7 Ways To Build Wealth Using Other People’s Money
Written by
Michael Keenan
Edited by
Ashleigh Ray
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
It takes money to make money. However, it doesn’t necessarily need to be your money if you know how to leverage other people’s money to help you invest in yourself and build your net worth.
Although living below your means is a good start toward building a financial cushion, ditching your latte habit and cable subscription won’t add you to the list of self-made millionaires. Instead, using other people’s money, aka OPM, can help you get ahead financially, even if you want to start investing with little money.
As you learn how to build wealth fast, consider leveraging other people’s money to help you grow your net worth. Although you shouldn’t expect to use other people’s money for free, you can increase your returns.
Find Out: 6 Reasons the Poor Stay Poor and Middle Class Doesn’t Become Wealthy
Leasing Equipment
If you’re a small business owner, you know that you need the right equipment to fulfill your big dreams. You also probably know that equipment costs money. But why spend loads of your own cash on the gear and technology that can help you run your business when you can lease out equipment that other people or agencies have purchased, spreading out lower payments over time instead of buying your own outright.
For Vincent Cerniglia, principal and vice president at Noreast Capital Corporation, leasing equipment can be an excellent way for businesses to preserve their own cash flow while acquiring necessary assets and materials.
“Instead of an upfront payment, you spread out the cost over months or years,” he said. “This approach is particularly useful for businesses that need expensive equipment but lack immediate capital.”
Small Business Loans
Starting a business can be a great way to build your wealth, but it can be challenging if you don’t have money saved up already or a rich family member to back you. The Small Business Administration (SBA) offers loan programs under which the government works with banks to get your loan approved for anywhere from $500 to $5.5 million and guarantees — as long as you are eligible — that the loan will be repaid if you default.
An SBA loan can offer better terms than other loan options. SBA loans can include competitive interest rates, lower down payments and no collateral requirements.
Venture Capital
According to Steven Kibbel, certified financial planner (CFP), entrepreneur and financial advisor at Kibbel Financial Planning exploring venture capital is another powerful way to use other people’s dollars to stretch your own. “When advising ambitious entrepreneurs on scaling strategies, I often recommend considering venture capital,” he said.
Kibble shared the story of one client that developed an innovative technology but required significant resources to launch their business. After working with his clients to refine their vision and market potential, the team pursued venture capital (VC) opportunities. Once his clients delivered a promising presentation to a leading VC firm, they were rewarded with terms that delivered generous start-up funds in exchange for equity.
“As anticipated, this outside investment enabled phenomenal growth through optimized industry access. Within a short time, my client surpassed projections through substantial market traction,” he said. “It was rewarding to see how their outcome followed the trajectory we envisioned when pursuing VC seemed the rocket ship to maximizing their scale.”
Silent Partners
Not everyone who invests in a business brings the same skills or assets to the table. In fact, in some businesses, some partners simply bring the capital to the table and let others invest their time and expertise to make sure the business makes money.
When you have a brilliant idea but lack cash to bring it to fruition, you might be able to convince someone else to act as a silent partner in the business. The silent partner supplies the money to get the business going, you put in the sweat equity to make it run — and you both share the profits.
401(k) Matching
The rule of “paying yourself first” applies to retirement savings as well. When your employer offers a 401(k) plan, make sure you take advantage of any matching contribution the company offers to boost your plan balance.
Otherwise, you’re turning down free money that other people are giving to you — not loaning to you — to save for your retirement. For example, an employer might offer to match your contributions up to a certain percentage of your salary. Plus, all of the contributions grow tax-free in the 401(k) plan until retirement.
Angel Investors
When you need to scale your business to the next level, an angel investor might be able to help. An angel investor invests money in exchange for an equity stake in the business and might also be willing to provide expertise and business knowledge to help you grow your business. As your business grows, if you need more cash, you might reach a point where venture capitalists are also willing to invest in your company.
Crowdfunding
Out of the various fundraising-via-internet opportunities, crowdfunding has emerged, which is when entrepreneurs reach out digitally to the masses to back their business idea. You can engage in rewards-based crowdfunding by promising a future reward, such as a future product or service.
For example, you could pitch a new product idea that — once you perfect your prototype — will be the best option out there. Then, offer to send everyone who “invests” at least $150 a gift, like one of the first models from your yet-to-be-completed assembly line.
More From GOBankingRates
