Everyone wants to be rich. Even the people protesting about income inequality wish they were rich. Instead they complain about the world and face the burden of dealing with their unfulfilled potential and the fact they fail to live their life to the fullest. Life isn’t all about money, but money can help you live a better life and create a better world.
This article is not a step-by-step how to guide for getting rich. You are the only one that will be able to create a life of wealth, no one can give you an exact business plan and ensure you execute it correctly. There are patterns of success I have seen in the rich, and this article is a collection of those. You don’t need any special gifts to get rich, you need at least average intelligence, self-control, a top 10-20% work ethic, and the ability to think strategically. Of course you will need to start a business, I recommend (at least at the beginning) keeping your day job and starting an online business.
Define your assets and liabilities
An asset is defined as anything of value or a resource of value that can be converted into cash.
A liability is a thing for which someone is responsible, especially a debt or financial obligation.
The 1% understood that to get rich they needed to build up their assets, and not take on personal liabilities. First of all, they do not take on personal liabilities such as credit card debt, car payments, or mortgages for a home they live in. If they choose to use debt it will be for their business operations, or investments, because this is limited liability debt. Their business is protected by the corporation in the event of a bankruptcy, and the dent is used strategically to increase their cash flow and assets.
The 99% do not understand the distinction between assets and liabilities. They take on debt to cover personal expenses and they get caught in an overextended lifestyle. They try to live a lifestyle that they cannot afford and this causes them to go into debt. It then becomes very hard to pay off because of the lifestyle they are used to. This is one of the biggest traps in the modern world where we are constantly being bombarded with marketing for luxury lifestyles.
If you have any personal liabilities, you need to get rid of them as soon as possible. Sell things that will take a long time to pay off, such as a car or house and rent these instead. Pay down all personal debt, and pay the debt with the highest interest rates first. Once you have payed down all your debt, you need to begin buying things with cash or cash equivalents (debit card). Once you have all your debt payed off, you can start building up an asset base.
Learn the power of compound interest
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it. – Albert Einstein
My wealth has come from a combination of living in America, some lucky genes, and compound interest. – Warren Buffett
Compound interest is the interest calculated on the initial principal of a loan or deposit, which also includes all the accumulated interest from previous periods. It is the result of reinvesting interest rather than paying it out, and can make capital grow more quickly than simple interest, which is calculated for only the principal amount.
Naturally, all great investors understand this and rich people take advantage of the phenomena when they invest. Rich people understand compound interest has more applications than only finance and economics, it applies everywhere in their life. Compound interest applies to the actions you take every single day, for example your diet and fitness. If you eat crappy food and don’t exercise you will gain weight, the more weight you gain the harder it will be to get off the couch and go to the gym, as you progressively gain weight you will be less motivated to eat healthy, you will start telling yourself “I’m already fat it doesn’t matter what I eat.” It is easy to see how your actions compound every single day.
The greatest change you can make is how you spend your spare time. You can either engage in activities based on entertainment value and how much immediate gratification they provide you, or you can choose activities that will help you grow as a person. A simple example is choosing between watching Netflix or reading a book. If you choose Netflix you are making the easy and common choice, but stop for a second and think do any high performance people passionately watch Netflix in their spare time? The obvious answer is no. Successful people will choose to spend time with family, work on their business, or read a book.
Live like you are on commission
As soon as possible you need to stop trading time for money. Trading time for money in called a job and it is something no one in the 1% has. People in the 1% either have a career or a business (or both). The distinction between a career and a job is extremely important, and should not be taken lightly.
In a job you are trading time for money, in a career your pay is performance based. In a career you have performance based pay such as a commission structure if you are in sales, or a salary and bonus if you are in a corporate career. If you need to ask yourself whether you have a job or a career, you have a job. People in the 99% get paid by the hour because their time has very little value. They do not provide enough value to allow for a company to pay them based on performance. You cannot pay someone based on performance if they are stocking grocery shelves, or are a receptionist.
