Dear Friends,
I hope you guys have had a great week so far! I have been asked to talk about the inflation crisis, and I am still currently working on putting all the information together. I take tons of pride in explaining things to you guys in a fun and simple way.
The inflation crisis is the opposite of fun and simple.
In the mean time, I have been wanting to talk about one of my favorite books that I think everyone should read or re-read. I personally read this book once a year.
Rich Dad, Poor Dad should be a mandatory read in Highschool. It is a book that the establishment does not want us to read.
I believe there is a complete difference between being financially free and wealthy than being Rich and Greedy. This book does an amazing job in giving you the proper mindset to being financially free and wealthy.
I am going to outline some of the most important ideas from the book below:
1. Make Money Work For You
Broke people stay broke by spending all their money. Middle-class people stay middle class by saving all their money. Rich people get/stay rich by investing their money and making it work for themselves.
One of the most common misconceptions is that you need tons of money to start investing or to build a side hustle.
This is completely false. You can start with $50 or $50,000, you just need to start.
Your money in a saving account lost 6% in value this year due to inflation. The banks don’t show this because it is a secret of the rich.
The S&P 500 is up 40% this year. Guess what? The banks burrowed your money in savings to invest it for themselves while your money is losing 6% a year.
Do you need a cushy emergency savings that makes you feel comfortable? Absolutely!
However, once you get more than 3 months-a year in savings of emergency expenses, you are just being stupid, if you aren’t investing it or building a side hustle.
2. The Wealthy Own Assets
The wealthy build their wealth by acquiring income-producing assets. They invest in assets like rental properties, businesses, stocks, or crypto.
In 2021, you can create side hustles that include Cash Cow Youtube Accounts, Blogs, Amazon, Etsy and Shopify Stores to the list.
There is a 16 year old that is subscribed to this newsletter that reached out to me. He started his own Etsy store that produces a good sum of money each month. How did he learn? He taught himself on Youtube. He told me that he spends around 4-5 hours a week now and this store generates more profit then most 50 year olds make working 9-5 for 40 hours a week.
The reason that he reached out to me was because he had a large sum of cash, and he sought out my advice. I told him my two cents but most importantly, I told him this story.
Let's say that you had $100K in Cash, and you wanted a new car. A majority of people would go out and spend the cash on this car, so they have no debt. The wealthy would laugh. The value of the car will go down significantly in 5 years when you re-sell it.
The wealthy will buy a rental property with this $100K in cash that generates them around $800 monthly income.
They will use this money to pay their monthly car payment. Once the car is paid off, they will still have money coming in.
The rental property will go up in value as well as produce income.
Even if you don’t have a lump sum of money laying around, I am a firm believer in side hustles and anyone can have them.
3. Control Your Emotions
All humans have similar emotions like panic, greed, fear, laziness, arrogance, and desire.
In stocks, Emotions are the hardest thing to control.
When investors are losing or making a lot of money, they turn into irrational thinkers. In the 1970s, two psychologists proved, once and for all, that humans are not rational creatures. Daniel Kahneman and Amos Tversky discovered “cognitive biases,” showing that that humans systematically make choices that defy clear logic especially in times of stress or chaos. The great things about humans is that we have the ability to control our irrational thinking.
How does this affect investing? Whenever the stock market starts to crash or your individual stock starts to take a hit, what do you do? You start to panic and you think about selling. If it keeps going up, you have a euphoria feeling that you are RICH. Why? Your thought process turns irrational.
Let’s say that you bought your dream house for $500,000. The house is valued at $750,000 and you got it for a STEAL because someone needed cash quick.
On Tuesday Morning at 9:31 a.m., someone comes banging on your door and starts screaming and shouting at you to sell your house RIGHT NOW for $300,000.
Would you sell it? Hell no! You have to remember that this is the same thing with the stock market, you are buying from someone who is selling and selling to someone who is buying. Do not panic sell.
4. What Matters Is How Much Money You Keep
Why do you think millionaires go broke? They spend more than they take in. A high income does not mean a high net worth.
Tons of these people will make a huge income, but spend it on LIABLITES not ASSETS.
The wealthy typically invest 30-50% or more of their income, and they live below their means.
For example, let's say you have a net household income of $5,000 per month. After paying necessary expenses and a few luxuries, you have $250 left to put into savings.
That means only 5% of your net monthly income is going into savings.
If you started with a balance of $10,000 and added that $250 each month to your savings, the total amount that it would be in 20 years would be $70,159 in 20 years.
Now let’s say that you invest this money with me or the S&P 500. To make things simple, let’s say you chose the S&P 500. The S&P 500 averages a 12% return.
If you started with a balance of $10,000 and added that $250 each month to your investments, the total amount that it would be in 20 years would be $326,239.
The difference between saving and investing is INSANE.
Now let’s just do something fun and say that you invest 50% ($2,500) of your income OR you have a side hustle that allows you to invest this money.
If you started with a balance of $10,000 and added that $2500 each month to your investing, the total amount that it would be in 20 years would be $2,582,064 in 20 years.
Keep in mind that you do not need $10,000 or even $250 a month to start investing. You just need to start.
5. The Ultimate Goal Is Freedom
The most important asset that we have is time. The wealthy understand this, and they build income streams that allow them to make money while choosing to do whatever they want.
This could mean still running your business or working at your job, if you enjoyed doing it.
For example, my Father is an incredibly hard working businessman. He works almost everyday and many hours a week. However, if he won the lottery, he would still be doing the same thing that he is doing.
Now, if my mom won the lottery, she would be at the beach in the Bahamas loving the ocean and water.
Financial Freedom allows a person to do whatever they want to do.
I am a passionate believer in helping people achieve this.
Life will throw a million things at you. However, the rich will stay focused on their goal of becoming financially free.
-Write your goals down
-Create A Plan
-Execute and Stay Focused
Your current age doesn’t matter and neither does your current income level.
Purchase
If you would like to purchase Rich Dad, Poor Dad, you can do that by clicking here.
I hope everyone has a great week! Thank you as always for reading, and I appreciate your support!
Stay Hungry, Stay Long
Matt Allen
Emotions description is awesome!
Thanks Matt!