properly
Not matter how much is earned, you can become broke. Ask the 70% of former professional athletes, even the elite ones like NFL players, who are said to go broke within a few years of retirement.
These days, saving hard, whilst better than spending 100% of income, isn’t as useful as investing.
Investing has always been better, long-term, at least, compared to saving.
What has changed is 0% interest rates which means that money in the bank is losing 2%-3% every year to inflation.
In previous decades, you could at least earn some money in the bank.
Bill Gates and Buffett both said focus is the number one attribute to become successful.
Focus is indirectly even related to basic questions like “what is success”.
If somebody isn’t focused on what success is for themselves (financial, health, spiritual etc), it is hard to even know what you want.
Once somebody knows what they want, they can not just work hard, but work hard in a smart way (smart work), on the things that really matter.
Some things don’t take any more work, but can be very profitable.
For example, let’s say there are four doctors who are all paid the same.
Doctor one spends 100% of whatever he/she earns. The assumption is think they don’t need to invest due to the company pension or whatever reason.
The second doctor saves 15k a year. The third invests 15k a year from age 40.
The fourth doctor invests 15k a year from 27 and reinvests an 150k inheritance, whereas the others spend that.
By 65, the fourth doctor will be worth millions more than the rest, for doing no more work.
That is easier to do if you know what you want to achieve to begin with.
Success is tough as this graphic below shows.
Many people can work hard and smart for a few years.
It is much harder to keep going for a decade or more if success isn’t achieved, despite all those efforts.
Persistence + focus is more effective than being persistence at the wrong things of course.
4. Lifelong learning
Formal education can be very useful, but so can self-education and engaging in lifelong learning.
What is learned in one year, or decade, isn’t always so useful decades later.
Of course, learning is pointless if you don’t implement it, but that brings us back to focus.
If I could add another one to the equation it would be taking calculated risks.
Being focused, persistent and living below your means is all great, as is working hard and smart.
Yet having a sensible attitude to risk is also prudent.
Does owning a company add to your net worth?
It is complicated. On day one, it usually doesn’t. That is because the company has little or no assets or debt.
A company can even reduce your net worth if you get into huge debts to begin with.
If the business is earning money, then yes it does. The business has assets, revenues and so on, which means that the owner/owners also have it.
However, I would make a few points:
- Unless the money is in cash, which can be withdrawn easily into the owner’s bank accounts, then it isn’t easy to value a firm. Of course, keeping loads of cash isn’t a productive business activity unless it will eventually be deployed, but cash is easy to value. In comparison, putting a value on a business is very complex unless it is a publicly listed firm on the stock market. Do you value it by multiples of earnings? Multiples of recurrent earnings? Sometimes it depends on the industry.
- Even if the business is easy to value, finding a buyer isn’t always simple, unlike if you own liquid assets like stocks, ETFs, most forms of bonds and cash. Therefore, many people do sensibly define high-net-worth, to quote Investopedia, as being “somebody with around $1 million in liquid financial assets”. Some business owners don’t own any assets apart from the business and maybe a home, but assume they are wealthy just because the business is doing well. Then something like Covid comes along, and if they aren’t careful, the business goes under. Unlike something like buying ETFs like the S&P500, in a private business you can’t just wait for a recovery. The recovery might never come.
So, companies, just like watches, houses, jewellery and other things do add to your net worth in many cases.
It is just more complicated to value the assets and find buyers to begin with.
This means that it is foolish to depend on these assets entirely.
Many a person has put all their eggs into illiquid baskets, only to regret it.
The sensible business owner usually therefore reinvests back into the business, yes, but also has private liquid investments as well.
What all are the risks people should be aware of before investing money in stock market?
Most of the things people worry about are more emotional than rational.
This is understandable as investing is outside the area of most people’s expertise, and the media loves to sensationalise.
The point is though, you don’t need to worry about things like the stock market crashing. The market comes back.
What you need to worry about is this person
Let me give some examples
- The stock markets crash. Instead of waiting out the 2008 crisis (2–3 year recovery period) or 2020 (a few months) you panic sell and lose out.
- The constant “game” is speculation, like buying individual stocks, selling and buying again, or timing the market. The whole stock market might have always recovered, but individual firms and even sectors haven’t always recovered. Look at the big banks. They haven’t came close to recovering from 2008, and may never do in inflation-adjusted terms, especially with many challengers now like Wise/TransferWise taking market share.
- Even though you know that investing is best done long-term to lower risk, a short-term mentality takes over, maybe due to greed or another emotion.
- You have made a plan. It is going well. Then you see Tesla or another stock doing 700% and then the plan changes.
- Not planning budget wise. It is best to have a small amount of cash for emergencies, or at least don’t invest 100% of what you can afford to do. That is because if something changes, it is best not to dig into the investment account if possible.
Apart from that, the risks are pretty obvious. Only deal with investment companies that are merely advising you and don’t have access to the money – in other words you aren’t sending the money to their bank account but a third party.
Most people have common sense in that regards. The small number of fraudulent companies out there quickly disappear.
Many of the other things people worry about, like market crashes and future taxes, aren’t worth the worry.
They can also be mitigated with proper risk planning.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 264.4 million answers views on Quora.com and a widely sold book on Amazon
In the article below, taken from my online Quora answers, I spoke about the following issues and subjects:
- Why is investing in commodities or options more risky than investing in stocks? I look at the fundamental reasons why stocks tend to rise over time, whereas commodities are stagnant.
- What are the friendliest, and cheapest, countries for American expats?
- What are some high-income skills? Marketing, accounting, sales or something else? is it important to have soft and hard skills, or is having just one OK?
- Is it really possible to just buy assets and live from the capital gains, without getting a job? I look at the practicalities.
To read more click on the link below.