“The rich get richer, the poor get the picture”. So said Midnight Oil in their song “Read About It” way back in 1982.
It seems that not much has changed over the past 37-years and Midnight Oil were not the first to use the phrase that the rich get richer. This is a saying that has been around for a long-time. But why is it that the rich do actually get richer, is it good luck, or something else?
In my profession, I get to see the true financial position of a broad range of people. I get to see their assets, their liabilities and income and expenses. Through conversation, I also get an insight into their financial philosophies and gain an understanding of what makes them tick.
Based on many years of experience, I have identified some of the traits that most truly successful people exhibit.
1. They have a budget:
And they stick to it. Preparing a budget can be tough, sticking to it is even more difficult. Successful budgets typically include items such as saving & investment (including accelerated repayment of debt). They also include an allowance for ‘luxury items” whether they be a simple meal out, a camping holiday, or something more extravagant.
2. They set goals:
They have a clear idea of their direction and they know what they need to do to achieve their goals. Their budget is aligned to their goals (which makes it easier to sacrifice consumption now). Rather than going without, they are accumulating towards their goals.
3. They avoid high interest ‘non-productive’ debt:
Credit cards (and similar). They are a useful cash flow tool however, if used incorrectly it can be really difficult to get out of the debt trap.
4. They understand the importance of cash flow:
Over a lifetime, income is the biggest ‘asset’ that anyone can hold. If income reduces, so do choices. Many successful people have more than one source of income, either through a second ‘job’ or through income from investments.
5. They protect their assets:
They do this in two ways:
Insurance. No-one likes paying insurance however, if the worst happens, insurance is there to compensate for loss or damage to assets. They also carefully consider all of the risks that they might be exposes to and protect themselves. As an example, if they are a professional, they have Professional Indemnity Insurance. In line with my comment on the importance of income, they also make sure that their income is protected in the event that something happens to them.
Risk management. We’ve all seen the articles on the nightly ‘news’ shows where someone has lost money to a scammer or has perhaps given their assets as security for a loan and has lost out. The most successful people recognise that if something looks too good to be true, it is and once they have an asset, they don’t place it at risk.
6.They rarely gamble:
Or if they do, they understand the odds and they have a very limited gambling budget.
7. They do not flaunt their wealth:
They are often generous and are philanthropic, but they generally do not flaunt their wealth. Outside appearances are often deceiving. Outward displays of wealth are often debt funded.
8. They recognise and use the value of leverage:
They leverage their time by employing people to do non-productive tasks (which then means more time for income producing activities or for more leisure time)
They leverage their income by investing in income producing assets and taking advantage of compounding interest.
They are not afraid of debt for income producing assets. The return from the asset must be greater than the cost of the debt.
So, in conclusion, money does make money, but only if it is used wisely and with a broader purpose.
What do you think? Do you have any money-making tips that you would like to share?
Of course, if we can be of assistance with anything contained in this article, please give us a call. We would be happy to have a chat.
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