Education and a high income do not constitute wealth. High-wage earners who don’t understand this die broke.
Compare the cash flow patterns of the poor, the middle class, and the wealthy. (Source: https://www.richdad.com/personal-cash-flow)
The poor live paycheck to paycheck. Expenses like rent, utilities, and food completely deplete their income. Most don’t have liabilities because bad credit prevents them from qualifying for home loans, credit cards, and consumer loans.
The middle class has both expenses and liabilities. Besides living expenses, their income goes towards house payments, car loans, and consumer debt.
The wealthy separate themselves from the poor and middle class by their approach to expenses and liabilities. They avoid liabilities by not going into debt, and they minimize their expenses. Instead, they allocate their wages to assets that produce income – productive assets like cash-flowing investments.
The wealthy have figured out that to avoid dying poor and living a life tied to a time clock or being burdened by debt, they have to acquire assets that create additional income to grow wealth.
Many doctors, lawyers, and executives think their prestigious degrees and high-paying jobs automatically qualify them for inclusion into the “wealthy” column, but this is far from the truth. You can have the salary of a wealthy person, but if you treat money like a middle-class person, you qualify for the middle-class column, and you’ll die like a middle-class person… broke.
Here’s a famous example of how a physician can make good money but be broke:
You would think that Michael Jackson’s physician, Conrad Murray, didn’t have to worry about money, but that’s not the case. Without getting into details of the prison sentence, he served for improperly administering the anesthetic drug propofol to the singer in 2009 – causing his death – let’s focus on Murray’s finances.
At the time of Jackson’s death, courts in Las Vegas, where Murray lived with his physician wife, 19-year-old son, and 13-year-old daughter, had ordered him or his business to pay $435,000 to creditors, including a student loan. His home near the 18th hole of a country club was in jeopardy. Property records show he had refinanced the mortgage at least three times in five years and owed close to $1.7 million on a property assessed at $1.08 million. According to court records, he hadn’t paid the mortgage for months, and foreclosure proceedings loomed.
Murray is an example of how someone with a prestigious degree and a high-paying job can spend money like a middle-class person and be broke. His high income couldn’t keep up with his expenses and debt obligations. This is why he’ll likely die broke.
What about the professionals that attain wealthy status? What habits do they adopt that separate them from their middle-class peers?
They Focus on Creating Additional Streams of Income…
Most professionals are already maxed out on the number of hours they work a day, so the thought of working more to increase their income is out of the question.
They have to find independent sources of income. Smart investors know that these sources of income can only be generated passively from productive investment assets. The assets sophisticated investors gravitate towards are passive investments in cash-flowing commercial real estate and income-producing businesses. By partnering with experts, smart investors can leverage the expertise of others to generate passive income without headaches or time constraints. And by investing in multiple opportunities, these investors can generate multiple streams of passive income to grow wealth exponentially.
Passive income is essential for building wealth, and with multiple streams of income, it has the potential to replace the income from a job.
Financial independence is when you no longer depend on your job to meet your needs and can even walk away from it. Moreover, investments in the right assets that thrive during downturns can insulate wealth from Wall Street volatility, recession, and even inflation – giving investors peace of mind in uncertain times.
They Ignore the Noise…
Investing is the key to wealth but investing in the right assets will only move you closer to your goals. When weighing investment options, smart professionals think long-term and take emotion out of their investment decisions. They don’t speculate – ignoring the noise, buzz, and hype that draws other investors into high-risk public assets.
By thinking long-term, smart investors can ignore assets that generate hype and buzz but do nothing to build wealth. It allows them to focus on assets that provide steady and consistent cash flow along with underlying growth – two elements essential for growing and maintaining wealth no matter the market conditions. Commercial real estate and investments in private income-producing businesses (i.e., private investments or private equity) are the types of assets sophisticated investors favor for building long-term wealth.
Save and Avoid Debt…
Instead of wasting their earnings on needless expenses and unnecessary debt, smart investors stockpile cash for investing in productive assets – of the above types. They forego short-term pleasure for long-term security.
To avoid a pauper’s death, education and a high-paying job won’t cut it. Only by adjusting your financial habits to emulate the cash flow patterns of the wealthy will you be able to avoid dying broke. In fact, with the right habits, you may even be generations to come when you die.