If you are working a job where you are paid by the hour, you need to develop the skills to get a career. If you don’t know what skills to develop, you should go into sales. Sales is a key skill in life and in business. If you can become more persuasive as well as learn to deal with rejection, it will serve you extremely well in life.
Work smarter and harder
The 1% work harder and smarter than the 99%. The value they produce comes from doing smart and hard work. You won’t get into the 1% without doing both hard work and smart work.
Hard work that isn’t smart is for poor people and middle class people. The lyrics below describe the struggle of the working class man, it can be a rough existence.
Work your fingers to the bone and what do you get?
Bony fingers, bony fingers
I’ve been broke just as long as I remember
Well I get a little money; I gotta run and spend her
When I try to save it pretty woman come and take it
Maybe things will get a little better in the morning
Maybe things will get a little better
Those are sad lyrics, but they are filled with truth. Hard work without smart work will get zero results.
When it comes to smart work, finding someone who can do smart work without hard work is extremely rare. People that think they do smart work but not hard work are usually just lazy. The smartest and most successful people work hard and work smart. It is a good rule of thumb that the richer a self-made person is, the harder they work. The 1% focus their hard work on the things that generate a high ROI, this is the reason they have executive assistants to do low ROI activities such as answering emails and scheduling meetings.
When you work harder, you are going to be spending more waking hours working. The simplest way to work harder is to stop wasting time and use it efficiently instead. Stop watching Netflix, stop playing video games, stop going out drinking multiple times per week. Spend the time you would ordinarily waste on useless activities to build an online business. If you are like 90% of people in the world, most of your time wasting is online. Instead of wasting time entertaining yourself, and paying other people (watching advertising, online shopping, or Netflix) start making a part of the trillions of dollars that are spent online.
The second way to work harder is to wake up earlier in the morning. High performance people wake up earlier and are more productive before 9 am than most people are in their entire day. If you want to go from the 99% to the 1% you should wake up earlier and work on a business every single day before you go to your day job. This is what the hungriest and most ambitious people do, but you don’t see it! People don’t brag about starting their business everyday before they do to work because a) It is not sexy b) They are too busy working to brag.
You won’t hear about the work people do quietly every morning before work. You won’t see their success until you hear about someone quitting their job because they are making 5 figures per month online. If you don’t want to sacrifice your sleep to become successful you will not become successful. The success of the 1% comes from their ruthlessness and ability to work harder and smarter than the 99%. But they don’t say this, instead when they are interviewed by Forbes, or Bloomberg they say their success came from their “passion”.
The best thing to do in your mornings before your work is to work on an online business. If you wake up earlier and spend 2-3 hours every morning building a business you will be miles ahead of your peers in 1-2 years. If you plan a project well, and work hard (and smart) at it you can be retired in 5 years. This is not an exaggeration at all. The difficulty for many people is having the perseverance to keep working on a project for months at a time, and not getting distracted by the next shiny object or get rich quick scheme. Maintain your discipline and outwork the people around you and you can achieve success you never even thought possible.
Focus on increasing income rather than saving
The 99% are simply not focused on increasing their income. The 99% are either in debt (awful) or focused on living frugally to save their money (awfully boring). The 1% understand that real wealth comes from increasing your income. That’s why this website is called Income To Wealth instead of Frugal Saving Machine. The most important thing you can do to become part of the 1% is to focus all your energy on increasing your income.
The richest people in the world also save a lot of money. They simply save their money so that they can use it to increase their income. The difference between how the 1% and the 99% use their savings is a major eye opener. The 99% save money for their retirement and put their savings in “safe investments” such as stocks and bonds. The 1% put their savings into their business ventures, or in high-risk investment such as buying real estate with high-leverage. If you want to become part of the 1% think about the priorities of investing your savings like this: 1) Your Business(es) 2) Real Estate 3) Financial Securities.
Your business can make you the most money and is the best investment for your savings. Real Estate is a distant second, simply because you can use leverage to increase the cash flows you can get from your original investment. Financial securities such as stocks and bonds are the worst thing you can invest your money in. The returns are mediocre, but that is not the reason they are such a poor investment. They are the worst investment because you are not controlling your income streams. Someone else is running the companies that you are owning, they are in the 1% and have a responsibility to their shareholders to be responsible. That means not being overly ambitious or aggressive, which are important qualities for someone trying to go from the 99% to the 1%.
