Building long term wealth is the cornerstone of the FIRE movement, but it takes more than cutting back how much you spend on groceries to get there. While watching your budget and keeping your expenses down help, you need lasting wealth if you hope to achieve financial independence.
So, what’s the secret to lasting wealth? Unfortunately, if you’re searching for the mystic yellow brick road leading to success, you’ll be disappointed.
5 Ways to Build Long Term Wealth
While there is no magic formula, these 5 wealth-building strategies can increase your chances of finding the financial independence you’re looking for.
1. Light a FIRE with Real Estate
If you aren’t already investing with real estate, you’re missing out. Real estate has built-in mechanisms for creating long term wealth because you can’t pop in and out on a whim. For this reason, having the right strategy is the key to lighting a FIRE on your journey to financial independence.
Two popular methods of making money with real estate are buying properties as a landlord and investing with crowdfunding.
If increasing your wealth is your goal, both can help you get there. As a landlord, you must be willing to sacrifice and save to get enough money for a down payment, but owning a rental property or two (or six!) can add to your bottom line and give you a few tax benefits, too.
The trouble with rental properties is you’re responsible for everything that can go wrong.
If you love real estate but don’t want the stress of fixing leaky pipes, dealing with ant infestations, or paying to replace the furnace when it suddenly stops working, you’re in luck. To get all the benefits without the hassle, crowdfunded real estate with companies RealtyMogul and Fundrise can open the door to long term wealth.
Crowdfunding makes it easy to invest in real estate because it doesn’t take much to get started. Rather than saving 20% for a down payment (plus closing costs), you’ll become a real estate investor by starting with a much lower amount.
2. Start a Business to Spark Your Passion
You’re probably thinking that starting a business is too risky and only the “lucky ones” can cash in on their ideas. But anyone – even you – can start a business that turns a profit.
Think about it: Having your own business would give you another income stream to fall back on and you’d have more flexibility to live the financially independent life you love. It sounds pretty good, right?
Before you quit your job, take a few small steps to test the waters. Otherwise, you might end up with no income at all and that can put the kibosh on your plans to retire early. Instead, pick something that fits into your life, that’s easy to start at home, and won’t interfere with your other money-making endeavors.
A few ideas to kick your brain into gear could be making an app, becoming a freelance writer, being a virtual assistant, writing a book, or starting a blog. And if you’re looking for variety, try picking up odd jobs like raking leaves or running errands for others in your neighborhood.
3. Use the Stock Market to Build Heat
Stocks are fantastic investments that have stood the test of time. And for long term wealth, leaning towards stocks that pay dividends can help you create passive income.
With dividend stocks, the company gives you a cut of their profit, and they pay it in dividends according to the number of shares you own. While how much you earn depends on the company you invest in, and it can vary from year to year, getting paid to own stocks is great for adding heat to your FIRE journey.
If you’re investing in the stock market, keep in mind that stocks are only part of the equation. To get the best bang for your buck, buying ETFs (exchange-traded funds) and mutual funds in addition to stocks can get you greater returns.
You see, you’re only getting the benefit of a single company when you buy a stock. To cast a wider net and improve your chances of earning higher returns, ETFs and mutual funds let you dabble in several investment opportunities even if you only buy a single share.
That means tapping into a variety of investment types is quick and easy since you avoid the stress of digging through a bunch of different options. Plus, because each fund has different assets, you’ll end up with a better balance – and that can lead to higher earnings.
4. Keep it Burning During a Recession
Watching your money grow in the stock market is exciting and it leaves you feeling like you’ve finally cracked the secret code to creating wealth. But good times don’t last forever and your investments are likely to take a downturn at one point or another. What do you do if your portfolio takes a nosedive?
Throughout history, the market has had highs and lows – and if investors have learned anything, it’s that the market eventually turns around.
Before you make a move, stop and take a deep breath. The worst thing you could do in this situation is to make a knee-jerk reaction.
Even though you might not know when your investments will start looking up, and you probably feel like your dreams of financial independence are going down the drain, a recession opens up a window of opportunity.
To keep the flames of FIRE burning, stick with your investment strategy. If you do, your portfolio can grow leaps and bounds because everything is being sold at a discount when the market tanks. And when the market finally turns up, you could have plenty of profit to show for staying the course.
5. Fan the Flames by Paying Off Debt
Everywhere you look, people are telling you to pay off your debt. But just in case you’re still carrying around big balances, here’s a gentle reminder. If your goal is sustainable wealth, keeping debt around doesn’t make any sense because interest and fees can offset any gains you make.
If you add 7% to your income, for example, but pay 5% interest to the bank every month with your mortgage payment, you only see a 2% increase. Wouldn’t you rather hang onto every penny you earn?
When you eliminate the weight of debt, the interest you were paying to the lender ends up back in your pocket, giving you a bigger return from month to month. Plus, you’re freeing up cash flow you can use to invest even more money, and get you to your goals that much faster.
What Fuels Your FIRE?
Whether you prefer real estate, starting a business, investing, or any other wealth-building idea, branching into new income streams can help you cover more ground and fast-track your way to long term wealth. Then, when the occasional stumbling block crosses your path, it won’t derail your progress.
With your net worth on the line, what are you waiting for?
What are you doing to build long term wealth? Share how you’re doing it in the comments below!
Amy Beardsley is a freelance writer and staff writer for Club Thrifty, a website dedicated to helping people dream big, spend less, and travel more.