Have you ever wondered how some people become incredibly wealthy while most of us will live our entire lives in a state of financial mediocrity? It’s as if these rare individuals have some sort of a superpower or cheat code that the rest of us lack. Well, this is kind of the case. Wealthy individuals make particular money moves and know key pieces of information that help them see exponential progress in their financial lives and from my observations, here are the five actions they take to set themselves apart from the rest!
Number 1: The rich move money while others let it sit
You may have never realized this before but your money is a lot like your girlfriend. Just like you love your money, you also love your girlfriend. However, if you’ve ever neglected your girlfriend before, chances are you know that if you ignore her for too long, she’s going to get up and leave. Well, the same goes for your money and the rich are acutely aware of this fact.
Now, what do I mean when I say that your money will get up and leave? Good question!
Money most commonly sits idle in the bank and if you’ve checked what saving account interest rates are these days, you won’t be impressed. Right now, putting your money into a savings account will give you a yield of around 0.04%. Assuming you have $200,000 in the bank, which is more than most people have, you would earn a whopping $80 of interest. In all honesty, that’s probably more than you’re paying in banking fees alone! Plus, when you add on that inflation typically hovers around 2%, this means that you’re actually losing money by neglecting your money in this way.
Sadly, many people remain ignorant of this fact for years and as such never give their money an opportunity to grow. The rich on the other hand, become well aware of the perils of saving towards financial freedom early on in their wealth building journey and instead move their money around in productive ways.
For example, some financially savvy people will use their disposable income to start a business. Sure, there are risks that come with taking on an endeavour like this but as I already mentioned, putting money in the bank comes with it’s own set of risks so really you may as well put that cash into a project that could yield better fruit.
But, maybe you aren’t looking to start a business but want to emulate the actions of the more financially successful people around you. Well, even simple index fund investing can help you make strides in your financial life. Many impressive financial figures leverage the power of the stock market to help grow their wealth because they understand that money in motion is money that is growing!
Number 2: The rich spend money to save time
I hate to say it but most people on the road to financial success are more concerned with the highway signs than they are with the actual road in front of them and as such they significantly limit how fast they can go. I know this is a bit of an abstract analogy but hear me out. What I mean by this is that the majority of people who want to become wealthy incorrectly prioritize their resources. The average person thinks their money is their most valuable resource when in fact it is actually their time and the rich know this and exploit this truth as much as they can.
Let’s compare the common behaviors we see amongst the financially inept and the financially successful people around us to illustrate this point. Those who are lacking in the wealth department tend to prioritize money over time. As such, they will do anything they can to save a buck. For instance, they will do all of their household chores or spend an hour in line returning a $20 shirt. Now, don’t get me wrong, most people work very hard for their money and I understand why they hold it in such high regard however, this truly is counterproductive to getting ahead financially.
You see, contrarily, the rich spend money to free up their time. For instance, instead of cleaning their house themselves, the rich would rather pay a service to come do it for them and use that free time to work and make more money. For example, they could pay $100 to get their house cleaned but could earn $200 in that time then technically they are ahead and when this is done day after day, the results truly start to compound.
Therefore, if right now you’re not where you want to be financially, ask yourself how you can free up more time for income generating work. Perhaps you are watching way too much Netflix or are simply doing too many trivial tasks every day. The reality is that these low-value activities are holding back your income and ultimately your overall wealth!
Number 3: The rich invest first then spend later
Back in elementary school, let’s just say, I wasn’t the best in math. I could never figure out whether to multiply or add first and as such, my marks definitely suffered. However, little did I know that this mismatch in order of operations would offer me a very important lesson a little bit later in life. What was that lesson? That when it comes to money, it’s not just what you do that counts but how you do it.
Honestly, most people have their financial operations all out of whack and quite frankly it’s ruining any chances they have of ever becoming wealthy. You see, the average person works under the income-expense model. This is to say that as income comes in, it is immediately re-directed towards their expenses leaving nothing to show for all of their hard work.
The rich on the other hand, operate within a more fruitful model. Those who understand the flaws in the traditional model instead operate within the income-asset-expense model. This is to say that as income comes in, they use this income to acquire assets over time and said assets then fund the expenses that they have to meet on a regular basis. Now, this concept may seem a bit abstract to some so let me give you a couple examples of how this works in practice.
