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Not everyone believes that wealth means making a lot of money. In fact, NYU professor Scott Galloway defines wealth as “passive income that exceeds one’s expenses.”
In an episode of the podcast Modern Wisdom, Galloway explained how young Americans can build wealth. And it’s not just about earning more.
The professor claims that one of his friends works at an investment bank and makes $3 million in a bad year and $14 million in a good year. Even though he lives in Connecticut and pays an incredibly high tax rate of about 50%, by all accounts he still makes a lot of money.
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“But between his ex-wife, his alimony, his child support, his house in the Hamptons, his master of the universe lifestyle that he thinks he needs and wants to signal to his friends, I know firsthand that he doesn’t save much money,” Galloway said.
He is an example of what Galloway calls the “working poor.” Although his friend makes a lot of money, the need to maintain a certain lifestyle places a huge strain on him and his marriage.
“Being rich means not being afraid anymore,” Galloway said. “You want to be able to live well.”
So if you choose to continue working in your golden years, it’s a choice rather than an obligation, he says.
Use the power of compound interest
From Galloway’s perspective, wealth means, among other things, earning more from your investments than you spend. And building that passive income is easier when you start at a younger age because you benefit from compound interest.
For example, if you invest $500 every month for 40 years and earn an 8 percent annual return, you’ll end up with over $1.5 million thanks to compound interest. “I never invest more than 3 percent of my net worth in any single investment,” Galloway said.
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Read more: Car insurance premiums have risen to a staggering $2,150/year in the US – but you can be smarter. Here’s how you can save up to $820 per year in just a few minutes (100% free)
“Welcome diversification”
Galloway himself admits that getting rich – losing – and getting rich again had little to do with him. For better or worse, it had to do with the market. And in hindsight, it’s not a strategy he would recommend.
Galloway also recommends diversifying your investment portfolio, that is, spreading your risk across multiple asset classes, from more traditional stocks and bonds to alternative assets.
One way to strengthen your portfolio over the long term is to invest directly in precious metals with a gold IRA, with the help of American Hartford Gold. A gold IRA is a retirement account that allows you to enjoy the tax benefits of a traditional IRA and the inflation-hedging properties of gold.
When you sign up for American Hartford Gold, you’re eligible to receive up to $10,000 worth of free silver, as well as a free investor guide that can help you protect your portfolio from market fluctuations and grow your money over time.
“For your own financial well-being, not to mention your own mental well-being, you should focus on diversification,” says Galloway.
However, if you’re not sure which diversification path is best for you, consider consulting with a reputable professional or using retirement planning tools to figure out how much you need to save, taking inflation into account, to reach your retirement goals—and Advisor.com can help you find such a plan.
Advisor.com lets you connect with experts who can analyze your current financial situation and help you find the best investment opportunity for your future self. The online platform simplifies the process of finding a reputable advisor.
Within minutes, you can find a trusted expert to help you manage your income and take advantage of compound interest. Once you’ve found the right fit, you can schedule a free, no-obligation consultation to discuss your goals and develop strategies to protect your retirement portfolio.
Be disciplined with your spending
Galloway says that while you can’t control the fluctuations in the market, you can control how much you spend and how much you save.
Galloway’s father, for example, draws a Royal Navy pension and benefits – and owns about a dozen washing machines in caravan parks. He earns about $52,000 a year without actually working (Galloway stresses that he likes to go out and collect the change for the washing machines), yet he only spends about $48,000 a year.
“His passive income is greater than his consumption,” Galloway said. “That’s the definition of wealth.”
On the other hand, when Galloway was younger and working for Morgan Stanley, he received his first bonus of $28,000. He used this money to buy a BMW for $35,000.
However, he admits that he would have made significant savings if he had instead bought a much cheaper car and invested the remaining money in the market.
Instead of spending money on fancy cars, you can grow your money steadily with a certificate of deposit (CD). You must have discipline when it comes to withdrawing these funds because if you withdraw them before the CD’s term expires, you will face penalty fees.
CD Valet – an online CD marketplace – allows users to shop and compare the best interest rates on certificates of deposit from various banks and credit unions across the country.
Their extensive database objectively shows the lowest interest rates with daily rate updates and yield calculators that give consumers numerous free tools to help them find the right CD to meet their savings goals.
Those who live below their means, as Galloway suggests, can ensure a comfortable retirement and long-term security.
“Be disciplined when investing some money in low-cost ETFs and index funds,” he said
Even if you remain disciplined with spending, it is important to get the most out of each transaction.
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To get started, simply sign up, link your bank accounts, and start spending as normal. Then, Acorns rounds up the total amount of your purchases and invests the difference in an automated portfolio. This means that with every purchase, you’re not just spending money, you’re also investing in your future.
If you sign up today, you can receive a $20 bonus to jumpstart your investment venture.
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This article is for informational purposes only and should not be construed as advice. It is provided without warranty of any kind.
