Four Ways the Rich Manage Their Money

I came across this article via sk*rt who found it from Boostle Blog, but I thought it would be worth highlighting here.

Nishank Khann:

You don't have to earn more to get rich. People often find that concept hard to grasp. Read that again...

You don't have to earn more to get rich.

Get rich simply by strategically managing your current income. It's a lot easier than you think. We'll show you how.

— If you think you can, you can.
— If you think you can't, you can't!

1. Build, Not Bleed Wealth

The biggest factor holding you back is the percentage of your earnings that you save. Think you're living from paycheck to paycheck? Chances are that you're not!

The second you get your salary, set aside 20% right away. Don't touch that money. Try to improvise with the remainder. Eliminate useless expenses and use that 20% to build assets.

Easier said than done, you say?

Did you know the average person in China saves around 30% of their annual income? In the United States, the average is a meager 2%!


2. Prioritize Expenses

Weigh the important of each expense. First spend money on things that are absolutely essential (that Gucci bag you're drooling over isn't one of them). Only then start to think about anything else.

Don't dip into the 20% you set aside earlier.

Ask yourself which is better — buying that expensive Gucci bag right now, or an apartment a little later? The property will make you rich — both with increase in value and rental income.

— Before you know it, you'll have enough for down payment

3. Emergency Fund

Financial advisors recommend you keep at least 3 months' salary stored away for a rainy day. The rich would beg to differ. They'll tell you sack away at least 6 months' income.

Life is unpredictable. You have to prepare for the worst — even if it probably won't happen to you.

In medieval Japan, the samurai pushed themselves over the edge — they relentlessly trained day in day out. Because they knew when the time came for battle, the opponent would be no match.

The 20% that you're saving from your salary, we'll start investing it only after an emergency fund has been set aside.


4. Invest — Get Rich Slowly

Successful people know getting rich isn't an overnight process. But they also know their money must work along with them.

Why should you bust your hump and your money just sits there in the bank? Make your money work harder than you!

The key is to diversify your risk.

The interest rate you get from a bank account is probably peanuts compared to the potential of other investments. When you hear investment, the things that come to mind are probably stocks and real estate.

We'll reveal some really innovative places to invest in future posts.

— Visualize your long term goals

Bonus Tip — Visualize Your Success

Set a long term goal on where you want to be in 5 years. Also set a smaller short term goal for the next 6 months. Now visualize them.

Visualize your goals everyday when you wake up. When you imagine having achieved your goals, you're more inclined and motivated to make it a reality. Every time you want to buy something, first visualize your financial goals.

Until next time...