I have studied ancient texts about finance for 2 years. Here are 3 most influential lessons I learned.

When it comes to personal finances, people tend to focus on the benefits of investments without fully considering the costs of debt. Debt can be seen as an investment in reverse, where instead of earning a return, you are losing money through interest payments. It's essential to understand that debt can erode your wealth over time if not managed properly.

Let's take the example mentioned in the text, where you have an investment that earns you a 5% yearly return, but you also have a loan with a 7% interest rate. In this scenario, you're losing 2% of your wealth every year. Over time, this can add up, and you may find yourself in a situation where you're struggling to pay off your debt.

One way to avoid this scenario is to create systems that divert money towards you. Instead of using your income to pay off debt, you could invest in assets that generate a positive return. For instance, you could invest in real estate, stocks, or a business that generates passive income. By doing so, you're creating a source of income that allows you to pay off your debt while also building wealth.

The construction of a palace can serve as a useful analogy for building wealth. When you build a palace, you're paying workers to build it. However, once the palace is complete, it can become a valuable asset that generates income. The land on which the palace stands can also increase in value, further increasing your wealth. This example illustrates the importance of investing in assets that can generate income and appreciate in value over time.

It's crucial to be careful about who you take advice from when it comes to personal finances. Some people may not have the experience or expertise to provide sound financial advice. As the text suggests, "never trust a brick maker's advice about blowing glass." In other words, only take advice from people who have achieved what you strive to achieve. Seek out mentors or advisors who have experience in the areas you're interested in and can provide valuable insights.

In summary, the key to building wealth is to create systems that divert money towards you. Debt can erode your wealth over time, so it's essential to manage it carefully. Investing in assets that generate income and appreciate in value can help you build wealth over time. Finally, be careful about who you take advice from and seek out mentors who have achieved what you want to achieve. With these principles in mind, you can take control of your finances and achieve true wealth.

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2 Additionall Lessons

Living below your means doesn't mean you have to sacrifice all your luxuries. Instead, it's about being mindful of your spending and making conscious decisions about where your money goes. For example, you could save money on groceries by buying generic brands, or you could save money on transportation by using public transit or biking to work.

However, diversification doesn't mean spreading your money evenly across all assets. Instead, it's about finding the right balance of risk and reward that aligns with your financial goals and risk tolerance. For example, if you're young and have a high tolerance for risk, you may invest more heavily in stocks. If you're closer to retirement and have a lower risk tolerance, you may invest more in bonds or other low-risk assets.

In conclusion, living below your means and diversifying your investments are two critical lessons that can help you achieve your financial goals. By spending less than you earn and being mindful of your expenses, you can free up money to save and invest. By diversifying your investments, you can reduce risk and maximize your returns over time. With these lessons in mind, you can take control of your finances and achieve true wealth.