How to Get Rich 101
Yes, there is a key to how to get rich.
It’s not a product or a 10-step program. It’s free. It’s a pattern of behavior used by ALL the self-made wealthy including Richard Branson and Warren Buffet. If you want to be rich, you must first master this pattern.
The rich buy assets, then things. The poor and middle class buy things, then assets.
Think about it. If the average person received a paycheck for $1,200 tomorrow, how would they spend this money? They’d pay their rent, pay their cell phone bill, buy groceries, go out for drinks, buy that ‘one thing’ they’ve been wanting, and then invest whatever remains. If they’re lucky, they might stash away 10%. But their car battery just died unexpectedly. Investing will have to wait until next month.
On the other hand, if you invested the full $1,200 and earned 10% APY (for the sake of simplicity) on your money, you would earn $120 per year for the rest of your life! Which would you rather have: $1,200 once or $120 per year for every remaining year of your life? The latter, of course. It’s a lot more money!
Sure, saving the entire $1,200/month isn’t feasible if $1,200/month is your only source of income. One has to eat, after all. But you get the point. Start small. Let’s go further and look at lottery winners.
It’s a true fact that lottery winners very frequently go broke even after winning millions of dollars. Their stumble into wealth meant they did not have to build the mindset necessary to create and grow wealth. Let’s take Bubba, our hypothetical lottery winner. He’s an affable fellow, but dim witted and probably 30 lbs overweight with a minor stench too. “WooHoo mama, we’re rich!”
Now once Bubba blows all his new cash on things, he acquires only a massive amount of doodads that only depreciate in value. This is the worse way to use the money. Or if he is more responsible, a lot more prudent, and kind of boring, he just puts the cash in the bank. Over time, inflation eats away at his purchasing power and his wealth still shrinks. Bubba just can’t win.
So why isn’t Bubba building wealth like rich people?
It’s simple really. The rich know that cash itself does not make you rich. Assets make you rich. Or more specifically, assets that generate cashflow.
If our lottery winner had the mindset of a wealthy person, he would invest his cash into assets—like rental properties, franchises, stocks, bonds, or even into starting his own small businesses. He could then spend the cash flows from these assets without eating away at his wealth (his assets). Or if he reinvested these cash flows, he’d grow even richer!
So we need to redefine ‘rich.’ ‘Rich’ is NOT having lots of cash. Rich is having lots of assets that generate cash flow. Focus on collecting as many assets as possible, then the cash flow will follow.
This can be hard to teach the people around us that we love, but it’s so important.
Most of us have little money to purchase assets. That’s okay though, because purchasing assets like stocks from a public market is actually one of the worst ways to become rich because these assets are expensive by their very nature of being publicly traded. It’s why so many entrepreneurs and venture capitalists dream of ‘going public’, because the valuations (price) that they receive for the company they built is higher than any other exit strategy. So purchasing stocks and other public assets is a slow way to becoming wealthy.
On the other hand, entrepreneurship is much quicker and puts you in control. Really, entrepreneurship is the only viable way for someone of little means to ever become truly rich. If you build a company, you can sell it for a multiple of its future cash flows. So if your business makes $200,000/year, you don’t sell it for $200,000, you sell it for closer to $2,000,000 (a conservative 10x multiple)! And then you can reinvest this cash into new start ups or other assets.
If you weren’t born into money, and I wasn’t, entrepreneurship is really the only to get rich and achieve financial freedom. So that’s why I’ve focused on reading as many of the best entrepreneurship books and best business books as I could. You can learn a massive amount that will change your life from these classics. So don’t put it off. It’s your life. Get a few books today. This website is also full of ways to create your own assets as an entrepreneur.
The first step for how to get rich is always the same: Change your mindset to focus on collecting or building assets and you will have an abundant future! Invest in your assets!
Check out the two classics on this: George Clason’s The Richest Man in Babylon and Robert Kiyosaki’s Rich Dad, Poor Dad. The Richest Man in Babylon was such a hit when it came out that CEO’s gave it as gifts to their top managers and closest friends!
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Interesting read about building financial wealth, I’m looking at how I can build my financial future and not be another poor photographer… part of this I think has to be reining in my spending and instead making regular investments in myself and my assets in the long term.
Yeah, I think you’ll be fine. You work harder than most any one I know. If you really want to learn more, my two favorites books to get started are The Richest Man in Babylon and Robert Kiyosaki’s Rich Dad Poor Dad. The latter is more modern and a bit more fun. But they’re both great.