“Don’t buy a new car and then get rich. Get rich then buy a new car.”
The sentiment above is an endorsement for delaying gratification but also contains additional ideas to be considered and understood…
Speaking financially, most members of the middle and lower classes tend to operate their lives with an “earn and spend” mentality. They utilize income to buy and pay for things, often attaching an (as soon as possible) urgency to the equation. Debt is frequently incurred to accelerate the acquisition portion of a common and often insatiable desire to have that “thing” soon; in our example a new car. So future earnings must now be devoted to paying for the car and also the interest that a third party (bank) will receive. There is no chance that the money needed to pay for the car and interest can ever be directed towards something that can produce income. This scenario, repeated constantly throughout the duration of a majority of lives, is the result of a lack of financial understanding and the willingness to take a patient approach for fiscal well being.
Conversely, those who reside in the rich and wealthy sector tend to do things a little bit differently. They operate with an “earn, invest and then buy things” mentality. They allow money generated from income producing assets to do their buying for them. This money appears in the form of positive and passive cash flow which is generated from investments that have been developed over time. Even after they purchase their car, their income producing assets continue on, much like a well maintained machine. That is what occurs when a well informed, patient and long term strategy is understood and then executed.
In a nutshell:
A) The definition of investing is this: “putting money into something with the expectation of gain that, upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time.“
B) Definitions of spending are these: “To use up or put out; expend. To pay out (money). To wear out; exhaust. To throw away; squander. To pay out or expend money. To be exhausted or consumed.
We think of “A & B” as separate bins that money can be funneled into. Obviously, a losing and never ending battle is fought if all income is always earmarked for bin “B” which must mean that bin “A” is the more desirable of the two… For the rich, it’s truly begins with this simple understanding.
Understanding these basic principles is where financial knowledge and intelligence (IQ) begins. They’re not concepts or well kept secrets that rich and wealthy people hoard amongst themselves. The rich merely look at, approach and execute their financial lives differently than the other classes do.
And so can you… “Invest and Grow Rich.”