5 Ways to Succeed in This Economy
Singer John Denver called Dr. R. Buckminster Fuller the “grandfather of the future” in his song “What One Man Can Do.”
What made Fuller the world’s greatest futurist is that he simply looked at the past to predict the future.
People are feeling pretty optimistic about the economy because the stock market is at an all-time high. The real estate market is booming. Things seem good right now…
But if you’ve studied history then you know things don’t stay up forever.
One of the basics of being an investor is to be prepared for whatever happens, rather than attempt to predict what is about to happen.
These are the five ways I’ve learned that the rich do just that…
1) Learn the Rules of the System
There is some degree of truth to the saying, “Remember the Golden Rule. He who has the gold makes the rules.”
The key to becoming rich is to recognize that the system is unfair, learn the rules, and use them to your advantage.
To understand fully how things happen, we need to look at the history of taxes. Originally, in England and America, there were no taxes. Occasionally, there were temporary taxes levied to pay for wars. The king or the president would put the word out and ask everyone to “chip in.”
Taxes were levied in Britain for the fight against Napoleon from 1799 to 1816, and in America to pay for the Civil War from 1861 to 1865.
In 1874, England made income tax a permanent levy on its citizens. In 1913, an income tax became permanent in the United States with the adoption of the 16th Amendment to the U.S. Constitution.
At one time, Americans were anti-tax. It had been the tax on tea that led to the famous Tea Party in Boston Harbor, an incident that helped ignite the Revolutionary War. It took approximately 50 years in both England and the United States to sell the idea of a regular income tax.
What these historical dates fail to reveal is that both of these taxes were initially levied against only the rich. The idea of taxes was made popular, and accepted by the majority, by telling the poor and the middle class that taxes were created only to punish the rich.
This is how the masses voted for the law, and it became constitutionally legal. Although it was intended to punish the rich, in reality, it wound up punishing the very groups who voted for it, the poor and middle class.
The passage of taxes was only possible because the masses believed in the Robin Hood theory of economics: Take from the rich, and give to everyone else. The problem was that the government’s appetite for money was so great that taxes soon needed to be levied on the middle class, and from there it kept trickling down.
However, the rich saw an opportunity because they don’t play by the same set of rules. The rich knew about corporations, which became popular in the days of sailing ships. The rich created the corporation as a vehicle to limit their risk to the assets of each voyage. The rich put their money into a corporation to finance the voyage. The corporation would then hire a crew to sail to the New World to look for treasure. If the ship was lost, the crew lost their lives, but the loss to the rich would be limited only to the money they invested for that particular voyage.
It is the knowledge of the legal corporate structure that gives the rich a vast advantage over the poor and the middle class.
2) Learn How to Use Debt
The rich use good debt to grow their worth and they invest in cash-flowing assets using Other People’s Money (OPM)—both the bank’s and investors.
The downside to debt is that you can generally only borrow a certain percentage of an asset’s purchase price. In keeping with our real estate example from my previous post on good debt, that is generally around 70 to 80 percent of the purchase price.
Because of this, you have two choices when you find a worthy investment: use your own money or use other people’s money. Provided you structure the deal well, the more you can use other people’s money, the higher your return will be.
Many people think it’s a fantasy world that people would just give you money to invest, but that couldn’t be further from the truth. The reality is that most people don’t have time to find good deals. Instead, they rely on people with the proper financial education, skill set, and drive to bring deals to them.
My real estate advisor, Ken McElroy, has perfected using OPM. His company, MC Companies, buys apartment buildings. He does all the hard work of finding deals, doing the due diligence, negotiating with owners and lenders, and handling management. In return, people line up hoping to invest their money with him.
Today, Ken does big deals that require a certain type of investor. Not just anyone can invest with Ken. But he started with small deals, like the ones I’m writing about today, and worked his way up to big deals.
3) Manage Risk
Whether you turn your money over to a financial advisor or control your own investments, there will always be risks involved. However, you increase your investment risk when you have no financial education, don’t understand what you are investing in, let others keep the majority of the returns, and depend too much on others to control your investments.
Your investments are “safer” when you get a financial education, actively invest your money in investments you understand, get the majority of the returns, and become your own financial advisor. Managing your money properly means managing risk properly.
4) Position Yourself as an Entrepreneur
The ultra-rich operate solely on the right side of the CASHFLOW Quadrant, and they’re the ones who have figured out how to print their own money, legally.
The reason for this is also simple, they own the machine. Business owners build businesses specifically to print money legally—they easily achieve infinite returns after they get back the initial investment they used to start the business. It’s the same with investors. Once they get their initial money back and still own the investment, they are in the money printing business and are achieving infinite returns.
5) Never Stop Learning
Learning is a habit. Your brain is a muscle like any other muscle in your body — and like any other muscle, you have to work it out (by continually learning new things) to stave off atrophy.
But for many, it’s hard to keep learning — especially when your days are eaten up by a 9-to-5 job. But if you’re stuck on the left side of the CASHFLOW Quadrant as an employee, continuing your education is especially important because it’s the only way you can ever make the shift to the right side.
Oftentimes, employees get really good at one specific set of skills. They perform the same job every day and develop an in-depth understanding of that one area. But over time, if they aren’t learning and growing, they lose their ability to learn new things. And with it, they lose the chance to grow as human beings and make the shift to the right side of the quadrant. Of course, no matter which side of the Quadrant you’re on, you still need to constantly evolve and learn new skills.
Even if it’s something small, try learning at least one new thing a day. Be mindful in your continuing education. Go into the day having a specific goal in mind, or area in which you want to grow. By keeping in mind that you should always be learning, you’ll easily continue your education and make strides toward financial freedom.
Play it smart,
Editor, Rich Dad Poor Dad Daily