Home > India > Business > Business Headline > Report
Want to be rich? Here's how
November 15, 2007 09:40 IST
Last Updated: November 15, 2007 16:39 IST
Getting rich is much simpler than most would realize. In fact, we really need to define the word "rich" before we go on, so you can see what I see as we go through this book.
Most people's only relationship with money is of never having enough. Most people live a "paycheck-to-paycheck" existence, and use this month's paycheck to pay off last month's bills.
A paycheck, no matter how big, cannot be defined as wealth or riches. So often people seem to mistake getting a bigger paycheck or salary for getting richer. Nothing could be further from the truth for more than 95 percent of the population. As you well know, most people spend every dollar they earn, and then some.
The fist stage in your quest for riches is to get yourself to a stage where you've made enough investments over time to give you what I call a passive income rather than a paycheck existence. In other words, your investments and businesses make money whether you get out of bed or not.
Most people rely solely on their jobs for their cashflow. Notice I don't use the word income. You see income seems to imply some level of work or activity involved, and one of the central themes of everything you'll learn from me is that one of the keys to riches is actually having others do the word for you. By the way, job is just an acronym for "Just Over Broke."
Having a normal job, whether it's in your own business or someone else's, severely limits your cashflow capabilities. Here's why. It's possible to work only so many hours per day and make so many dollars per hour for your own personal labor. Thus a paycheck can be only for the number of hours you've worked multiplied by your hourly rate.
I make my money (cashflow) in business. And I keep my money (assets) growing in property. I love property for so many reasons, but let me be clear that the focus of this book is not property (for more on this, read my book The Real Estate Coach); its focus is business. I'll keep that focus because one thing has become blatantly obvious to me when watching people going about wealth creation.
Buying property is easy. In fact, there are literally hundreds of companies waiting to show you what you should invest in (we'll cover that in just a moment and thousands of great books on the subject. However, most people have a major problem with their ability to invest in a property or two every month.
They don't have the cashflow.
Their jobs only really allow them to buy another property every few years. To get rich, and to get rich fast, you need more cashflow. More, so you can buy more assets at a much faster pace.
Get into Debt
That's right, debt is good, especially when it's paid for by someone else, and when it's buying me an appreciable asset. Debt for stuff is bad. In fact, if you keep buying stuff all your life, you can easily guess what you end up with: STUFF.
A simple aside here: Land appreciates in value and buildings depreciate in value. Thus, invest in the dirt more than the building. That's why I don't like units, unless I own the whole block.
So, why is debt good?
Put very simply, it's this: If you invest $20,000 cash into a $100,000 property, you borrow $80,000 and we assume with the rental income and tax benefits, your mortgage (generally interest only for at least the first three to give years) and other expenses should balance out.
Lies, Lies, and More Lies
Let's start with an oldie but a goodie.
Pay off your own home first. This has got to be one of the most insane pieces of advice I have ever come across. Let's take a look back in history to find out why.
Back in 1929 when the stock market started to tumble, several things all came together to cause a new paradigm around owning your own home outright.
I'll make this overly simplistic to illustrate the point.
The markets tumbled by approximately 30 percent in just one day. This wasn't such a bad thing in and of itself, but the majority of investors had borrowed about 90 per cent of their investment funds.
As a result, they now owed more than their stocks were worth. Their leaders made what is referred to as a "margin call" and asked for more cash to secure their investments. This in turn led to a run on the banks for cash.
You guessed it; the banks ran dry.
At the time the average house was priced around $4000 or $5000, and a common clause in mortgage documents gave the banks the right to demand full and final payment at any time. So, when the banks needed cash to give to borrowers who needed to pay for their shares, they called in the home loans.
But, as is the case today, most of us don't have the price of our house sitting around in cash. The writing was on the wall.
The banks started repossessing houses and putting people onto the street. The brokers started to sell the stocks and shares to recoup their money, but there was one major problem.
No one had the money to buy either the repossessed houses or the shares no matter what the price. So, everything became relatively worthless, prices tumbled, people starved, yet one group survived with a roof over their heads - those who had paid off their own homes entirely.
So, from that generation on, "Pay off your home first, then you'll be safe and secure," became firmly entrenched as a piece of sound advice.
Excerpted from Billionaire in Training by Bradley J Sugars. Price Rs 299. Reprinted by permission of Tata McGraw Hill Publishing Company Limited. Copyright 2006 by Bradley J Sugars. All rights reserved.