The Wealth Blueprint: Unlock The Secret of The Rich
The richest 1% own almost 50% of the world's wealth. Although everyone has the same 24 hours each day and we work as hard as the rich or maybe even harder, whatever we do, we stay where we are and the rich keep getting richer. There should definitely be some secret that only the rich know, something that we are not aware of. Or that’s what I thought. And I was convinced that if I wanted to get in that 1%, I should find out that secret.
I was born into and brought up in a middle-class family. As a kid, I always thought that if I studied well, got good grades and then a good job, at some point in life I would be rich. But boy, I was wrong. I still consider myself a fairly successful person. I have a job that earns me a decent salary, I have zero debt, and I have a considerable amount of money invested in different assets. But I am nowhere near calling myself rich. And by rich, I don't mean owning a big house or driving a Ferrari kind of rich. Rich in the sense I want to earn enough money to buy back time. I'll explain.
There are many things in life that I don't enjoy doing but still have to do to survive: working 40 hours a week, cooking, cleaning, etc. And then there are things that I want to do more such as spending time with my parents and friends and traveling around the world. But unfortunately, that doesn't earn me any money. So, I want to have that financial backing so that I can spend a major share of my time doing things that I really enjoy doing. And not have to worry about running out of money. And for that, I wanted to know the secret of the rich. So, I started my research on the millionaires and billionaires of the world.
I read more than 100 books on personal finance and watched thousands of videos from personal finance gurus, and finally, I understood one thing. There is no secret. But, instead, there is a step-by-step blueprint that the rich follow, which they pass on to their kids and so on. Since financial education in schools is a joke, the majority never learn about this blueprint. And that's exactly what I intend to do with this video. No financial jargon, no confusing technical stuff. Just 8 simple lifestyle changes that we can make to save money and build wealth. So, let's get started.
Goals
First things first. Take a piece of paper and a pen and write down your money goals.
Because truth be told, saving money is not as fun as spending money. It's so easy to go off the path, so it's important to have a clear goal to help us stay motivated. It could be saving for a down payment on an apartment or saving for retirement.
My goal is to earn enough money through multiple streams of income so that I can reduce my dependency on my 9-5 job and retire partially in the next 5 years. Whatever your goal is, write in a clear, actionable way. "I want to be rich" or "I want to make a million dollars" won't help here. Always think about the why. Why are we doing this? Why do we want to make a million dollars? That "why" is our goal and that goal will motivate us to keep going when the going gets tough. But then goals are good for setting a direction, but we need systems to make progress. And the best place to start is to create a system to understand where we are right now.
Track Your Expences
Before we talk about the importance of tracking our expenses, we need to understand an important equation that influences our personal finances. And that's the equation of cash flow.
“Cash flow = Amount of money coming in or our income - The amount of money going out or our expenses.”
And our target should always be to have a net positive cash flow. Because a negative cash flow means we are spending more than we can afford, and we all know that can’t end very well.
Now, to make it clear, all spending is not bad. We need expenses. It's only bad when it's reckless spending. And the whole world is designed in a way to promote this. Online shopping and one-day deliveries have taken away all the difficulties associated with shopping and have made it more easy and fun. In a world of Prime Deals and Black Fridays, it's easy to get carried away and misunderstand our wants as needs. It's easy to lose track of our spending when we just go on swiping our credit cards left and right.
Spending our money wisely is one of the most important steps we can take to put ourselves in the best possible financial situation. And the best way to do that is by tracking our income and expenses.
- What's coming in?
- What's going out?
- Where's it going?
- What's left?
But then most people, when they start tracking their expenses, they go to the extremes. Making note of each and every penny spent. It’s not sustainable and it’s not required. Do you think Jeff Bezos is making a note of that extra 50 cents he spent on the Ketchup packet? No, So, just keep it simple. For example, if you grab a burger, just write "food" and round it off. The more complicated we make it, the more difficult it becomes to keep doing it. So just having an overview of where our money is going is good enough for most of us.
I am not saying it's bad to track our expenses in detail. But when we are starting with something like this the core idea should be to create a system where doing it is as easy as possible. But just knowing how we spend money won't make us conscious consumers. For that, we need to set a budget. And a simple way to do that is by using the 50-30-20 rule.
