The gap between the rich and poor seems to be growing wider every year, and it can be frustrating to wonder why that’s happening. It’s no secret that the wealthy have access to resources and opportunities that the rest of us don’t, but what is specifically contributing to their continued accumulation of wealth and how can you get a slice of the action?
Firstly, to make it clear, the rich aren’t necessarily smarter than anyone else, but they have mastered some important principles that help them get ahead and stay ahead.
In this article, we’ll explore the reasons why the rich keep getting richer, the difference between assets and liabilities, and how by investing in assets such as stocks and property, you too can work towards achieving financial security & generational wealth.
Understanding the Power of Investing
Who doesn’t dream of becoming wealthy, so they can stop working, go on guilt-free shopping sprees and take endless holidays without the worry of money?
However, believe it or not, most rich people don’t do those things, and that’s part of how they build and maintain their wealth.
- Investing in Assets vs. Spending on Liabilities
To understand how the wealthy stay wealthy, you need to understand how the rich view liabilities and assets.
The wealthy understand that there’s a difference between living a life of careless spending on liabilities such as expensive cars, exotic holidays and extravagant shopping sprees (which will quickly drain even a wealthy person’s bank account) and living for long-term financial independence and wealth.
Instead of saving their money for a rainy day or spending it on liabilities that drain their finances, they invest in assets that generate income and appreciate over time and from here, they can build wealth and create a legacy for future generations.
But how are the wealthy living in stunning homes, driving nice cars and going on exotic holidays? To put it simply, they spend the income generated from their investments.
- Create multiple income streams
The easiest and fastest way to make more money is to have multiple income streams. That way you always have money coming in and can use the excess income to invest in new income flows. This is the primary way the wealthy stay wealthy.
There are two forms of income: an active income where you work for the money you earn, and passive income, where the payment you receive isn’t directly linked to the number of hours you work.
Some forms of passive income include dividend stocks, rental properties, index funds, creating an educational guide, all of which bring in a steady flow of income without much input from you.
- Good Debt vs. Bad Debt
It’s important to look at the way you manage your debt, whether it’s good or bad.
Good debt: Uses debt to acquire assets that increase in value, like a mortgage on a rental property.
Bad debt: Uses debt to buy liabilities, such as credit card debt or a loan for an expensive car.
By avoiding bad debt and leveraging good debt the wealthy build their wealth. But remember to be clever with your money and make sure that your debt is working for you, not against you.
- They avoid keeping their money in the bank
Savings accounts are a great place to keep your emergency fund – the money you need on hand to cover unplanned expenses. But once your emergency fund is complete, it’s a smart idea to invest your money so it grows into a larger sum.
It’s a tactic wealthy people employ all the time. In fact, you’ll often find that rich people actually only keep a small portion of their money in the bank. Instead, they put the bulk of their assets to work by investing it instead. And if you want to increase your chances of becoming wealthy, it pays to do the same.
- Invest in Property
Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate. ~Andrew Carnegie
So why do the wealthy invest in property?
The benefits of investing in property are numerous. With well-chosen assets, investors can enjoy predictable passive cash flow every month, long-term capital growth and tax advantages – and it’s possible to leverage the property to build even more wealth and security. We go into more detail about this in this guide here
To Recap
- The wealthy understand the important concept of investing their money into income-generating assets that also increase in value over time – building long-term generational wealth.
- They spend on liabilities using the money that is generated from their investments.
- They understand that keeping their money in the bank is a waste of their resources
- They leverage good debt to increase their wealth over time.
We hope you found this useful and if you’re ready to start building your wealth through investing in property, we can help.
Our experienced team can help guide you through the entire process with our unique hands off investing model.
Want to know more? Click here to download our latest 2023 Property Investing Guide.