THINK RICH GET RICH – Making money, some say, is difficult but making money work for you is even more so.
We all know how easy it is to spend and it is sometimes our spending habits that prevent us from becoming wealthy. It’s not so much about how much you spend it’s more to do with what you buy.
Let’s look at the fundamental basics of accountancy:
Cash Flow – This is the amount of money that you are able to generate or bring in.
Expenses – This is the amount of money required on spending to generate the income or cash flow.
Assets – This is something that many people get confused about. For instance most people consider their homes as the biggest asset they own and yet in most cases it’s actually the largest ‘liability’ they own.
It is much better if you define an asset as being something that makes you money. Consider your home and how much it costs you in mortgage payment. You can now see that unless you own the home outright and you’ve rented it out it is in fact a liability.
Liabilities – This is something that costs you money. As we have detailed above your home is probably a liability but there are a wide range of liabilities associated with making money; for instance the overheads on premises, the costs of legal and accountancy work, heat, light and electric, taxation and many others.
Above the Aston Martin DB9 – Buying such a car on credit is a fool’s errand.
Making money is primarily about tipping the balance of cash flow in favour of expenses and liabilities and accumulating assets that further divide the two in favour of cash flow.
The underlying issue with many people who struggle to make money over and above their needs is that they have a tendency to buy things they don’t actually need or splurge out on luxuries every now and then that often requires the use of a credit facility; either a bank loan or using the credit card, in which they pay off small amounts each month.
The greatest prisoners of debt in society today are not the poorer classes. You might think that the poor often have vast amounts of debt but in fact this is simply not true. Those on low incomes generally have very moderate debt.
The single most strapped debt members of society are those in the defined ‘middle class’ in which many earn six figure sums annually. Despite their illusion of wealth these people are the main perpetrators of credit card debt in society.
Middle class debt is also perpetuated through high end mortgages, car payments, boat payments and other material loans that further push them into debt and those with two or more children are even worse off as they fight a constant battle to find funds to put their kids through college.
Middle class debt is now so large in the Western hemisphere that most in this defined class have monthly liabilities above the monthly income which results in generating further debt by supporting the debt on credit card debt – it’s a vicious circle that has only one outcome – increased debt and finally bankruptcy.
In order to get rich you need stand back and take a look at the things that you own and the debt that you have and determine what you can do without. Do you really need two cars? How often do you use that boat? Could you downsize your home and reduce your mortgage payments?
The mindset appears to be that being wealthy will afford all the luxuries such as the house, the boat and all the vacations and this is true but the secret to being wealthy is learning the art of covering all your liabilities with your cash flow and still being able to retain a large portion of it at the end of each month or year.
The key to making money, and why rich people are in fact rich, is to purchase assets; that is to purchase items that will make you money. Rich people don’t go out and splash the profits on items that are not necessary but rather spend the profits on acquiring additional assets and so forth.
The idea is to continue until you have a portfolio of assets that continuously generate cash flow well above your liabilities which in turn allows them, without accumulating debt, to purchase a new car, a new home, their dream boat and to be able to take regular vacations.
I recently wrote an article on the state of the student loan debt in the United States and during that article I suggested that acquiring a degree was not only a fool’s errand it also was responsible for generating one of the largest financial liabilities you will ever accumulate, the Student Loan Debt.
We like to think of a good education as being one of the primary routes to being able to secure a great job that pays higher. Unfortunately the value of a degree is diminishing as so many people are now obtaining them. The illusion of wealth through a degree is burst when you realise that most students, upon leaving college or university, are saddled with a debt of more than $150,000.
Stop and think about some of the world’s billionaires such as Bill Gates, Mark Zuckerberg, David Karp and many others; all have one thing in common, they all dropped out of college because they figured while they were sitting in a classroom accumulating debt others were out there working, inventing and starting companies that were making them rich.
There is of course the old saying to consider;
“If you think education is expensive you should see the price of stupidity.”
This is of course true and I am not suggesting that education isn’t valuable but what I am suggesting is that real education occurs from hands on experience. If there is something you don’t know then you can easily find the information on the internet you really don’t need a college professor teaching you something he found on the internet or in a text book.
If you think for one moment that my view of education is a little off tilt then consider the fact that student loan debt in the United States today outstrips credit card debt considerably and currently stands at over $800 Billion.
Finally making money or creating wealth is about actively looking for opportunities. Wealthy people don’t generate wealth by sitting around waiting for something to happen, they actually look for opportunities or better still create opportunities.
Before you go take a look at the video above as this will help you understand why so many people never become wealthy and with this knowledge you will be able to stop the rot and begin doing something about it.
If you want to learn how to finance a business that you would like to try then watch the video below:
If you have any good advice on this subject please leave it below in the comments box.