There are 3 types of people in this world when it comes to finances. They are the Perpetually Broke Person, the Wealthy Person, and the Highly Rich Person.
The perpetually bankrupt person never has money and ultimately lives from paycheck to paycheck. This is sometimes due to financial hardship, but these people exist on all pay scales, since the perpetual bankrupt person always spends their income immediately after receiving it, and the amount of income is less important than how quickly they spend it. . These are mainly consumer goods like clothing, electronics, and other items that can drain a bank account quickly. Another aspect of the perpetual bankrupt is that they are incredibly good at giving away their future wealth by taking out loans for things they don’t need or can’t even afford, like new cars, home improvement projects, vacations, and getaways.
The affluent person is the next step up and does much better financially than the permanently bankrupt person, as they know how to manage their money by saving it for emergencies and large purchases. They also have good credit scores because they pay their bills on time and know how to borrow responsibly. This allows them to slowly increase wealth and live well for most of their lives. However, because the well-to-do person is often dependent on her work, she may find herself in dire straits if she is fired, injured and unable to work, or has other costly events that deplete her savings. This is mainly due to the fact that they are afraid to invest in anything but safe things.
The very rich person, on the other hand, knows how to manage their money by having an emergency fund, has a high credit score by paying their bills on time, and knows how to borrow responsibly like a well-to-do person. The only difference is that Highly Rich People know how to make their money work for them with or without them. They understand these 3 Money Principles.
Director One: You can’t do everything yourself.
When building wealth, the most important principle to keep in mind is to understand that you can’t do it all yourself. So when you create money with your money, it’s important to know that you need to delegate a lot of the work to other people. Especially when hiring people. For example, in real estate, you hire contractors to do fixes and renovations, and you hire a property manager to manage your purchases and holds. You do this because even if you know how to do it, it doesn’t make any sense to you. Why focus on just one or two properties when you can have ten working for you if you have the right people in charge? In stocks, why would you learn how the market works and go online when there are people you can hire to do it for you 24/7? Instead, have fun.
Principal Two: You have to take calculated risks.
Principal Two simply means that you have to risk money to win money. If you don’t risk anything, then you can’t do anything. This is the pinnacle of investing and what stops many people from doing it. Because they are more worried about losing a hundred dollars on a bad investment and would rather spend a hundred dollars on something worthless that they don’t need. This leaves many investors afraid to pull the trigger when investing and fall into the fallacy of the perfect deal. Where they will turn down even the best offers because they believe a better one is on the horizon. The only way to overcome this fear of losing your investment is to incorporate the concept of sunk costs. Sunk costs are costs that you have invested in an effort that will never pay off and you will never get them back. The idea behind sunk costs is that even if they are lost forever, they shouldn’t affect your decision to write off the investment. If it’s not going to work, it’s not going to work and you have to accept up front that the funds spent were a calculated risk and expected to be lost if it failed. Accepting sunk costs will allow you to avoid spending good money on bad money.
Principal Three: If you can’t understand it, then don’t invest in it.
Too many people get excited about something. They listen to too many subject matter experts. Too many experts in the news. Too many “experts” on their family and friends. And they find themselves putting all their money into something they don’t understand. This can be due to complicated businesses, products they use but don’t understand their business model, and other financial instruments that are hard to explain, let alone understand. This is why many investors need to stick with what they know. If they are shares, keep the shares. If it’s real estate, stick with real estate. If it’s a business or company you know through and through, stick with it to the end. The idea is that you should understand an investment, how it works, and its ability to grow in the world we live in before you invest in it. This implies having to investigate the subject, knowing its past and present, and the main things that can affect it. The only way to ensure you don’t get screwed over is to have at least a basic understanding of what you’re investing in.
Conclution:
Knowing what financial type of person you are will let you know where you need to go from here. Knowing if you’re spending too much money and blowing your budget means you have to create financial discipline. If you are defensive with your money but seem to want more, then you need to start thinking about how to take more calculated risks. If you’re rich, you need to find better investments for higher returns so you can make more than you ever imagined.