One of the coolest things I’ve read recently came from a blog that I had never visited before. It was an article discussing large gains in Net Worth. This has been something I’ve been thinking about lately since creating my Net Worth goal.
Basically the main point is that there is a significant amount of wealth to be made through “doing deals.” The typical path to wealth is to be frugal and save over the long-term. This can work, but the post advocates looking outside that typical path to take appropriate risk by doing deals that will more rapidly increase your Net Worth. Although I do advocate growing wealth slowly over time, I have also see the significant impact that doing wise deals can have on one’s Net Worth.
My Own Experience
Doing deals has been a great way to grow wealth in my own experience. One of the most significant changes in my net worth came from a real estate purchase that I made when I got my first job. And by the way – this is one of the reasons I’m so against people buying a new car when they get their first job! But this house that I purchased allowed me to get roommates who paid for my mortgage. I sold it two years later and was able to make $50,000 tax-free.
I remember being utterly astounded at the amount of value created from doing this deal. It was vastly greater than anything I had done before and different from the slow and steady way of saving that I had been accustomed to.
I can honestly recommend that anyone consider investing in real estate and especially learning about various deals that can create value. A common real estate deal is buying a property that needs a lot of work and renovating it to create value. You can sell the property or keep it and rent it out. This is something thousands of people are doing across the country and there is plenty of money to made there.
Another thing to consider is buying a business. I’ve been toying with the idea of researching a Subway or Dunkin Donuts franchise. I bet there are people making millions by working hard to set up a new store. Some of those places have lines out the door and you know the owners are doing well.
The foundation for many types of deals is acquiring ownership. This is the way a lot of real estate deals are structured. It is also the way that many people have made so much money in business over the years. Having a high salary is actually not the best way to make money. The amount of a salary pales in comparison to owning a part of a business or of a property.
Think about it, a salary is a monthly payment that will only go up slightly over time. There are very few jobs where the salary becomes very large very quickly.
But when you own a business or a property, there is no limit on the increase in value that can occur. Sure there is risk involved, but that is what keeps everyone from being involved. The risk is a built-in feature to these deals which keeps competition away.
I know that the purchase of my first house at 22 years old was seen by many as very risky. How would I be able to pay the mortgage if I lost my job? What would happen if there were major repairs needed? But those were risks that I was willing to take and the reward was significant. And I believed the property was being sold for less than it was worth when I bought it so there was some buffer there from the start.
But Wealth Gained Hastily Will Dwindle
So yes, “doing deals” can cause a quick increase in Net Worth and that can be a good thing. But we must also remember the ancient Proverb: wealth gained hastily will dwindle.
This is so true. When you very quickly come into wealth you will lose a sense of proportion and of value. It is hard to adjust to having a lot of money all at once. The human mind has struggled with this for thousands of years. It is probably one of the reasons lottery winners usually go bankrupt. It’s very difficult to make the jump from middle class to multi-millionaire overnight.
But it isn’t so difficult to do so over many years. Slowly and patiently.
I wouldn’t advocate not doing deals. I think that would be an overreaction. But I would advocate doing deals slowly and thoughtfully. And I would also encourage people to live below their means, save, and build up wealth over years and years patiently.
There is no real need to become wealthy all at once right now. That desire is usually just a knee jerk reaction to being tired of having to go to work! But work is good for us. And working hard for years and years and building wealth for the benefit of one’s family is very fulfilling.
Looking back across the years and knowing that I have worked hard in a meaningful job and provided value to society will be very fulfilling. But I also hope to leave an inheritance to my children and my children’s children because that will be very fulfilling to.
Don’t get lost in “doing deals” but use the deals to patiently build wealth over time.