We all know that wealth and money are the main topics of every one’s adult life whether we accept it or not. Wealth being such a major topic of people lives, the amount of conscious time we devote to it is staggeringly low. It is perplexing to see some of the reasons why 98% of the people do not spend time planning to address such an important issue in life.
As Robert Kiyosaki lays out in his book Rich Dad Poor Dad, there are three reasons why 98% of the people do not ever accumulate any reasonable wealth. First, most of the people do not even understand the basic accounting principles such as income should be more than expenses to really have positive cash flow and have any shot at building wealth. Second, they are conditioned to believe that job is the only way to make money. They can not imagine any other way of making money. Third, once there is some money saved, they play it safe and never leverage that money to make more money.
Lack of accounting skills is the main reason why people get in to massive debt. Another reason, of course, is the life style people are used to and ready to live beyond their means without thinking about consequences. As long as some one, banks or credit companies, is willing to lend the money, they think it is income and spend it on needs that can provide instant gratification. That’s how people end up with massive loans and debts on multiple credit cards. People, who are wealthy on the other hand, clearly know the difference between what income is and what expense is and keep the positive cash flow.
Most of the education we receive in the schools and colleges gives us the mindset that taking up a job and working on it till you retire is the only way to make money. Of course, this notion is very well supported by every one you are surrounded by – parents, other family members and society. It is not necessarily a bad thing, but it is amazing to see we don’t even stop and think for once that there could be other ways. If you look at that 1% or 2% of the people that are wealthy, their source of income is either through business or excellent investment choices they make or both.
Another trait of wealthy people is their ability to take risk on try some thing new. The theme in the society is playing safe. But, risk on the other hand can reward very well. People who have positive cash flow accumulate savings. Problem is that these people do not leverage those savings to their advantage and invest in opportunities which can return good returns. They either leave that money in bank account where they get around 4 to 5% return or put them in some kind of mutual funds where return could be 10% on average. Because of this safe playing attitude, they are not even exposed to those risky but rewarding investment opportunities. Because wealthy people are willing to take risk, they are always presented with investment opportunities where return can be at the least 50% and can go well up to 500%, 600% etc.
In conclusion, to build wealth and make money you need to have your financial situation under control as a first step. Then, you need to have either a business or invest in high return opportunities or both. -Rao