At MoneyBlog, in our Ask MoneyBlog section, where we let people ask us ANYTHING they want about money, money management and personal finance, we’re starting to notice that certain questions get asked by lots of different people. And today’s question is one of them. It roughly summarises as this:
“How do rich people stay rich? And why do the rest of us struggle just to pay bills?”
So for our first feature article, we’re going to answer this question. And as an extra challenge today, I’m going to attempt to answer the question using movie, TV & classic literature references to aid teaching.
So here we go…
Work Hard, But Work Smart
Wealthy people work extremely hard. The media often shows them lying on beaches and chilling out at clubs and restaurants where a main dish will cost you £60. And there’s a bit of that. But over the past few years I’ve met people whose net worths start at £1 million and go up to £100 million. And NOT ONE of them spends much time resting.
But the work smart. It’s NEVER just pointless toil. They always have their eye on the bigger picture, the higher purpose for doing whatever they’re doing.
Always Keep Spending Lower Than Earnings
My mother taught me about money from Charles Dickens’ Macawber:
“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
The quote literally means spend less than you earn. And as you’ll note, from the quote, it only takes a tiny overspend for misery to result.
If credit card debt is required to keep life flowing, this indicates an earnings problem rather than a savings problem. There is so much emphasis in the media about saving money. But remember – there is a limit to how much you can save. Because ultimately you HAVE to spend. While, in theory, there is no limit to how much you can potentially earn.
Learn more about how to make money and how to increase your earnings here.
Spend Most Of Your Money On Assets, Not Liabilities
Amongst many astute observations about society in Fight Club, is this economic gem. In one sentence, THIS is what keeps people poor.
Wealthy people spend their money on assets. Things that are going to appreciate in value. And when they buy something that won’t, they’ll go for the option that’s going to last the longest.
Most people spend the vast majority of their money on liabilities and lifestyle expenses.
Be On The Right Side of Debt, And Invest
We really struggled to find a movie character who was an investor who wasn’t a villain. I suspect that highlights a problem with society. If pop culture shows investors to be negative, how can we expect people to have a positive and productive attitude to investing? So we picked Ryan Gosling in The Big Short… because who doesn’t like Ryan Gosling?
Anyway, I digress… back to it…
Personal debt is a drag. Once you’re in it, it can take many years to pay off. Now there may be situations where getting into personal debt may either be unavoidable, or a good argument can be made that it’s a reasonable idea. But on the whole, MoneyBlog teaches that you should stay out of personal debt whenever possible.
On the other hand, if YOU are the lender, debt is going to work very well for you. Lend somebody £100, have them pay you back £120. Do that 1000 times. You’ll be doing very well. This is essentially what bonds are. And wealthy people do very well using bonds and other financial vehicles to lend their spare cash out and make profit from doing so.
Additionally, investing in the stock market, if you know what you’re doing, is, in the long term, is possibly the best way to grow your money.
Note: Both of these methods take your own effort out of the task of making money. Once you buy the investment or the bond, your money will grow whether you are lying on a beach or breaking your back at a day job.
Be Tax Efficient
Again, we struggled with a pop culture reference. So we picked Leonardo DiCaprio as Joran Belfort in The Wolf of Wall Street. While we don’t condone much of his behaviour in the movie, his books are good and his YouTube Channel is worth watching.
Tax efficiency is starting to get a negative reputation in the press. This is likely to be a publicity firm working on behalf of the government who is short of cash and would like more people to willingly hand over more of their hard earned money to help them balance the books.
At MoneyBlog we take a very transparent and straightforward approach to tax: Keep as much of your money as you can, without having to resort to criminal activity to do so.
Because paying large amounts of tax really does hamper your ability to grow your money.
Being Wealthy Is A Way Of Life
J Paul Getty in the movie “All The Money In The World”. For J Paul Getty, building wealthy WAS indeed a way of life, though in our opinion, he took it a bit far…
The reason get rich quick schemes entice so many people is because most people think you do something for a short time and just ‘get rich’. Of course, it doesn’t work like that. Wealth is built over years and decades. And doing so requires an individual who is clued up with the latest information – that’s what MoneyBlog is for; and is always looking for new opportunities.
I’ve heard people who lack this mindset call it ‘exhausting’. I’ve never thought it is. I’ve always thought it’s exciting.
Learn To Manage Risk
Okay, we drew a blank this time. So here’s Tom Cruise from the movie Risky Business, which, we know, has NOTHING to do with investing or wealth building. Oh well…
Risk management and patience are the other skills the wealthy use to stay wealthy. Always have your eye on the long game, with enough cash flow to tide you over through the ups and downs of the world economy.
Always be weary of the amount of risk you’re taking on, and remember, if the Lehman Brothers taught us anything, it’s that NOTHING is too big to fail.