50-30-20 Rule
This is a simple budgeting rule that we can apply to make the optimum use of our money. Every time we get paid, allocate 50% of the income to needs, 30% to wants, and 20% to savings.
Needs are things like rent and groceries. Wants are those nice-to-haves that make our lives better but are not necessary for survival. For e.g. going to the movies or eating out. And, the remaining 20% should go to savings. And on the topic of savings, our first and foremost priority with that 20% should be to set up an emergency fund.
Emergency Fund
Why do we even need an emergency fund? In polite terms, shit happens. It is so important to prepare ourselves for what life throws at us. But still, according to a recent poll, 53% of Americans won't be able to get through an emergency without borrowing money. This has to change. An emergency can strike at any time in any form. It could be medical bills, house repairs, or a sudden job loss. So, if we have some money stored up, we may not have to rely on high-interest loans or credit cards to get through such difficult situations. It’s always a good idea to save 3-6 months of our living expenses for an emergency and make sure that the money is available whenever we need it.
Manage Debt
Once we have saved up 6 months of our expenses in an emergency fund, the next important thing to tackle is our debt if we have any. But let me make it clear that not all debts are bad. There are both good and bad debts. Good debts are the ones that help us generate income and build our net worth, such as loans for our education, our business, or real estate. For example, if we purchase a $200k rental property on credit, rent it out for $2k, pay $1k to the bank, and pay $600 for expenses, we will still be left with $400 in profits.
But then we have to get rid of those bad ones that drain us out. So, stay away from all kinds of credit card debt, personal loans, car payments, or any type of payment plan for consumer goods. Identify such bad debts, especially high-interest ones like credit cards, and do everything you can do to get rid of them.
Here we have two options. The avalanche method and the snowball method. In the avalanche method, we pay off the debt with the higher interest rate first and then move on to the next one. This saves you the most amount of money. In the snowball method, you pay off the smallest debt first and climb up the ladder.
Here we may end up paying more in the form of interest. But then we get a nice psychological boost, as we feel more confident when we see the number of debts getting reduced at a faster pace. Again, the method is not important. Just go with the one that works for you.
Now we have talked about all the ways we can manage our money. But the rich stay rich not just because they manage their money well. There is a limit on how much wealth we can build just by saving money. We will hit a wall unless we increase our income. And the easiest way to do that is by investing our money.
Invest
There are many investment opportunities out there. Stock market, real estate, etc. But I made the mistake of not actively investing my money as soon as I started earning. I thought it was risky, complicated, and not for everyone. I couldn't have been more wrong. Just invest, and invest more. And for a beginner investor, the best way to start is with index funds. Funds diversify our investments into different fields and sectors so that the overall risk is reduced.
If you ask me for one investment, just one investment to hold forever, I would say go for the S&P500 ETF. This divides and invests your money into the top 500 companies in the U.S.
But that being said, I don't personally see investing as a way to build my wealth. For me, it's more of a means to protect my money from inflation in the long term. So, if our intention is to build wealth we should invest in the best asset we have.
Invest In Yourself
The best investment is the investment we make in ourselves. That will give us a higher return than any other investments that we can make. So, educate yourself by reading books, watching videos, or attending courses and build skills that you can later monetize. You could have spent the last 10 minutes aimlessly scrolling through Instagram. But the simple fact that you decided to spend it on educating yourself by reading this blog shows that you are serious about this. So, give yourself a pat on the back. When I started my YouTube channel, I had zero experience with content creation. Everything I learned, I learned by watching videos online. Now, my channel is making money even when I sleep. And that brings us to the next important point.
Multiple Sources Of Income
If you think you are not earning enough in your current job, then probably you're right. I can guarantee you one thing: your company or your boss doesn't care whether you are compensated enough for your efforts.
“If you want to get paid for what you deserve, you need to be your own boss.”
65% of self-made millionaires have 3 sources of income. I'm not saying you should do a night shift in McDonald's after your 9-5 job to earn those extra bucks. All it really requires is putting aside a couple of hours every day from your social media or TV time to start a side hustle or develop skills that you can later monetize.
The more income you earn, the more opportunities you have to multiply your money. That's how the rich keep getting richer.
So, if you want to get to the 1%, you need to manage and make money like the rich. That means following the wealthy blueprint.
Video:
Disclaimer: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. It is important to do your own analysis before making any investment.
