Being rich is much more about your mentality and your financial intelligence than it is about how much income you have.
Look at Richard Branson for instance. The man is a billionaire, but if you took all that income away from him he would still have all the knowledge. He would still understand how to begin businesses, invest with wisdom, etc. As a matter of fact, if he had to begin from 0 today I’m quite sure he would have lots of money once again in less than 5 years.
Assume the opposite illustration however: what about a individual who wins the lottery but doesn’t comprehend how to be rich? Is it any wonder that one in three lottery winners are flat broke in 5 years? Even though they had all the revenue in the world, they still had the mentality and financial intelligence of a poor person, so they turned a loss with their money. They weren’t “rich”.
If you comprehend how to build wealth than you’re rich, regardless how much money you have.
An individual who make $100,000 a year and spends $100,000 a year isn’t wealthy. They’re thinking like a have-not and remaining stuck in the rat race. As a matter of fact, an individual who makes $40,000 a year and invests $20,000 is more plentiful.
As touched on in point #1, rich individuals save and invest a portion of their income. What do they invest in? Passive income streams that pay them whether they work or not.
If you’ve no savings, then it doesn’t matter how much income you make annually; you aren’t rich. If you quit working today, how long could you continue to pay for your current lifestyle? A calendar month? 6 months? Twelve months?
The longer you could go, the more affluent you are. And the richest individuals are those that are financially free. That means their passive income streams are enough to cover their expenses. In effect, they could go on forever at their current level of living without working again.
According to Robert Kiyosaki, there are 3 types of income: (1) earned income from a job, (2) portfolio money from stocks or bonds, and (3) passive money from real estate or other income rendering assets.
Poor and middle class individuals center on earned income. There are 2 problems with this.
Firstly, you only get compensated when you work. And there are a fixed amount of hours in the day, which means there’s a cap on how much money you are able to make thru earned income. The second problem with earned income is what is called “50% money”. Basically the government takes 50% of every earned income dollar you make. Income is taken out of your paycheck before you ever get it, and then more money is drawn out when you pay taxes.
Poor And Middle Class Individuals Center On Earned Income, And Try To Get Rich By Working Doubly As Hard.
Rich individuals on the other hand center on the other two types of money, portfolio income and passive income. These are not dependent upon the number of hours in a day, so they grow indefinitely, and they’re far better in terms of taxes too. The highest capital gains tax rate is 15% and in real estate you are able to often pay zero taxes or defer the taxes forever.
The beautiful thing about earning asset based income is that it doesn’t require your physical presence like a job does. Employment is trading time for money with little leverage.
Leverage is described as the mechanical advantage or power gained by using a lever, the power of action. Leverage merely compounds ones strength and effectiveness. The ability to be paid for work that you don’t do is the result of leverage. It engages a multiplier effect as the asset develops in value.