Of the 13,480 individuals and families who made more than $10 million a year in the U.S. in 2008, only 19 percent of the income they brought in came from wages and salaries.* Therein lies the key to generating wealth; namely that the rich don’t “work” to make money. They put money to work for them.
Robert Kiyosaki talks about this concept a lot in his book Rich Dad, Poor Dad, and it fundamentally changed the way I approach my finances. The idea is that by putting your money into ventures or assets that generate money for you, you can exponentially increase your earnings power and grow your income while actually cutting down on the amount of time you spend working.
One area where Kiyosaki’s often vague is how exactly a person is supposed to do such a thing. He mentions buying real estate, buying car washes, buying storage units or trailer parks for rental, etc., but that’s not all that helpful for most people who are already in debt and looking for a way out.
My answer? Dividend stocks. In particular, I like REITs or Real Estate Investment Trusts. REITs are basically collections of investors who pool their capital to buy income-generating real estate such as apartment complexes or shopping malls, then share the profits with all the investors. Best of all: REITs are required by law to pay out 90 percent of their net income as dividends to shareholders. That can add up to a lot of cash with some REITs paying out nearly 20 percent a year.
Think about that, if you could somehow get $250,000 invested in a portfolio of dividend paying stocks that shell out 20 percent per year, you could be making $40,000 each and every calendar year (before taxes) without lifting a finger!
That’s the key to building wealth, and the sooner you get started, the sooner you’ll be on your way, even if you can only contribute $25 per month! At that rate, you’d be putting in a mere $300 a year, but you’d still hit $250,000 in 26 years if you could compound your rate 4 times a year (when you receive your dividends) and keep plugging away with your $25 a week contribution at 20 percent interest.
*Source: Wealth, Income, and Power by G. William Domhoff.
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