There are many ways to look at rich people. One way is to think that they are this genetically distinct group of people that you’re not a member of. It’s comforting to think along these lines because you “explain” to yourself why you will never be rich. But unfortunately, this is one explanation that robs you of your future potential for economic upward mobility. Don’t do that.
If you think about it, a lot of rich people now weren’t rich before. According to long term studies in the United States and elsewhere, there is actually quite a bit of net worth mobility or wealth mobility among groups of people. Ultimately, when you look at wealthy people and how they became rich, you would realize that it’s part of their ability to make certain decisions. It’s their ability to spot opportunities and behave a certain way so they reap optimal rewards.
The good news here is that if they’re able to do that, you can do the same. You might not necessarily end up at the same level, but you can definitely end up with something much better than you have now. It really all boils down to what you choose to believe.
It has nothing to do with genetics, it has nothing to do with inheriting a lot of money, it has nothing to do with systemic advantages or systemic “oppression.” Instead, it’s about basic day to day decisions that are often habitual and often informed and guided by certain ideas and information.
Here are the 8 things that rich people know that you probably don’t.
The Bank is the Worst Place to Put Your Money
If you worked hard for your money and you save, understand that you’re doing half of it right. You have to get the other half right for you to make the most use out of your hard earned money. What’s the other half? Get it out of the bank and grow your money. In other words, invest it. The bank is the worst place to put your money in because if you keep your money long enough in the bank, after enough time, your money won’t be worth much of anything. Welcome to the world of inflation.
The Higher the Risk, the Higher the Return
Rich people know that risky activities tend to pay a higher return. Accordingly, rich people actually look for risks because they know that automatically, these have higher returns. Poor people, on the other hand, run away from risk. They’re looking for safe havens. They’re looking for sure deals. They’re looking for slam dunks. And that’s why the returns tend to be low.
Rich people flock to risks and they take educated chances. Poor people, on the other hand, try to minimize the risks as possible and content themselves with ridiculously low returns.
Invest Money to Take On More Risk
Investing money can take many different forms. You can invest in many different things. But the more you risk your money, the more you stand to gain. What rich people know that poor people don’t is that risk can be managed. There are certain structural or legal or market protections for risk. Poor people don’t even bother to learn this. The moment they realize that there’s some higher than average risk, they tune out.
Buy Companies, Not Stock
This is one piece of advice that comes from one of the world’s most famous and most successful investors. That’s right, Warren Buffet’s investment philosophy can be summed up in this simple statement: buy companies, not stock.
Poor people or middle class people, on the other hand, buy the stock, not the company. They’re buying the hype. They’re buying the sizzle. They’re not buying the steak. Rich people, on the other hand, buy the company because a company might have a very high stock price now, but the company has so much potential that whatever premium you pay for it now is actually a discount compared to what the company will be worth in the future.
Most of the Time, Diversification is a Losing Game
Another unpopular thing that rich people know that a lot of middle class and poor people don’t know is the idea of diversification. Investment diversification makes sense if you want to make incremental changes in the value of your portfolio. However, if you want to increase the value of your stocks, you need to set aside diversification and focus on growth using calculated risks. Rich people know how this works and that’s why, with expert help, they’re able to grow the value of their investments sooner rather than later.
You Lose Money When Your Investments Don’t Rise Fast Enough
There is such a thing as opportunity costs. You have to understand that even if your investment is going up in value, if you had only invested that money in another investment vehicle, you probably would have made more money. This realization enables rich people to constantly monitor their investments and reduce opportunity costs. They pay attention to velocity of appreciation.
If the returns aren’t rising fast enough and they know of other alternatives, they would quickly switch because they know that time is their real investment. Whether we’re talking about compounding money or appreciation over time, you need to maximize the value of that time.
You Make Your Money Coming Into a Position
One mysterious truth about wealth that a lot of people, whether middle class or poor, simply can’t wrap their mind around is the whole idea of making your money when you buy. This is really just a fancy way of saying that when you look for investments, look for something that is so valuable, but so under appreciated, that you buy at an unnaturally low price. Believe it or not, this happens more frequently than we care to realize.
Rich people know this because they know how to spot opportunities and they jump in at the right position. Meaning, they buy at the really depressed or under appreciated rate. This has been Warren Buffet’s stock and trade for the longest time. That’s why he’s a multi-billionaire. Well, you can do the same on a much smaller scale, but you can still do it.
Trading Your Time For Money is a Losing Game
Finally, rich people are rich because usually, they don’t work for somebody else. Unless we’re talking about hotshot CEOs, most people who become rich do so because they left their job and they invested or they started businesses. Why? Well, if you work for somebody else, you’re trading your time for money.
This is a losing game because you’re trading your most precious asset: your time. Time can be turned into money, but not the other way around, unless you hire people. Do you understand how this works?
So instead of trading your time for money, leverage other people’s time by employing them through your business or investing. This is the cornerstone of wealth in the United States and elsewhere. Stop trading your time for money.
Recommend Read:
Investing For Beginners is the newbie investor book you ABSOLUTELY need to read if you are completely clueless about investing.
This book gives novice investors a clear view of why they should invest, how they should invest, different assets they can invest in, and simple strategies they can use to maximize the growth potential of their investment.
Click on the following links to GET it Now-
Get Audiobook Here or Get Paperback Book Here