Let’s say that every time you get paid, you stash away money. Eventually, you get to a point where you have enough money set aside to buy a cash producing asset like a rental property. Once you acquire the property and have it rented out, you start to collect rent payments every month. Then, you use the net cash flow from said asset to cover other routine bills you may have.
The same idea can lend to dividend investing. As you begin to move your income into assets, which in this case are dividend stocks, your stocks will pay you over time and eventually your portfolio will allow you to peel off enough cash dividends to start covering your routine costs.
Now, obviously you can’t just go from the income-expense model right into the income-asset-expense model overnight. Building up a portfolio of cash producing assets that you can use to cover your bills will take a reasonable amount of time however when you get to the point where cash from your assets does allow you to meet your routine costs then a new chapter in your financial life will have started!
Number 4: The rich understand that the cost of ignorance is greater than the cost of education
I’ve already shared with you some pretty polarizing differences between the rich and their financially disadvantaged peers such as how they manage their time and how they move their money but perhaps one of the greatest differences between these two groups is how they view education.
You see, most people these days understand that education is important. It’s for this reason that millions of students attend colleges and universities around the world every year.
However, the first difference between the rich and the poor, in this context, is the extent to which they learn.
It’s likely no surprise that those who get just the bare minimum education, whether that’s formally or informally, are those who will probably have a harder time getting by while those who pursue more education will be able to provide more value to others and will excel.
The second difference between these two groups is how they go about acquiring this education. For most, getting educated means going tens or even hundreds of thousands of dollars into debt and this is a precarious position to dig yourself out of especially when you consider how stagnant wages have been over the last few decades. This is why those who get ahead financially take their time to consider the return on investment of every educational decision they make. Sure, they could take on a ton of student debt too but in the world we live in today, getting a certificate or training in an in-demand skill may be worth more than what that 4-year degree can offer.
Now, is this to say that the rich take the cheap way out when pursuing education? Definitely not! In fact, this is the final way that these two groups differ. You see, many people do come to realize the limitations of their formal education and as such decide to pursue more education. Sadly, most of it comes from free sources which while seeming to only have upside to them, are probably doing more harm than good. What harm is that? Simply put, people don’t value things that come without a cost and when it comes to free resources, the fact that they had a price tag attached means that the cost of not acting on the information we acquired really doesn’t resonate as much as it would if we were to have paid for said information instead.
This is where the rich diverge in their educational paths. They understand the cost of “free” and as such not only get skin in the game by paying to learn but also realize that more in-depth and personalized advice is often what we need to succeed. I know for myself personally, when I was trying to get my YouTube channel off the ground, I scoured the internet for free resources but none of them really helped. I either didn’t apply what I learned or the advice was so general that it didn’t yield any meaningful results. It’s only when I paid for proper mentorship that I saw my channel hit new heights and now that initial investment has led to me making over $100,000 a year.
Therefore, if you want to make greater strides in your financial life and harness the power of education to help get you there then remember this phrase, “you pay attention to what you pay for”.
Number 5: The rich learn from others mistakes while you learn from your own
I remember when I was younger I watched my friend slam on his bike brakes and go flying over the handlebars and given how bruised up he was after the experience, this was enough for me to never do this myself. The moral of this story, we must all learn from mistakes in life, but they don’t have to be our own.
You see, one of the biggest hindrances to your financial success are the mistakes you make. I know for myself personally, one of my most regrettable mistakes was not paying for proper guidance sooner in my YouTube journey because I truly believe I would be that much further ahead if I had done so. Fortunately, you can learn from this mistake and ideally can use the mistakes of others to help advance your own financial situation.
For instance, another great example of learning from the mistakes of others is to observe the financially crippling mistakes that many investors are making every single day. In the past year or two, the stock market has been flooded with new investors and unfortunately, as you’d imagine, many rookie mistakes were made. More specifically, many investors hopped on the hot stock bandwagon, bought at peak prices and have never recovered. What’s the lesson in this story? Never buy stocks you don’t understand and always “buy the rumor, and sell the news”.
While I just mentioned that you should be weary of free learning, the mistakes of others are an exception to the rule. Learn as much as you can from the mistakes of others by observing how they handle and deploy their money. I know in many cases, mistakes only truly resonate when we make them ourselves, however when it comes to your money, you want those personal mistakes to be far and few between.
Therefore, like the rich, keep mistakes at bay and if you do then I promise over time you will see the financial results you aim to achieve!