Understand exponential income increases
Middle class people always see income as something that increases linearly. They are taught to get a job and expect to have a 3% salary increase per year and expect to get 7% returns in the stock market. Whenever middle class people think of income increases they think of either getting a promotion, or winning the lottery. In both of these circumstances the person is acted upon, what happen is out of their control. They do not view their own income and financial future as something that only they control. This is why when people with a middle class mindset “try to get rich”, they do so by being frugal and cutting out Starbucks coffees and downsizing their car.
Rich people understand asymmetric returns. A good example is starting a business. It is extremely rare for a business to have the same profits in its fifth year as it had in its first year. The business will likely either go bankrupt or it will have much higher profits. It’s not rare for someone to start a business that loses money in its first year, breaks even in the second year, and then starts to grow rapidly. This is a typically path for an entrepreneur.
So what happens when a middle class career employee sees someone, who has taken the path of our entrepreneur in the previous paragraph? They will either “he got lucky” or “he must be scamming people”. These reactions occur for two reasons, some people truly cannot comprehend someone escaping from a middle class or lower class life, no one in their circle of family or friends has ever done it so they don’t think it is even possible. The second reason for this reaction is psychological defense, people need to devalue the entrepreneur’s success so they can feel ok about their mediocre, pedestrian existence. This is the classic phenomena of sour grapes.
Own your income streams
If you don’t own something you are not the boss. If you don’t own your income streams they can disappear at any time, this is completely out of your control unfortunately. That is the issue with having a career and working for someone else. You can be well on your way to wealth and a happy retirement, but a recession can see you “let go” or even a boss that dislikes you can get you fired. This is why relying on a career as a sole income stream is for naive and delusional people (mostly naive).
There is a widely quoted statistic about the average millionaire having 7 streams of income. This is an absurd statistic for the 99% to look at because it does not explain how some got rich. Someone may have a diversified investment and business portfolio with 10+ streams of income, but the chances are they got rich off of 1 or 2 streams of income. The most likely way they got rich is through owning a business or through a high paying career and real estate investments.
The important thing for people trying to go from the 99% to 1% is the importance of owning your streams of income. Once you have multiple streams of income that you own you can start diversifying into other investments. The thing to remember is that no one got into the 1% by making <100k per year and investing it in the stock market. Contrary to what popular personal finance bloggers will tell you, people do not get rich by living frugally.
Start your own business
The best way to create an income stream you own is by starting a business. Everyone that gets rich does so by either starting a business or joining a business early and getting shares in the company (ownership). The only exception to this rule are people that get rich based off luck (lottery winners) or physical talents (singers, actors, athletes), and these people usually lose their money because they do not have the fiscal discipline. You may also think working a high-paying career until you are in your 50s or 60s is a good way to get rich, there are a couple of issues here.
In your 50s and 60s you are too old to fully enjoy the wealth you have created. You can still enjoy it, but being rich and old cannot be compared to being rich and in your 20s or 30s. The rich person in their 50s or 60s also needs to deal with the punishment they have inflicted on their body by working a desk job for 30-40 years. This includes issues such as chronic stress, mobility issues, weight gain, and balding. There are plenty of 50 and 60 year old suits driving around in Porsches in my city and most of them are bald and overweight. I don’t envy them at all, I would much rather be in my 20s making six figures with a business I own.
What kind of business should you start?
The first place you should look is the industry you already work in. Can you see any weakness in the marketplace you could capitalize on? Does the company you work for have a sub-market the aren’t targeting with the product or service they provide? Could you create a similar company to the one you work at and siphon off some of their existing customers? Many great businesses were started by people that applied knowledge they acquired from working in their career and applied it to an entrepreneurial venture. If your industry has high barriers to entry and is hard to understand from the outside then there are probably opportunities to start a business.
