How to Create Personal Wealth

Donald and Mildred Othmer were ordinary Americans. Don was a chemical engineering professor in Brooklyn. Mildred was a teacher. They never did anything extraordinary and never had great luck at anything, yet they did amass a $750 million fortune before they died.

They did it by following two principles that we talk about constantly:

1. Have a second income. Both Don and Mildred developed secondary sources of cash. Don wrote and filed patents. Mildred worked as a buyer for her mother’s dress shop. This extra income wasn’’t ever phenomenal, but it was, for many years, significant (in the range of $15,000 to $50,000 per year).

2. Invest it wisely. The Othmers put all of that secondary income into “value” investments. Since they understood that they did not and would never understand other people’s businesses well enough to predict how they would perform, they invested their extra income in businesses that had good “fundamentals.” The stocks they invested in represented companies with a steady history of growth and earnings. They favored businesses they could understand.

Luckily for them, they found one company with a growth plan that reflected their conservative investment philosophy: Berkshire Hathaway Inc., Warren Buffet’’s company. The Othmers were so impressed with Berkshire and with Buffet’s analysis that they bought $50,000 worth of the company’s stock. How good an investment did that turn out to be? They saw their $42 shares go up to $77,250. You don’’t need to be lucky enough to pick Warren Buffet as your stock adviser to become wealthy. Had the Othmers invested in any ordinary index fund (or even municipal bonds), their net worth would have been in excess of $100 million. That’’s plenty enough for a comfortable retirement, don’’t you think?

The Othmer formula — having a second income and investing it wisely — applies to folks who have regular jobs and don’’t have the nerve to give them up. If you have your own business, you should not find something additional to do but instead do more in your business. Treat that “more” as a second job and take all the money you make from that and treat it exactly as the Othmers did. The important thing is to develop a comfortable lifestyle that allows for all your needs to be met on your “regular” income and then create — for your personal wealth fund — an additional $5,000 to $50,000 a year (or more if you can) that can grow steadily, taking advantage of the miracle of compound interest.

Here’’s what you can do today: Figure out how to make an extra $5,000 to $50,000 in the next 12 months and promise yourself that you will invest every penny of it.