Identify what are assets and what are liabilities:
To grow rich and achieve financial independence, this is the first and fundamental lesson to be learned by anybody starting their financial career. Anything that brings money to your income statement is your asset. Lesser the need for your presence to make that asset work, better. otherwise, it will not be an easily scalable model.
Some of the businesses of that kind are:
- Rental income from a busy and prominent area of a city. This income keeps growing with time along with inflation. Apart from this cash flow, the land value will grow which makes your net worth grow. But the initial investment is usually high which makes it hard for common people to buy and hence a high moat business. If you have enough money, you can start buying and earn. otherwise, you need to envision the area which is going to grow huge next in the city, buy there and wait for a few years.
- Create a web/internet/app footprint that has a high traffic rate. This could potentially create ad revenue.
Rich buy luxuries late:
- Car is a liability and taking loan to buy and maintain that liability is literally holding yourself from freedom.
- Same is the case with Home loan, if it is a bad debt meaning the rate of appreciation of asset bought is less that the interest rate.
- Luxury marriages, vacations and parties are of pretty much giveaways only rich people can afford.
- Rich buy or enjoy these luxuries when they are financially stable and they don’t have to sell any of thier asset column to purchase those.
Poor guys income statement compared to rich guys income statement:
How corporations help rich with taxes:
Rich people show their income as the corporation’s income and subtract expenses of the corporation from the income to get taxable income. This saves a lot of tax amount, unlike the salaried employee.
Rich guy corporation income statement leveraged with personal income statement:
Individuals earn, government taxes them and then they get to spend, but corporations earn, spend and then pay taxes on the rest of the income.
Information is wealth:
Today, having right information at the right time is true wealth. It can be regarding the infrastructure coming up in the city to identify right real estate, changes in law giving advantage or disadvantage to a particular company, predictability of performance for the next quarter, new clients looking for your product etc. Investing is not buying, it is more a case of knowing. A great property manager who hears best deals early is key to success in real estate, also pay your brokers well as you want to be in touch with them and maintain good relationship for hearing best deals.
Rich dad says know a little about lot of things rather than knowing only one thing.
- Cash flow management.
- People management.
- Management of systems.
Have rich friends:
The reason you want to have the rich friends is because that is where the money is made. It is made on information. Hear the next boom, get in and get out before the next bust.
Listing some assets:
- Businesses that do not require your presence.
- Stocks – Fortunes are made in new stock issues(new stocks are tax-free), use stop losses punctually to reduce risk.
- Bonds – ELSS tax exemption bonds, Fixed deposits etc.
- Income generating real estate – Real estate in Amaravati has grown 20x times during 2014-2018.
- Notes (IOUs).
- Royalties from intellectual property.
If you want to see how I have become a multi-millionaire and retired by the age of 30, click here.