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It sounds too simple to be true, right? Clearly there's more to being rich than just knowing ONE thing. But it's this one rule, this one thing that helps everything else in your life fall into place and if you follow this rule, wealth is just a matter of time. So what is the secret? Well, it's not a secret at all. It's knowledge many lack or choose to ignore. So let's get to it.
The #1 Rule is: Knowing the difference between an asset and a liability.
As mentioned before, I haven't always followed my money or been conscientious with my spending. It was gone before I even had it. Monthly payments on a lot of debt. Paying the bare minimum and barely making a dent in said debts. It was a vicious cycle. I spent money on "things". Things that brought no value to my life and things that didn't add to my financial wealth. Things I eventually sold for pennies on the dollar I had spent for them. Many of those things (clothes, primarily) I never even used/wore.
Years ago, I began to educate myself on my finances. I worked on paying off my debts, smallest balance & highest interest rate debts first, then used the money that was going towards debts paid off to more debt until eventually the only thing I owed to anyone was my mortgage. After being debt free, my husband and I began to tackle that debt, too. We are now on track to be 100% debt free, mortgage included, by April/May of next year!
So what prompted this drastic change in my life? Educating myself. Knowledge IS power. We live in the information age and have access to SO MUCH information at the tips of our fingers. Reading is one of my favorite ways to obtain new knowledge. Currently, I am reading Rich Dad Poor Dad written by Robert T. Kiyosaki. I read the book in 3 days. It was full of so much amazing information, it was impossible to put down. Information that solidified how I currently felt about finances and information that also helped me "think outside the box" even greater than I already was. However you choose to obtain it doesn't matter as long as you do so. Let's get back to the #1 Rule.
Get your book here!: https://amzn.to/3faJU4J
"Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets." Once you know and fully understand the difference and act upon this concept, wealth will follow. It is that simple.
An Asset is something that puts money in your pocket whether you work or not. A liability is something that takes money out of your pocket. It's really all you need to know. If you want to be rich, spend your life buying or building assets. If you want to be poor or middle class, spend your life buying liabilities. Literacy isn't enough. Financial literacy, in words and in numbers, is where it all comes together.
We are told to get a good education, find a good job and work hard. Many live paycheck to paycheck and think that more money will solve their problems when in all reality, more money can create more problems if you are not financially literate. Many Americans increase their spending as their income increases. They get a promotion and buy a bigger home, a newer car, nicer clothes, etc. It's been seen time and time again with lottery winners, professional athletes and super stars. They come into a sudden windfall of money and they begin to spend. Before they know it, due to spending it all on liabilities, it's gone as soon as it came. A person can be highly educated, professionally successful and financially illiterate. These are folks that work hard for their money but do not let their money work hard for them!
STOP CARING ABOUT THE JONSES.
Throughout each promotion and pay increase both myself and my husband received, we kept our expenses the same. We even downsized our home in the midst of it all. We continued to drive our 10 + year old vehicles. We used our smartphones for years until they wouldn't work anymore before purchasing new. We don't shop for clothes unless it was a necessity and when we do, name brand means nothing. In doing so, we have been able to put all the extra income towards our mortgage to where we can pay it off in just 4 years! No 30 year debt weighing us down with an extra $100,000+ interest to pay. After that, we will begin to invest the extra income outside of necessary expenses (power, food, etc.) towards assets and investments that make money for us! For us, that will be starting out in Real Estate Investing.
Once you understand the difference in an asset and a liability and you limit your liabilities (& expenses) and increase your assets (things that make money FOR you), will you begin to see true wealth. Now, I understand everyone has their own definition of wealth but to me, wealth is obtaining enough assets that cover your living expenses. At that point, you are no longer dependent on your wages (W2 job where you work for your money). Then, you want to continue to invest your extra cash flow remaining after paying your expenses into more assets. The more your assets grow, the more your cash flow grows. Careful not to increase your expenses as your cash flow increases or you will be back to that paycheck to paycheck lifestyle. As this cycle continues, you are on your way to becoming rich!
As mentioned in this phenomenal book Rich Dad Poor Dad, remember:
The rich buy assets.
The poor only have expenses.
The middle class buy liabilities they think are assets.
Get your book here!: https://amzn.to/3faJU4J
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