“Carpe per diem. Seize the check.”
–Robin Williams
The most common profession of the wealthy is as a business owner. Of course, ever the non-conformist, I was not one.
You see, nothing in my career was a straight line. At first, I just wanted to keep my job and the paycheck coming in. It was years later after my spouse and I educated ourselves that we invested in private ventures and obtained interests in side businesses.
Financially it was a bit like flying to Omaha and insisting that we not fly direct. I had to visit Las Vegas, New York, and New Orleans first, but only after staying home for a while.
Of course, your path is up to you. You see, when it comes to wealth creation, there is little that compares to owning a business. Fifty percent of millionaires own their own business according to an analysis quoted in Forbes. In the Forbes 400 of top net worth individuals, ALL own businesses, or invest in them. So, when you are talking about the super-wealthy among us it is unanimous: they are business owners.
To be sure, being a business owner and entrepreneur is not for everyone, and it does not have to be. For example, I knew I did not have the temperament or risk tolerance to be a small business owner and did not kid myself about that. That realism turned out to be a good thing.
So, my spouse and took a different path. We decided to stay at our jobs and invest in businesses instead of owning them. We own investment real estate, which is a kind of (side) business. We also made investments in other businesses through the stock market.
It is hard work to be the boss of a business and more than a little risky. According to the Bureau of Labor Statistics and the US Small Business Administration, new ventures have about 60% failure rate within three years. Conventional wisdom places the failure number for some at a much higher level. According to an analysis in the Millionaire Next Door, businesspeople interviewed went broke an average of three and a half times over their careers.
That sounds like volunteering to be a financial crash test dummy. Upon impact, your wallet goes flying out the window, never to be seen again. And you may go with it. But that is certainly the wrong way to look at it.
Many business owners have ended up far more wealthy than I am.
You see, there are a variety of ways that entrepreneurs and business people reduce risk. Sometimes it is by managing risk with investors. Other times it is by carefully watching expenses and by remaining rigidly organized and true to goals during the riskiest periods.
In an ironic twist, it turns out that who you marry matters when taking a business risk too. To a disproportionate degree, according to the Millionaire Next Door, businesspersons married teachers.
So what, right? Well here goes speculation I cannot prove: a lot of risk takers pair their uncertain ventures with a sure thing—like marrying a teacher whose income does not have the ups and downs that some business ventures do. I’ve seen it too often to dismiss it as mere coincidence.
But, back to the main point: as a businessperson, if you do manage to get past the risk, the rewards for taking on business are good.
There are a few reasons why that those who do have the capacity to retire early tend to be business people:
- Owners draw a salary from their businesses, and also reap gains from the eventual sale of the business. This arrangement can create enough wealth to allow for early retirement or other financial goals.
- Income from business is not fixed, like an investment in a bond. Businesses with successful track records tend to gain in value over time, while something like a savings account will not, or not as much. That is especially true after subtracting for inflation, taxes, etc.
- Businesses have tax advantages over other types of investments.
Oh, and you may have guessed it: I was not a businessperson, but I did marry a teacher.
SUMMARY:
- The most common path to wealth creation (and early retirement) is through owning a business.
ACTION STEPS
- For those who are salaried and do not want to take as much risk, having a side business or investing in other ventures are a way of nearly gaining the same economic advantage. Having many different sources of passive income can help with early retirement and other financial goals.
- The value of your assets and income should not be fixed–there must be some ability for their value and the income they generate to rise over time. Investment in a business is one way to accomplish that.
Disclaimer: consult with a financial professional before taking any steps outlined here. Not all advice is suitable for your circumstances or investment style.