If you ever had the thought or impression that there must be some secret insider knowledge
about making money that only rich people know. This is probably because there is.
The richest 1% of people now hold more than 40% of the world’s wealth,
and this is not by luck or chance, after all the rich don’t believe in that. But, even though the
chances of an average Joe becoming a billionaire are slim, we can still manage our money like one.
The truth is, it usually comes down to two principles,
drive and smart financial planning. So, here are secrets rich people don’t want you to know about
money, but we are going to share them with you anyway. So grab a pen and paper, and be ready
to take down notes, because these principles can get you closer to achieving your big goals!
Before we get into the video, welcome to practical wisdom, and on this channel, I will
share with you knowledge and information to help you take your financial game to the next level.
So give this video a thumbs up for that YouTube algorithm, and subscribe if you are new.
Now, let’s begin, shall we?
Principle Number 1: Your money should be working for you, not the other way around
Conventional wisdom says that you must get a job and work hard to build wealth.
There's truth in that, but if your only means of income involves trading time for money,
then your income potential is limited by the number of hours you work in a week.
The wealthy know that making money doesn't always require hard work,
and they take every opportunity to generate new sources of passive income.
Passive income can come from several sources, including rental properties,
royalties on creative works, or investing. You don't need a lot of money to start investing, but
it's important to keep your portfolio diversified so you don't expose yourself to too much risk.
Don't try to time the market by selling when you think it's at a peak,
or buying when you think it's at rock-bottom. That approach is almost guaranteed to lose you money.
You're better off buying quality investments and holding them for the long term.
It's important to understand the costs associated with all of your passive income streams.
For example, if you run several rental properties, there may be maintenance costs that eat into your
profit. Similarly, when you invest, there may be costs associated with your investment products,
like fees for each trade or expense ratios on mutual funds.
Try to keep these low to help maximize your profits. Index funds are a great choice for
investors who want a cheap way to diversify their portfolios and earn substantial returns.
Principle Number 2: Don’t Waste Money to Impress Others
Contrary to popular belief, most rich people don’t spend their
time and money trying to impress others. Riches and wealth is not a race. They know their value,
and most don’t see the need to show financial dominance. In fact, many wealthy individuals
wouldn’t have become rich if they had spent their hard-earned money buying things to keep up with
the likes of John down the street, who lives in big house and just bought a brand new sports car.
Authors Thomas Stanley and William Danko,
also agree to this statement in their 1996 best-seller, “The Millionaire Next Door:
The Surprising Secrets of America’s Wealthy,” In the book he mentioned that a couple of key secrets
of the country’s richest people are living below their means and rejecting big-spending lifestyles.
Spending money to appear rich before you actually are rich,
is a surefire way to sabotage your wealth-building goals. So, forget about
the ‘Instagram millionaires’ and focus on what matters: accumulating wealth in the coming years.
Principle Number 3: It's best not to go it alone
Wealthy people don't always know the most about finances or investing, but they do understand the
value of expert advice from a professional. While some people might shun away the cost of hiring
a financial adviser to manage their money, the wealthy understand that, with an adviser's help,
their money could grow faster than it would if they were managing it on their own.
A financial adviser may be able to suggest investments and strategies
that you hadn't considered to achieve your financial goals more quickly.
It's crucial that you choose a fee-only adviser, though. Unlike fee-based advisers,
fee-only advisers don't earn commissions on the investment products they sell to you,
so you don't have to worry about any potential conflicts of interest.
You see, wealth rarely comes overnight, but by being responsible with your money,
and seeking out new and greater sources of income, and asking for help when you need it,
you can steadily grow your net worth over time.
Principle Number 4: Have Plenty of Liquidity
The rich make sure they have sufficient liquidity, or cash, to cover their short-term needs.
They maintain an emergency fund so “they don’t have to disrupt their life for an unexpected
occurrence”. The fact that rich people have money set aside for a rainy day isn’t solely a function
of their wealth. They have cash reserves because they are disciplined enough to save.
Everyone should aim to build an emergency fund with enough cash to cover six to nine months’
worth of expenses. However, you don’t have to set that much aside all at once.
You just need to be working toward that goal with every paycheck. With that in mind, arrange to
have a set amount automatically transferred from your checking account to savings each month. It
should be a target that you set your mind to every month, and one that isn’t too easy nor too hard.
Principle Number 5: You Can Buy an Apartment Building (Even If You’re Not Rich)
So let me teach you how. You see, historically, real estate investing
offers the best long-term returns. A real-life proof of this is Rockefeller. Ring a bell?
There are companies and investment companies that help you in making long-term investments
in apartments and office buildings all over the country. Although you will
not fully own the property, you have the opportunity to have a stake in the action.
The beauty of this is that you don’t have to be a millionaire. All you need is $500 to get you
started, these are companies like DiversyFund. And such companies have helped rich people
continue to own their share of the real estate pie, without having to strain their pockets.
When starting out, do consider such options. Because such companies know how
to ride out the market’s ups and downs, they’ve historically seen annual returns of 17% to 18%.
As a partial owner, you make money on rent payments and when property values go up.
Principle Number 6: Avoid Fees at All Costs
Fees can easily get out of hand and eat away your wealth. Whether it’s a late fee on a
credit payment, a foreign transaction fee from using a debit card abroad,
or an overdraft fee on your checking account, it’s important to avoid incurring unnecessary
fees. As stingy as it may sound, the rich know how much of a pest these fees can be. They understand
that every fee they pay means less money in their pockets, so they try to avoid them at all costs.
