I assume, since you’re here, that you want to make money. Well here it is, the secret of how money gets made. Not only that, but the secret of how wealthy people make their money. Are you ready for this?
I’m going to give you the 5 main ways wealthy people make money, and I’m going to tell you the upsides and downsides of each one.
Work for someone else
The first way to make money doesn’t sound very exciting. It’s actually the most common and ordinary way people make money.
It’s by getting a job. That’s right, I said it.
“But I thought I was here to learn how to make money without having to answer to the man!” you say. Well I’m just telling you to not knock the idea. Some people make a lot of money working for other people. In fact, most wealthy CEOs that work for Fortune 500 companies got there by working for other people. So let me give you the upsides and downsides of working for someone else.
Upsides
Stability—When you have a job, you can count on a paycheck this month. And you can count on one next month. And assuming you do the work you’re expected to and the company is doing pretty well, you can probably count on a paycheck every month. You might even be able to get other benefits like health insurance, life insurance, bonuses, and 401K plan and so on.
Stress—Working for someone else can sometimes be stressful. Let’s face it, sometimes it’s really stressful. You might have to meet deadlines, and they’re always evaluating how well you do your job. But let’s look at the flip side. When you have a reasonable job, you usually don’t have to worry about whether or not you’ll be able to put food on the table tomorrow. Your stress level when you work for someone else can be lower than when you work for yourself.
Downsides
Return—When you work for someone else, the amount of money you make in return for the time you spend, is often less than you could make working for yourself. This isn’t always true, though, so don’t just go quitting your job expecting to make more money on your own. But if you have the skills and the drive to make a business work, you’ll probably be able to make a lot more than you will working your way up the ladder at a normal job. The trick is to balance out the possibility for making more with the risk of making nothing, which is always a possibility when you venture out on your own.
Work for Yourself
“Work for myself, now we’re getting somewhere.”
Let me tell you what I mean when I say “Work for yourself.” I’m talking about creating your own job. This is a great way to go if you have a skill the people are willing to pay for, and you’re happy to get paid to do that skill. The example that comes to mind is the skilled craftsman—like a plumber or a carpenter. But there are lots of programmers, graphic designers, and others that fall into this category. The concept is that these people create a job for theirself, and then they do that job.
Upsides
Set your own schedule—This is a huge upside to working for yourself. If you have a family, or you like to travel, then having the flexibility to leave work behind when you want to is just golden. This does require discipline, since you’re responsible for making sure you do what it takes to make money. But it sure makes it easier to take that trip to Europe you’ve been dreaming of taking.
Earning potential—When you work for yourself, how much you can make only depends on how much work you can do and how much you can charge for it. So if you’re a quick worker or your skill is really desireable, then you can make a lot more working for yourself then you could working for someone else.
Downsides
Stability—That stability we talked about in “Working for someone else” is non-existent when you work for yourself. Your ability to bring in a paycheck depends entirely on your ability to bring in business, get the work done, and get your customers to actually pay you. While you might make more money overall, and I say might because that’s not guaranteed, the money that you make won’t be as consistent.
Benefits—When you work for yourself, you don’t have a company to pay into a 401K retirement account, or to pay for health insurance for you. You’re on your own for these things. Something to keep in mind when balancing the idea of working for yourself with working for someone else.
Be an Entrepreneur
Entrepreneurship means more than being self employeed. Entrepreneurs create, grow their creaion, and often sell that creation and move on to other things. Most of the craftsmen I described above, wouldn’t be considered entrepreneurs. Now, there’s nothing wrong with that. I just want to be clear here that what I’m talking about is something different from self employment. I’m talking about entrepreneurship.
Entrepreneurs are usually looking for new opportunities. They’re the type of people that can’t sit still in one job for too long. They create new companies, or buy existing ones, and then they build, tinker, expand, and build-up value in that company until they’re ready to sell it and move on to the next one.
Upsides
Earning potential—The earning potential for entrepreneurs is enormous. Thy sky is the limit here.
Constant new opportunities—For those with career ADD this is a huge upside. Entrepreneurs get to try new things all the time.
