The rich work to accumulate assets and investments, and it is these assets and investments that ultimately give them financial security and freedom. The assets that the rich typically purchase are:
stocks
bonds
mutual funds/exchange traded funds (ETFs)
rental real estate
real estate tax liens
notes (IOUs)
precious metals – gold, silver, and platinum
private businesses
oil and gas rights
raw land
timber land
intellectual property such as copyrights and patents that generate licensing royalties
The key to financial freedom is this:
To become financially independent, you must work to buy assets and investments, and later those assets and investments work to buy you the lifestyle you desire.
You are wealthy when your income from investments and assets meets or exceeds your monthly outgoing expenses. You are then financially free.
Your job may currently be to work for yourself or to go to an office and work for your employer, but financially your job is to learn how to best invest the money you are making and convert that into income from investments. This is the path of financial success and prosperity.
This was how I did it, slowly but surely acquiring a financial education while I worked as a composer and music producer.
If your only income is from a job or business that requires you to be there fulltime, you have no passive income coming in. Your income stops the moment you stop working. This is kinda scary when you look at your finances that way!
Figure out what your monthly expenses are. Let’s say it is $4,000 a month. This will be your goal number, the income you are targeting to generate from your investments.
If you have $1,000 a month net income coming in from rental real estate, and your expenses are $4,000 a month, you are one quarter of the way to financial independence.
If you work to acquire four rental houses (and now have a net income of $4,000 a month from rents), you are now financially free. Your expenses are covered by your passive income.
You may not be rich, but you are wealthy. And becoming wealthy, not rich, is the first goal.
It gets better. Once you are financially free, you will have established the earning and spending patterns necessary to become rich. You’ll have mastered the financial knowledge and mindset to make even more money from buying more cash-flowing assets. Becoming rich will be that much easier!
If you want to become wealthy, just follow these six steps:
1) Buy assets that put money in your pocket. This is investing for income or cash flow.
2) Buy more assets that put money in your pocket.
3) You guessed it – buy even more assets that put money in your pocket.
4) Use the money generated by an asset to buy more of that asset, or other assets. This is using compounding.
5) Keep your expenses lower than your income so you can save enough money to purchase assets.
6) When purchasing something, ask yourself this: What could I invest in that will pay for what I want to purchase? How can I get this potentially for free?
Jodie
Pretty! This was an incredibly wonderful article.
Thanks for providing this information.
John
This is a great article. I’ve seen many explaining dividend stocks, compounding and not putting your eggs all in one basket. I think what most first time investors or people on the fence on whether to invest are concerned with is, who do we go to, who do you trust with your money? Instead of a stock broker who takes a percentage what are the trustworthy entities and websites to use that can maybe coach you along your first and future investments investment?
Michael
Hi John,
Always look for a fiduciary when dealing with investing professionals, whether they are wealth managers or stockbrokers. They are required by law to put your needs ahead of their own.