An obvious first business to start would be to start freelancing or start an online business. If you have a monetizable skill (design, writing, etc.) then freelancing is the obvious choice to make, and you can learn how by reading the freelancing guide. Freelancing is an easy business to start but since there are low barriers to entry and the work is difficult to scale, the income potential is not super high unless you want to start an agency. Starting an online business is great step into entrepreneurship, and you can start a content based business for less than 100 dollars with affiliate marketing, you can check out affiliate marketing 101: a beginner’s guide to learn more. eCommerce is also a great option for an online business, but if you don’t have a product you want to start selling I recommend affiliate marketing.
Focus on the long-term
It’s one thing to get into the 1%, it’s another to stay in the 1% for a long period of time. Businesses go bankrupt, people make bad decisions, and live extravagant lifestyles that drain their savings. When you are trying to go from the 99% to the 1% you need to build habits that are sustainable for the long-term. You need to be able to handle a level of stress that would make most people give up. The temptations of living a life of extravagance need to managed.
You need to develop discipline and delay gratification to get to the 1%. If I had to name the two things that were the Achilles heels for people in the 99% it would be a lack of discipline and an inability to delay gratification. Discipline can be developed by “just doing it” when something needs to be done, and avoiding the mindless pursuit of pleasure. Discipline is formed through years of routine based activity, does that sound bad? Only if you are doing something you hate.
Learning to delay gratification is possible when you have a clear understanding of what you want out of life and goals you are working towards. Any decisions based on the short-term instead of focusing on goals and the life you want will move you in the wrong direction. The more discipline you are, and the better you are at delaying gratification the more likely it is you will be able to go from the 99% to the 1%.
Developing strategic thinking involves being able to notice patterns in the world and apply them to your situation, whether that is in your career or business. To notice patterns in the world it helps to read more history and biographies of successful people and entrepreneurs. People are not magically born with an understanding of strategy, instead they develop this through direct experience or learning about other peoples experiences.
To improve your strategic thinking in your business venture you should read biographies of great businessmen. You will learn the sacrifices and the ruthlessness that is needed to become one of the most successful people in the world. Pure business books are helpful initially, to learn about incredibly important areas such as economics, finance, and accounting. However once you understand these topics, put down the books because too many people use the excuse of prioritizing learning instead of pulling the trigger and actually building a business.
Understand debt, credit, and monetary policy
My prediction is that the 21st century will see long periods (decades) of zero or low single digit growth worldwide. This will lead to zero and negative interest rate policy becoming commonplace tools for most central banks to use. Borrowing costs will be close to zero and people will accumulate even larger amount of debt than are currently common.
The 20th century (and 19th century) were periods of unprecedented economic growth. Mankind had never experienced the type of economic growth that happened in those two centuries. Structural economic changes and decreasing birth rates will slow economic growth, at least in the west. To deal with these changes central banks will adopt new monetary policy tools. These will include zero and negative interest rates, to stimulate the economy (whether it will work or not, only time will tell).
This will lead to profound changes in the global debt/credit market. If I knew how to capitalize on this I would be starting a hedge fund and raising billions of dollars. Instead, I am making predictions that may or may not come true. One thing is for certain, monetary policy and the credit market already function differently than they did in the 20th century. They will continue to be factors that benefit the rich and confuse the middle class (the lower class unfortunately are largely unaware they exist).
Build winning momentum
The 1% are the winners in our capitalist society. You cannot go from the 99% to the 1% without making a habit out of winning. Your mind should be filled with visions of your success and a deep understanding of the process you need to take to achieve your dreams. If you want to become a winner, you need to think like a winner. The most important thing is winning. Do you think the greatest athletes or CEOs ever think about losing or bankruptcy?
Does Elon Musk ever think one of his companies will go bankrupt?
Did Alexander The Great ever think he would lose a battle?
Does Christiano Ronaldo ever go onto the field expecting to not score a goal?
You need to develop irrational self-confidence in yourself, because there is no other way to get to the 1%. You cannot be scared to fail when you are about to start a new business venture. Doing market research and building a business plan is important, but after that is done it’s all about putting in the work. Whether you are going to be in the 99% or the 1% is completely under your control.