Imagine you had $25 million as your net worth (which is now the minimum by private banks to be considered “rich”). That may seem like an unobtainable sum of wealth to you. You may be jealous (don’t worry, we won’t judge if you are) and may even think that people who have reached this threshold had everything given to them. This may or may not be true. Regardless of reality, the truth is that thinking like this will not help you rise to the same level.
There are three principles that the truly wealthy live by that 99.99% of the world does not. If you can open your thinking and embrace these principles, then that $25 million goal will not seem like a pipe dream.
Have Conviction For What You Want
One common “excuse” for how people wave off why they cannot be rich is because they would rather be healthy or spend time with their family instead of sacrificing their life to money. The joke is on them because many wealthy people did not have to sacrifice their health or family to get to where they are.
What they did and still do sacrifice is everything that does NOT bring value to their lives. They determine what they care about and cut off all else. Do fancy cars bring you a disproportionate amount of joy? Then make that your goal. Do you believe lattes hold the meaning to life? Then keep buying them.
The difference is that many people try to live a lifestyle that would make them look good to others. Have you ever spent money because you felt you raised your status in the eyes of others as a result? Then you may have fallen into the trap of spending money to make others jealous instead of making yourself happy.
Wealthy people use money on what they value; not what others value.
This is why they are willing to sacrifice vacations, Saturday nights out and luxury apartments so they can invest all of their resources towards what they truly desire. Have you ever wanted something so bad that you would do anything to get it? Take that, sustain it over a long period of time and you get the feeling the wealthy had as they were building themselves up.
Yes, this involves delaying gratification. People underestimate this since they do not understand just how much your brain works against you in getting immediate gratification.
Step 1 is figuring out what you want, why you want it and what you want to do to get there. Step 2 is where things get fun.
Get Assets to Make You Money
After the drive and motivation, this principle is the mindset that really splits the wealthy from the rest. Even now, the vast majority of society believes that getting a secure job is the safest and the only way to earn income.
What most people miss in this picture is that jobs are a trade of time for money. The moment you stop working, you no longer have any income being generated. That is why getting laid off is a constant fear in people’s lives. On the other hand, the wealthy don’t operate from this place of fear. They look to either create or obtain assets that create income for them.
One common source is from dividends through stocks. A less common but still prevalent way is rental income through holding real estate property. And yet another way is to create or buy a business.
These are only three of many ways to use assets to generate income but I picked these three because they are a great way of showcasing the level of work needed to generate higher and higher returns.
Dividends Through Stocks
These are rather simple to acquire, especially thanks to the surge of financial technology (“fin-tech”) companies that have made buying public stocks easier than ever. Typically you are paid every quarter for the period of time you owned a dividend paying stock. This timing of and the amount you are paid can vary from company to company. Once you acquire the stock, you no longer need to do anything.
However, the con to this is the upfront capital required to buy enough dividend stocks to hit your financial income goals. You may have thought of using margin trading, where you borrow money to buy stocks, to get around this problem. But only certain dividend stocks are eligible for this and your broker holds onto the dividends until you sell. So leverage does not help you here.
Moreover, you will have to be comfortable giving control of your capital. When you own shares of a company, their C-suite and board decide how the company, not you. How much return you get on your capital will be independent of what you do.
**Protip: The ending of this infamous book that dives into why 99% of Wall Street will never beat the market recommends that you invest in a dividend paying index fund.
While there are plenty of assets in the world that can help you earn income, real estate is a special one that has a long history as an asset class and has long been known as a source of passive income.
Let’s imagine this scenario. You pay rent every month for $1,200. You wish you could put that money to savings, investing or something else besides your landlord. So you go out, research a market thoroughly, network and find limited partners to fund your deals.
Yes, many real estate investors do not fund their deals with their own money. Instead, they use OPM or Other People’s Money. Why would other people invest in them? Because they have the time, hustle, knowledge, experience and network to bring together a deal. And getting part of a deal is ALWAYS better than having no deal, for both the investor with the money and the investor who is hustling for deals.
So you set up 50/50 partnerships, have your partner put up the 20% down payment and take out a mortgage on your name and credit on 3 deals. If each property net cash flows for $800, then your 50% for each property totals up to $1200. If you lose your job, you no longer have to worry about whether or not you have to pay rent.
If you want to learn more about real estate investing, I suggest you start here.
Owning a Business
And finally, the last category of assets you can use to bring you income are businesses. These require the largest amount of work, post the highest amount of risk and also give you the highest potential for returns.
Let’s say on the side, you create a simple app. You charge each user a subscription fee of $2 a month. If you get 600 users, that also gets you up to your $1,200 monthly rent expense. You don’t need a huge audience, just enough to match your financial goals. Of course, the product development, marketing and sales efforts required for this “simple” app may be more than you bargained for.
But if you have little to no money to begin with, then all you have to do is find a way to provide enough value to a group of 600 people that they are willing to pay $2 a month for that value.
If you do happen to have the capital to deploy, you can also buy businesses that are already generating income. You can find these through brokers, your network or even websites that connect you to businesses that are selling. Depending on how you set them up, your businesses can be passive, semi-passive or require some amount of time every month to keep them up and running.
If you see the wealthy diversifying by opening or buying different businesses, that is because they see those businesses as assets to help them make more money.
We have only covered the basics here so I hope you continue to look into these opportunities yourself and see what you can do to create wealth for yourself.
You Are The Average Of The 5 People You Are Around The Most
The final principle I want to leave you with is who you choose to spend your time with. There is plenty of research that supports how the people around affect your behavior. In one instance, your memory can actually change depending on how the people around you are reacting to the situation.
The wealthy are picky with who they spend time with because they understand that social contagion is real and that time is a resource they can never get back. This does NOT mean they only hang out with other wealthy people. On the contrary, they spend time with whoever they can learn from and whose perspectives help them broaden theirs.
This is why you hear so much about entrepreneurs who constantly try to hire smarter people than themselves for their startups. If they are the smartest person in the room, they are doing something wrong. There are so many experts to learn from in their own specialties. If even the wealthy benefit from this, why couldn’t you?
This also means the wealthy really focus on the relationships that matter to them. Business is a relationship game. You find a business through referrals. You work with people you like. You trust people who have made beneficial recommendations to you in the past.
They understand that relationships are NOT transactional. You do not develop a relationship by saying you can do X for me if I do Y for you. If we want to put this in game theory terms, this is not a single round setting. Relationships are a game unfolding over many rounds. In other words, don’t try to screw over someone to get one win. Over the long run, this is never worth it.
The Bottom Line
These are the three principles the wealthy follow. They are not always easy to follow but they are a common denominator for how the wealthy operate. Hopefully, you can start to piece together ways that you can learn from them. Because life is too short to be kept as a frog at the bottom of the well.