How to get Rich – Golden Rules and Principles

You might have noticed that rich become richer, while poor faces financial issues throughout the life. You will see rich people using simple things and middle class or poor having expensive ones on credit or installments. This article discusses how you can accumulate wealth like rich people and how it increases over time.

Rich VS Poor Mindset

The basic difference between rich and poor is the mindset. Poor usually goes after things that help them showing off. On contrast, rich usually invests in assets that help make more money through passive income (earning without working). Secondly, rich don’t work for money, they make their money work for them.

Principle 1: Understanding the difference between Assets and Liabilities

The basic accounting definition says assets are the resources that provide benefit to the business, while liabilities are something the entity is liable to payback. Here, the definition is slightly different. Robert Kayosaki, author of Rich Dad Poor Dad says: Assets is what put money in my pocket and liability is what take money out of my pocket”.

Keeping this perspective in mind, our home, car, cell phone, farm house and every similar stuff are liabilities, as they take money out of the pocket. On the other hand, properties, stocks, businesses and franchises are assets because they put money in the pocket. Here, the rule to getting rich is to understand the difference between assets and liabilities.

Principle 2: Pay Yourself First

Most of the middle class and poor make this mistake that they spend their salary on bills, mortgages, clothing and kids’ fees, etc. If still something is left, they save it. However, uninvested saving is useless because inflation devalues it. Usually, poor or middle class spend a lot on unnecessary things like latest gadgets, expensive cars and clothes, etc. On the other hand, rich people always use simple and affordable goods and always pay themselves first. It means they either save money or invest it somewhere that can generate passive income.

Now the golden rule is to save 10% to 20% from your monthly income and keep it aside. Make sure you are managing expenses in the remaining 80% to 90%. Now, stay patient for the amount to grow and invest it somewhere to get passive income. Reinvest it even after getting a good sum. After a couple of years, you will see that the passive income has started exceeding your monthly expenses and that’s the win-win situation. Because you’ve got financial freedom (passive income greater than expenses thus ensuring not to work for money).

Principle 3: Choosing the Right Assets

You will find a lot of material on the internet claiming that it will make you a billionaire. But choosing the right asset is the key to financial freedom. You can invest in the following areas.

Real Estate

You can invest in real estate and use two different strategies. Firstly, you can buy a property, hold it and sell it by keeping a decent profit. Secondly, you can buy a damaged property, repair it and sell in a profitable amount.

Stock Exchange

When it comes to investment, stock exchange is a good option. Warren Buffet, the famous billionaire has made a wealth of over USD 100 billion through stock exchange. You can also do the same by choosing the right stocks, holding them and selling them at an increased amount. Secondly, you can accumulate the dividends (profit on stocks) and reinvest the amount. However, it is not as simple as it looks like. You must have enough knowledge about different industries working in the stock market, their returns and expected capital gains. Otherwise, Warren Buffet says: Stock Market is a tool that transfer money from the impatient to the patient”.

Invest in Startups

Remember the famous American reality show Shark Tank? In which different businessmen welcome entrepreneurs and invest in their ventures for a certain percentage of equity. This is known as investment in startups. You can search for newly started businesses and invest some amount for a certain percentage of equity or profit. The rule here is to select the business carefully otherwise all of your money will be wasted.

Final Thoughts

Making money is not easy but holding and retaining it is complex. The internet is full of hacks and tricks on how to get rich but it is not as easy as people say. But if you gain financial literacy, understand and invest in the right assets, and choose the right startups, financial freedom can be easily assured.