5 Money Truths the Rich Live By (and You Should Too)
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Since 2008, the number of millionaire households has steadily increased each year. According to the Wall Street Journal, in 2013 there were 53,000 new households having more than $1 million in liquid assets. We now know it's no longer true that you must inherit wealth, obtain an Ivy League degree, or make soul-crushing sacrifices in order to get rich, yet so few of us ever do. We also know that not many people get rich by earning a steady paycheck, being frugal, and saving diligently. So, what are the secrets the rich used to get there? (See also: 5 Secrets of Happy, Rich People That You Can Learn From)
Here are five truths of the wealthy that can be applied to your work ethic and investment strategy to help you think and grow richer, too.
1. Never Quit
"Before success comes in any man's life, he is sure to meet with much temporary defeat, and, perhaps, some failure. When defeat overtakes a man, the easiest and most logical thing to do is to quit. That is exactly what the majority of men do. More than five hundred of the most successful men this country has ever known told the author their greatest success came just one step beyond the point at which defeat had overtaken them." — Napoleon Hill, Think And Grow Rich
Napoleon Hill (1883-1970) believed wealth to be the physical manifestation of one's perseverance. In the book, Think And Grow Rich, Hill tells the story of being three feet from gold, where out of frustration a gold miner sells his machinery to a junk man who then strikes it rich by digging just three feet away from where he had given up hope. Think And Grow Rich is truly an inspirational work of literature and one of the most widely read personal finance books in history. It also highlights the importance of persistence.
2. Invest for the Long Term
"Most people overestimate what they can do in one year and underestimate what they can do in ten years." — Bill Gates
Bill Gates is founder of the Microsoft Corporation and has been the richest man in the world for the past two decades. His philosophy can be applied to any goal you're working to achieve in life, but in terms of investing, it is important to remember the benefits of long-term investments and the snowball effect of compound interest.
3. You Don't Need Leverage
"You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing." — Warren Buffet
Warren Buffet is an investment guru, philanthropist, and the fourth wealthiest man in the world. The concept of using debt to build wealth is often counterproductive. Remember, the measurement of one's net-worth is determined by the sum of one's assets minus debts. In many cases, leverage (such as credit cards or personal loans) can slow the pace at which you accumulate real assets; even worse, using excessive leverage can damage your credit and imperil your ability to buy a house or start a business when you're ready.
4. Diversify
"The other boys at Yale came from wealthy families, and none of them were investing outside the United States, and I thought, 'That is very egotistical. Why be so shortsighted or near-sighted as to focus only on America? Shouldn't you be more open-minded?" — Sir John Templeton
John Templeton (1912-2008) was an investment tycoon and philanthropist, and founder of Franklin Templeton Investments. Any good investment strategy will be well diversified and include international stocks in both established and emerging markets. Diversification reduces an investor's exposure to concentrated risks while attempting to maximize overall returns.
5. Love What You Do
"If you don't enjoy it, don't do it. You must love what you do." — Sir Richard Branson
Serial entrepreneur Richard Branson's Virgin brands span the globe. In the U.S. he is perhaps most widely known for Virgin Atlantic and Virgin Mobile. Like many of his billionaire cohorts, Branson believes if you follow your dreams and do what you love, success will follow and you'll live a much happier life. In Branson's case, that is now leading him to investing in space technologies.
What other truths do the uber-successful employ? Which do you use in your daily life? Please share in comments!
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A friend of mine owns a business in the wedding industry. She said that when she first started negotiating with customers she was surprised at how very wealthy people negotiated as though they actually had very little money. On the contrary, those that couldn't really afford her services were wiling to pay every cent she was asking. People have money because they keep money.
Regarding point 2, there is a direct relationship between long-term thinking and wealth. I am a physician specialized in geriatrics - as such, most of my patients are old and very old. I see people of all kinds: very poor ones, poor ones, middle class, rich and extremely rich and what I noticed is this:
- very poor people (beggars and daily workers) perceive time in day units. They seem incapable or unwilling to realize there is tomorrow too
- poor people (low-income employees) think from week to week
- middle class people (mostly employees) think from month to month, because they usually receive their salary monthly
- rich people (liberal professionals and business people) think from year to year
- very rich people think in decades (!) - their main worry is not about earning money, but on leaving a legacy, growing their careers, their children, nephews etc
No wonder people invest their time, energy and neurons differently, when they seem to perceive time differently!
Rebekah
Although simple and obvious, another truth is live on less than you make