Goals for Making Money

LukeLewis

LukeLewis

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To make money, you need to set out after a few goals. The first goal is to learn the difference between an asset and a liability. I've discussed the difference above, but I'll repeat it here. An asset puts money into your pocket while a liability takes it out. The second goal is to buy as many assets as you can while simultaneously keeping your liabilities low. I'm not quite sure why this is a novel idea; it's most certainly not. In plain English, it means that you should try to make money while not spending more than you make. Or even a fraction of what you make. Live below your means while working hard to accumulate things that will bring you cash. The trouble is, the American public has been brainwashed into spending everything they earn and to go into debt to spend what they haven't even earned yet. Yes, banks love that, but the individual surely can't. The stress of being poor and in debt is bound to build up through the years.

Once you make enough money through relatively safe and common investments, you'll have the luxury of putting your money towards investments that have the potential of earning a much higher return. Things the average investor wouldn't go near. Since you know how money works by this point, you'll have analyzed the investment to know whether it's safe or not.

Have you ever thought about who you're actually working for between the times you leave your driveway in the morning until the time you return? First, you head off to your desk (or whatever) and put your time in for your boss. You work for him. Or his investors. You also work for the government. Did you know that most people work from January to May just to pay their income and other taxes? That's pretty crazy. You're also working for the bank. The house your living in is costing you money - all sorts of money. Interest on its mortgage, taxes on all the upgrades you've made, interest on those credit cards you used to buy all that great stuff you store in your house. You work most of your life to pay other people money you never needed to pay them. What's left for you? Not nearly as much as there should be.

The real problem here is that the more you earn at your job, the harder you work for your boss and the more you pay to the government. The more you'll spend on living and the more taxes and interest you'll pay to the government and the banks. It's almost as if the more you make, the less you'll see. It's a strange cycle.

Here's a little trick for you, because I know it's not easy for everyone to drop what they're doing to begin buying up assets. Keep your day job, but instead of spending money on big houses and overpriced coffees, start spending your extra money on small investments that'll pay you back. Purchase an ETF or two and look for dividends. Keep putting money towards them. The longer you keep those investments, the less you'll pay in tax. And if you make less than $41,000 per year, you'll pay nothing on those dividends. Also, look for small opportunities that may earn you a return. Getting involved in small businesses, loaning a very trustworthy friend some money at interest (with a loan that's backed up in writing), and other things like that. Look for money making opportunities as opposed to things to spend your money on. If you've got a spending addiction, you'll at least be spending on things that'll feed your bank account.

The question is, how will you know when you've made it? When will you know that you're "rich"? Think of it like this: Wealth can be measured by how long you'll have the ability to pay for your lifestyle into the future. Think about that for a moment. If you can manage to live off of only $1 a year, you'll be a fairly wealthy person if you managed to acquire $100. But if you need $1,000,000 per year to live, you'll need many millions of dollars to consider yourself wealthy. Each person's perception of wealth is different. If you live off of only $1 per year and managed to earn yourself $200, you just doubled your quality of life. Incredible.

When you look at wealth, don't consider junk you've purchased that makes you absolutely no money as an indicator. You can't say, "Well, I own one thousand acres of useless desert in Nevada" and consider yourself wealthy. Yes, you may have paid $300,000 for that land, but if it's just costing you money in property taxes every year, it's actually a liability. It's making you more poor. If you decided to lease the land to the government at hundreds of thousands of dollars per year though, now you've got something that has the potential to add to the bottom line. You've got a winner. True wealth adds to what's referred to as your financial survivability. It's money spent that makes you money that adds to how long you can live without having to work for someone else. Can you imagine inheriting one million dollars and immediately investing that money in an ETF that pays 4% dividend per year? If you could manage to live off of less than $40,000 every year, you wouldn't need to lift a finger for the rest of your life. And I'm not even getting into any capital appreciation of the ETF. What's the best part? You wouldn't have to pay a dime in taxes ever either. Those earnings would be completely tax free. No FICA and no income tax. Federal or state.

Let's go through a quick example to determine the wealth of a man named John. Let's say that John's lifestyle requires him to shell out $2,000 per month. His income from assets is only $1,000 per month. If there are 30 days in a month, how long is John's financial survivability? The answer is, half a month until he's broke. Is John wealthy? No, he's not. If he cuts his expenses in half or doubles his income, yes, he'd be wealthy because he'd be able to maintain his lifestyle in perpetuity.

Why is it that John would be considered wealthy when he's only making $2,000 per month from his assets? It's because he'd be able to quit his job and still live his life just fine. If he wanted to live a more lavish lifestyle, he'd need to start buying more assets to pay him more money. And that really is the goal; to invest and invest and invest, so you're making so much money that you're able to hunt around for things that'll pay you even more. As I said above, even more risky assets.

To wrap this up, let's answer a question. How do the rich, the poor, and the middle class differ? The rich buy assets, the poor buy expenses, and the middle class buy expenses they think are assets.

This post is part of a series: Rich Dad Poor Dad by Robert T. Kiyosaki
 
Goals for Making Money was posted on 06-05-2021 by LukeLewis in the Finance Forum forum.

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