Lets start by talking about wealthy people, the masters of capitalism, and how they build their capital.
Wealthy people do not work to climb the corporate ladder, they don’t study to get a good job. They work and study too become business owners.
Taka a look at:
- Elon Musk
- Warren Buffet
- Jeff Bezos
- Bill Gates
- Mark Zuckerberg
All of them are billionaire because they created their own businesses.
I am no Elon Musk, but like him, I decided to create my own business since I arrived in Canada. In the 25 years since I have been here I have always been self-employed. I had many failures but among my success are: owning a dance school, owning a real estate business, and owning a photography business.
In a capitalist system, this is how it works:
You can earn money from your labor, or you can earn money from your capital.
The way you earn money from your labor is by doing what everybody else is doing, getting a job and selling your time for money. You can get paid by the hour or receive a salary. The way to earn more is to sell more hours or to increase the value of your hours.
When you get paid from capital, you are getting paid because you are putting your money to work. You make an investment and that investment provides some returns.
Our capitalist system, favors more people who earn money through capital than through labor.
The tax system is designed to tax less the money earned through investment than the money earned through labor.
We get paid, not for how many hours we are willing to sell, but when we invest in a business, how much profit that business generates.
So how do we make money from our capital?
There are two ways in which we can generate money from capital:
- Buying a business
- building a business
When I created a dance school, I created a business with very little capital. I rented some studio space, remodeled it to create a nice dance space, did a ton of advertising, and taught dance classes with my business partner. That’s it. We built a business that was cash flow positive from the first year.
As for buying a business, I have only done that through the stock market. I am partially the owner of hundreds of different stocks (about 600), and I own a small portion of their profits.
The good thing about buying a business through the stock market is that you don’t need a lot of capital, and you don’t need to spend a lot of time surveilling your investment. You can invest whichever amount of money is available to you and you can spend as little as 30 minutes per year checking out your investment.
You could be a small amount or a larger amount. For many years, I used to buy between $500 to $1,000 worth of stocks every month. My friend Cheryl currently invests about $25 per month. You can buy whatever dollar amount is comfortable for you.
The secret to making investing a successful endeavor is to be consistent, to buy a little bit every month, and to leave that money working in the market as long as possible.
How much money do I need to invest in order to live off my investments?
To answer this question, we need some simple mathematics:
Let’s say that you spend about $50,000 a year. Well, take that amount and multiply it by 25 and you will get the result. In this case:
50,000*25=1,250,000
That’s it. That’s how capital works. If you want your capital to work for you, that’s how much money you will need to have.
How do I invest my money in the most efficient way?
There are many ways to invest capital and make it work for you.
- You could buy real estate property, allow it to grow in value, and then sell it. Unfortunately, you would need a big chunk of capital, a bit of knowledge about the market, and patience. Additionally, the returns are not that great.
- You can buy collector’s items such as art, wines, cars, etc. This could be fun but requires deep knowledge about the subject.
- Or you can invest in the stock market.
It’s my belief that investing in the stock market is the most efficient way to make you capital work for you. You can invest as little as $25 or a couple of millions. As opposed to other investments where there are high commission, expenses and all kind of fiction, in the stock market often time you can invest without paying a commission and a transaction generally takes seconds.
Where to invest when you invest in the stock market
The best thing is to invest in low cost Index funds. To my option, the S&P 500 is one of the best indexes to invest in. There are many providers who sell the S&P 500 but the one that I use is Vanguard.
Other Personal Development Posts