How the rich get richer
Have you ever wondered how the rich are getting richer? And broke people stay broke? And how broke people, middle class people and rich people spend their money? We will show you how rich people spend their money, and the broke getting broker, and why the middle class remains so stressed out. So, for getting started, first I want to review some financial terms:
- Cash flow: money you bring in
- Expenses: money you spend
- Assets: something that pays you
- Liabilities: something that costs you
As an example, a house can be an asset, but also it can be a liability. A house can be an asset, when for example you rent it, so your house pays you every month.
How the Broke Spend:
When I say broke people, I'm referring of a large portion of our society who live from paycheck to paycheck, and at the end of every month they don't have money, and I'm sure that many of you are part of that group. This group of people buy what I'm calling "stuff". So, what's "staff"? That's inexpensives things that people buy, but they don't really need them to survive. So, the broke people use their cash flow to buy "stuff". Broke people never educate themselves to buy assets and they justify buying stuff because they costs so little. Their problem is that their cashflow never create more cashflow. Creating wealth is not a mystery, is a formula. The only reason someone doesn't create wealth is they don't know the formula or they don't apply the formula.
How the Middle Class Spend:
The middle class is the group society thinks are rich... but they are not. Yes, they probably have a good income, and many of them appear rich, but what they buy with their money keep them prisoners of middle class. What they tipically buy are liabilitie (things that costs you). Liabilities are things like cars, boats, houses, airplanes, etc. For example, a person from middle class who earn $10,000 montly, with $5,000 of them they pay their monthly expenses, and with the other half they buy a new car. Next month they buy a new home, then a vacation, a Rolex watch, etc. Another problem with the middle class is that their cashflow is dependent by their effort, meaning that they educate themselves to sell their knowledge and expertise for someone else money. For example: a software engineer is payd very well for what he knows. In this sistuation, the engineer is selling his time and his knowledge for what he knows. On the surface, life is pretty good. The reality is that this group, at a point in time will be very frustrated, because if they want to earn more, they have to work more.
How the Rich Spend:
Rich people require assets (things that pays you). If you wanna become rich, buy assets that earn you more money. The money circle looks like this: aquire assets that produces cash flow, invest the profit in assets that produces more cash flow, and so on. The rich spend their money in assets that produces more money. Here are a few examples of assets that produces more money: stocks, bonds, real estate, education and any other source that produces more money for you, that's an asset. Another asset that you can buy is: cash generating opportunities, especially those opportunities that can create a pasive cashflow. Passive means that maney continues to flow while you can still building it or not.
The rich are extremely eager to find these cash generating opportunities, because those opportunities continues to pay them month after month, year after year, and continues to pay them even after they stop working on that opportunity. These happens again, and again with succesful entepreneurs. They find the passive cashflow stream that they build up and continues to pay them month after month, year after year. They use the profits to invest in other cash generating opportunities and then again in another.
In conclusion, you can find these cash generating opportunities just when you are open to hear about them. Once you find them, you must be willing to invest and act. These opportunities are out here and you just need to find them. You must be opportunistic enough. So remember: broke people buy stuff, the middle class buy liabilities, and the rich buy assets, preferably cash generating opportunities, that can generate passive cash flow. They take the cashflow and invest in another asset that produces more cashflow. That's the wealth creation formula!
Category: All business