Downsides
You have all the downsides of working for yourself and…
Risk—New and innovative companies often don’t succeed. If you work for yourself doing something that people are already familiar with, then odds are you’ll be able to find customers. But when you’re doing somethign totally new, or doing something old in a totally new way, then you always stand the chance of failure. Entrepreneurs need to be good at spotting risk and finding ways to eliminate as much of that risk as possible. Otherwise, the chances of utter failure are pretty significant.
So far we’ve talked about ways to make money by doing some sort of work. Now I want to talk about more passive income. I want to talk about invesments.
Invest in Companies
There are several ways to invest in companies.
You can invest directly in a private company, like your friend’s start-up. For your investment, you buy a piece of ownership in that company. This is called stock. You can also do this for publicly traded companies by buying stocks on the stock market. The easiest, most passive, and least risky way to invest in companies, is to invest in mutual funds. These are large funds made up of stocks from lots of companies. They usually include some other investments, like bonds, that help balance out the risk and the return that they pay you as an investor.
Upsides
It’s passive—Once you invest some money into a company, you don’t actually have to do anything. Now, if you invest in individual companies, then you should definitely keep up-to-date with what’s going on at those companies. Being completely passive is a really bad idea. But the point is that you don’t have to go into the office every day to make money in a stock investment. You let other people do the work, using your money and making you money in return.
Downsides
Need money to make money—By definition, an investment requires you to have money in order to make more money. You invest money you have into a company and hopefully, you get even more money back down the road. But if you don’t have extra money available right now, it’s going to be hard to invest. And any money you do invest, isn’t available to use for other things.
The return is small—Relative to the kind of money you would make as an entrepreneur, you’re going to make a pretty small return on your money. The upside to that is that the more money you have invested, the more money you can expect to get back. Eventually, this can become more than enough to live on.
You can lose—When you own stock in companies, whether through a mutual fund, or through direct ownership of stock, you always stand a chance of losing money. If companies don’t do well then the value of their stock decreases. If the whole economy hits a rough patch, then even mutual funds will lose money. But, over the long-term, the stock market has performed really well and made people a lot of money.
Invest in Property
This is the other place where people have made a lot of money—in real estate.
Believe it or not, there are actually lots of ways to invest in real estate. You can buy properties and rent them out to make a steady income. You can loan other people money to do this and you make money on the interest of that loan. But these investments usually need you to have a lot of money. But there are other ways now.
You can actually invest money in a Real Estate Investment Trust, known as a REIT (pronounced like reet). REITs are basically like mutual funds that own properties instead of stocks. You buy shares just like you would buy a share of a stock or mutual fund, and then you can sell those shares any time you want.
I don’t want to get into too much detail here on real estate. The main point is that real estate is the other place where wealthy people make a lot of money. The great thing about real estate is that when the stock market is falling, real estate can be rising. The two don’t move up and down together. So by investing in both, you can make nice returns while cutting out some of that variablility in returns.
Upsides
It’s passive—Like stock investments, real estate investments can be pretty passive. If you buy a property and manage it yourself, then that will take some work. But if you buy a property and pay a property manager to handle the day-to-day, then it becomes a passive investment. Investments in REITs are as passive as mutual funds.
Balance—Real estate can nicely balance out your investment portfolio. Stocks generally tend to move together with certain trends in the economy, and real estate all tends to move together with different trends in economy. Since real estate doesn’t move with stocks, investing and both can help your portfolio to be more steady than otherwise.
Downsides
Need more money to make money—Like stock investments, real estate investments require you to have money to make more money. And in real estate, unless you’re investing in REITs, you need a lot of money to buy in.
Now let me make one thing clear. I don’t think there’s a wealthy person out there that doesn’t do at least 2 of these things. If you want to make your money work for you, finding good investments is a key way to do that.
So figure out how you want to make money. Do you want the stability of working for someone else, the freedom of working for yourself, or the payout of being an entrepreneur? Then, once you’ve got some money, put that money to work through investing. But figure out what works for you. And when it comes to investing, make sure you understand what you’re putting your money into before you do it. It’s a good idea to talk to a financial advisor to help you figure out what investments will help you reach your goals.
