The query “how can I become wealthy” is undeniably common. Parents typically encourage their children to strive for academic excellence to secure a profitable occupation, but do well-paying jobs necessarily secure steady wealth?
A quick internet search will yield countless articles with financial advice, from early investment to aggressive cost-cutting tactics. But does wealth solely depend on when you start investing? The crux of the matter lies not in timing, but where you put your money. If this concept seems vague, keep reading.
The Path to Wealth
Robert Kiyosaki, in his book “Rich Dad Poor Dad,” suggests that the pursuit of wealth requires a departure from working for money alone.
What distinguishes the rich from the poor? The poor generally contribute to the wealth of the rich, while the wealthy often exacerbate the poverty of the less fortunate.
Picturing an office worker earning $20 per hour, now consider the potential earnings of the company owner, comfortably resting at home.
Asset and Liability: Know the difference
Achieving wealth is more than simple investment or entrepreneurship. It’s not necessarily about earning more, but about retaining more. Understanding the difference between an asset and a liability is a crucial step. To put it simply, Kiyosaki defines:
– An asset as anything that contributes to your financial growth.
– A liability as anything that decreases your financial state.
The golden rule to wealth is to invest in assets consistently and curb the acquisition of liabilities.
The Ideal Financial Statement
Ensure your income exceeds your expenses to save a portion of your earnings. The common financial pitfall of the middle class is a financial statement that reflects more expenses and liabilities than income and assets. They often impose educational attainment as the solution to financial instability, leading them to an unsatisfactory financial cycle.
Here’s the typical cycle:
1. Employee works for 8 hours a day.
2. Company calculates their salary, and the government subtracts taxes.
3. Employee uses salary (post-tax) to cover house expenses and fulfill basic needs.
4. Employee spends leftover funds on commuting to work.
The main goal of employment should be to eventually move away from it, a cycle Kiyosaki refers to as the “rat race”. Work your way out of it post-college as soon as possible in order to avoid a cycle of ascending income and equally climbing expenses, which leaves little for savings.
Focus on Your Own Business
The true secret to wealth is focusing on your own business. Upon graduating, you’re eager to serve someone else’s business, essentially helping them get richer. Moreover, a significant portion of your hard-earned income goes to the government in taxes and to banks for credit repayments.
To prioritize your own business, you need to work for yourself rather than others. Your efforts should bring you added revenue. To break this down:
1. Join the rat race: Complete your studies, find a job, and start saving. Limit your liabilities.
2. Exit the rat race: Once you’ve saved enough, consider leaving your 9-5 job.
3. Invest in stocks: Start small and do not invest blindly. Educate yourself about the process.
4. Let your investments work for you: Shift from being money-dependent to making your money work for you.
5. Invest in more assets: As you gain expertise, explore other profitable investment opportunities.
Bear in mind that people often struggle to leave the rat race due to indecisiveness. As you start earning and buying the things you want, it’s easy to fall into the belief that the only way to make money is by working. Therefore, pen your financial goals prior to entering the rat race and prep to invest, earn, exit, buy assets, and make money through assets.