Frankly the answers have been pretty disappointing, so I decided to step in as a finance major with a career in investment banking. While I understand that a person also needs to gain certain social skills and adopt a certain personality to become ‘successful,’ too much of the advice/secrets in the other answers are subjective and microscopic in perspective (in the sense that they apply in some cases of success but they are not the prerequisite for gaining a lot of wealth). I dont know you or anyone else who may be looking for the same answers are, so I think the best secrets would be ones that are objective and applicable to practically everyone.
- Equity is key. A lot of other people have recommended the pursuit of ‘delivering value over time’ by starting your own business. If you start your own business and want it to be successful, you’re probably going to have to spend more time on it daily than with any other job out there. However, starting your own business is the only way to gain ‘equity’ without buying it with preexisting wealth. Starting your own business is cheap equity, and equity have historically offered higher returns than ‘jobs’ (if seen as function of time and investment in terms of education or other incurred training costs) or the other form of investment – debt, which has limited return based on interest rate. If you want to be ‘successful’, one way to define it would be make a lot more money than most people, and if this is the case (achieve net worth above $5m or so), few jobs will have the potential to return as much as equity, and especially ‘free equity’ that costs nothing to gain in starting a company. Think about it, a really successful restaurant can sometimes sell for $5–10M cash or above in suburban areas. CEO’s of investment banks (some of the highest paid jobs out there) typically earn $10–20M in a year (and thats not even in 100% cash, usually a mix of stock options and cash). Most CEO’s don’t last more than 10 years, and clearly getting there is extremely difficult, and yet they make a little more than a restaurant owner? See the power of equity.
- Save and invest, but do it right. other people have recommended saving and investing but investing is a much more complex task than just consulting a CPA over or putting it in the bank account or ‘taking risks’. to be clear, the reason why equity returns so much more than debt is that debt is ‘senior’ in the capital structure of companies… this means regardless of how much money a company is making, they must pay back debt holders before any equity holders, but if a company is making a lot of money, most of that will eventually go to equity holders. the relative ‘lack of safety’ is the risk tied with equity, and in turn the potential for higher returns compensates for this additional risk. the reason why jobs arguably have even lower returns, is that they are even senior to debt since they are operating costs, its not because the ‘system is unfair.’ jobs indeed are a very low risk ‘investment.’ this is the same reason the stock market (public equities) have historically achieved higher returns (8–10%) than historical interest rates (5–6%, albeit these are ‘risk-free’ interest rates of US Treasuries). but by getting a decent return consistently, the compounded effect of annual returns can really blow up your wealth over the years. I forgot the exact numbers, but even with around 6% annual returns, if you save something around $300–400 every month when youre 25 or 30, you’ll have above a million by 65/retirement. As Einstein once said (rumored but probably not true),Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.
- Take risk, but pursue smart risk. Yes, in the efficient markets of the financial markets (bond and stock markets), equity has returned higher than debt. If you look at it on a risk-adjusted basis (which is mostly looking at volatility, a questionable factor of real ‘risk’), higher risk has historically given higher returns in both markets. The academic world calls this the sharpe ratio, but there are other metrics used by investment professionals. It essentially gives you return-per-risk so to speak and this figure is typically higher for higher risk investments. This doesn’t mean however that you should go running after risk. Public markets are efficient because pricing ‘supposedly’ reflects proper risk and expected returns. anything that probably offers negative returns would be at $0 in theory. what im trying to get at is that, smart risky is also promising, dumb risky is just risky. dont start a business because ‘it feels right’ and you like that you’re finally ‘taking risk’ with your college buddy (this will probably fail). start a business if you have a legitimate business plan that you think has the chance to succeed, others agree (and in turn invest together, which is great cause you won’t have to put too much money into it — a really advanced form of this is called venture capital), you have a long term vision, but you are also aware of the hurdles ahead, such as gaining new customers, negotiating with vendors/customers well, establishing a barrier to competitors, etc (these are the real and legitimate risk factors). this also means, dont invest in stocks that share the same initials as you, do your due diligence and then take risk if you see the potential for high returns. also, know your risk appetite, this means how much can you afford (or willing) to lose for the potential upside. this depends on the individual, and will determine how you allocate money to different risk level investments.
If you haven’t figured it out yet, there are 2 ways to make a lot of money – start your own business to gain free equity, or start with at least a good amount of money that you can intelligently invest. but even if youre starting from rock bottom, you can combine the above (or combine a successful career with intelligent investing) to make a lot of money. these are insights from financial studies and historical data, and if you feel that the above advice makes sense, go read more books on finance and investing (dont go for the ‘how to become a millionaire’ or ‘how to save a million by 40’. these books offer equations and formulas that dont work. each person can take a thousand different routes to making a lot of money, and once you understand that, you can make the smart decisions for yourself in terms of getting there.