Having been around the wealth building game for nearly a decade, I’ve had a chance to learn a few things. First, getting financially fit occurs in a few reliable stages. Typically you pay off any debts. Second you build up a cash nest egg and third, you start to acquire assets. This happens more or less in a typical progression. But what is less obvious is how to accelerate this process. Here is a hint, wealth building is a team sport. That is, you need to make friends and work with good advisers to maximize your wealth accumulation.
1) Acquiring assets happens through relationships. This can be real estate, business interests, private stock placements, gold bullion, etc. You will need help to get these assets. The process of getting your hands on assets worth having is ultimately going to involve forming relationships with persons who have these goods to sell or who can help you buy them. For example, you may want to recruit a good real estate agent or you might need a friendly mortgage broker, or you might want to strike up a relationship with a small business broker who can help turn you onto deals.
2) Second, in order to really juice your wealth, you’ll need someone to help you run a business. This seems a bit controversial, but if you look at wealth in America, you’ll immediately see that only a very small number of fortunes have been made exclusively through saving and investing. Most – from the small ones to the really large ones – have been developed by starting or running a successful businesses. In the event that you choose to do this, you’ll need to ultimately find someone to help you manage, promote, or work in your enterprise. The reason for this it that there are only so many hours in the day and you’ll eventually run into limits on your own knowledge and ability to exert effort. This problem will become even more acute as your business grows.
3) As you get richer, you’ll need help to account for everything. The more wealth you have, the more you’ll need someone to help you deal with all of it. For example, the more income you have the more you will need someone to help you with income taxes or assist you in planning to acquire good quality assets. This is important in that the quality of the advice you get (especially around taxes) can add or detract significantly from your bottom line. For example, my wife and I had a Federal income tax bill around $50,000 in 2011. Had we been more pro-active with our taxes, we could have reduced a good chunk of it.
Players you may need on your team include:
Tax accountant – As your wealth gets more complicated record keeping and accounting becomes more important in determining return. To illustrate again from our own personal experience. My wife and I own rental real estate in the District of Colombia. Part of the benefits of owning rental property is the ability to take a deduction on the expenses incurred in running the property. However, this deduction can get phased out on your Federal return if your income exceeds a certain threshold, thus reducing the real return on your investment. So, the bottom line is that we needed help with our record keeping in order to make the best financial decision.
Real estate agent – Find someone who understands your needs, helps guide you to find the right place, doesn’t pressure you into something that doesn’t suit your needs, and negotiates on your behalf. We have a go to agent that we’ve worked with for more than a dozen years and can put together an offer effectively on short notice.
Mortgage lenders – Clearly interest rates have a significant impact on your long term expenses and wealth building, plus having someone who is responsive saves you hassle and stress during the home buying process. Make sure to evaluate several lenders to compare rates and terms.
Contractors & Service Providers – Having someone who is reliable and worth their value is a must for home repairs or renovations. We’ve had our contractor for more than ten years and the relationship has paid off significantly over the years. We also have a variety of service providers that we have available when needed.
Regardless of where you are in your own wealth building, consider being strategic in your approach to your relationships. Try to find people who share your interests, who are very good at what they do, and are willing to work with you.
Finally, remember this: there is no such thing as truly passive income. Many great economists have noted this. Both Marx and Adam Smith said that value is determined partly by the amount of labor invested in a commodity. While I’m not a professional economist it’s fair to say that without labor, there isn’t going to be a lot of wealth accumulation happening – regardless of the economic model you’re invested in. So, the bottom line is that to get rich, paying a team to support you in the process is worth every penny.