Principle Number 7: Time is your most valuable currency
When it comes to investing, your most valuable asset without a doubt is time.
Trading time for money is a loser’s game, especially as technology makes redundant
many jobs that don’t require a highly skilled human being.
For this principle, you need to through away any teaching you have heard about
working for long hours and pain for money. If you truly explore this avenue,
you will find that hard labor is tasking, yet the returns aren’t substantial enough.
Compare someone who works at a mine, digging the earth all day, while someone who works at
wall-street, only invests an hour or two, yet making great returns. Also, in another
perspective, if you choose to invest your money today, slowly by slowly you will end up building
your portfolio. And before you know it, that $500 will grow to $1,200 by the end of the year.
Principle Number 8: Growing Money
Non-wealthy people think you get wealthy by finding the quote-on-quote “hot stock”,
but rich people understand the key to building wealth is compounding.
This means you can build wealth by watching your money grow year on year.
A good example is by using your employer-based retirement plan, and then supplementing it with
an individual retirement account (IRA). The best option in both cases is a target-date retirement
fund: long-term investments that are pegged to a future retirement date. The holy grail is index
funds, as opposed to actively managed funds where the adviser is trying to beat the market. You can
test the waters with money that you’re comfortable losing, whether that is $100 or $1,000.
Principle Number 9: Don’t quit until you get the deal
Know your worth and stick by it. Do not sell yourself short. Ensure you get the best because
you deserve the best. Most people are comfortable taking the “L’s” because they are used to it,
but the rich will always stand their ground and claim compensation.
For example, do not stick around with a computer that broke down on you simply because you
initially bought it at a discount, the repair costs may require more than the purchase cost.
As long as you haven’t broken any rules, you are entitled to a refund or full repair.
Principle Number 10: Asset Location Is as Important as Asset Allocation
If you’ve read anything about investing and saving for retirement, you’ve likely
encountered advice about asset allocation. It means having the right mix of investments,
rather than putting all of your money in just one asset.
However, the rich know that asset location is just as important as asset allocation.
In other words, the rich don’t keep all of their assets in one type of account,
such as a tax-deferred retirement savings account. Instead, they spread it around. Wealthy people
also have investments in brokerage accounts to limit the impact of taxes in retirement.
Principle Number 11: Salary Isn’t the Whole Story
Climbing the corporate ladder will only get you so far. At some point,
you reach your earning potential and plateau. The rich know that in order to grow wealth,
it’s important to make your money work hard for you, not the other way around. In fact,
Robert Kiyosaki, author of the No. 1 best-selling personal finance book,
“Rich Dad, Poor Dad,” built his entire money philosophy around this concept.
Generating income from passive rather than active income sources is the best way to do this.
Investments that yield passive income include dividend-paying securities,
rental properties, profits from a business you do not directly manage on a daily basis,
and royalties on creative work or inventions.
Principle Number 12: Savings
If you are already vigilant about tracking your finances, whether it’s your bank account or your
401(k), you’re already on the right path. Some of the most valuable money you can save is the
money you earn in your 20s and 30s. It is recommended to have a weekly money date.
People whose net worth is somewhere in the range of $10 million are often the most unassuming and
don’t feel the need to keep up with the Joneses. The ability to live beneath your means, rather
than look wealthy, is crucial if you’re angling to become a millionaire. Look at it this way,
you can make a million dollars, but if you spend $1.2 million, you’re in no better shape
than someone who makes $40,000 and spends $42,000. Another characteristic of people who are likely to
build wealth more successfully is a willingness to self-educate, even just at a basic level.
Even people with money pay attention to the minor tweaks that can save them some extra bucks.
Principle Number 13: Understand Value Over Cost
While it’s common for middle-income households to cut corners in order to save money,
they ultimately find the results are lacking. There is no need to compromise on value. The rich
know this. The wealthy look at value over cost, but they are still prudent in their decisions.
They keep close people that will help them maximize their wealth, especially over multiple
generations, and they are not afraid to spend money upfront for counsel to get these answers.
These people can be their attorney, accountant, or advisor.
Principle Number 14: Use Other People’s Money
To the average person, the old saw that “it takes money to make money”
might sound like a tired cliche used to justify irrational spending. For the wealthy, however,
it’s a golden rule. The key is leveraging other people’s money to increase your own wealth.
As mentioned earlier, trading time for money is a loser’s game,
especially as technology destroys many jobs that don’t require a highly skilled human being.
However, using money from banks or investors and hiring people to work for you is a time-tested
formula for building wealth, not to mention the tax laws, which heavily favor businesses.
Whether you’re fundraising to start a business or flipping real estate for a profit,
relying on other people’s money to do the heavy lifting greatly increases the return.
Of course, it’s also riskier than relying on your own funds. But as legendary investor
Warren Buffett once put it: “Risk comes from not knowing what you’re doing.”
And finally.
Principle Number 15: Don’t Pay With Credit Cards
Credit cards are a great way to build your credit score, however, if you want to be wealthy,
it’s important to never live above your means. One way to ensure that is to only spend money you
actually have, rather than charging purchases on a credit card and getting stuck in a cycle
of high-interest payments. Simply put, if you use a credit card, you don’t want to be rich!
Well, there you have it guys.