The secret to financial freedom, and why some people are broke their entire lives, and some of us become financially free, boils down to one very simple fact. Some of us spend all of our money on things that go down in value, and the some of us spend as much of our money as possible on things that increase in value. That’s all there is to it, and that’s how simple it is, and if you knew nothing but this, and you did it, you would become wealthy, no matter how little you have now, or how little you earn.
Let me explain what I mean when I say that you spend your money on things that go down in value. When you spend money on food it is gone forever. The same way with clothes, cell phones, entertainment, etc. Some things that you spend money on do retain some value after you buy them, like cars, boats, airplanes, etc., but their value goes down drastically from what you paid for them. The money that we spend to maintain our possessions is also money that is gone forever, like gas, electric and water for our home, and fuel, insurance and maintenance for our vehicles. Then there are taxes, interest and insurance. Every dollar that we spend on things that go down in value is a dollar that we cannot invest in things that go up in value. Most people spend every penny that they earn in their entire lives on things that go down in value, and die broke. Some people go a step further and spend not only every penny that they earn, they also spend every penny that they can borrow. No matter how much money they earn, they will always be broke. Look at athletes and actors who have made millions of dollars, and spent every single dollar they earned from those fantastic salaries. Most of them are completely broke, and back to where they started from, shortly after those big paychecks quit coming.
You can also spend part, or all, of your money on things that go up in value. Either by gambling, starting a business, or by investing. Gambling consists of things like buying lottery tickets, the casino, playing poker, betting on the horses or playing the stock market. You do have a chance of increasing your money by gambling, but you have a much greater risk of losing some, or all, of your money. You could also start, or buy, a business. You put your money and your time to earn money. Lots of people have become wealthy by owning their own business. You could also invest your money in stocks or real-estate.
Investing in real-estate differs from investing in stocks, in that stocks are what I call a passive investment, you invest only your money. Investing in real-estate means that you cannot just buy it and forget it because somebody has to manage it. Somebody has to find renters, do background checks, clean and paint the unit before renting it to a new tenant, etc., not to mention the maintenance. There is only one thing worse than getting a call at 2am from a tenant who has clogged up the toilet, and that is not getting the call at 2am, and they finally call you the next day, after the toilet has backed up and overflowed for the last 12 hours. Owning real-estate is not like spending full-time working in your own business, but it is not totally passive like owning stocks either.
Here is the secret to becoming financially successful.
Broke people spend their money on things that go down in value.
Wealthy people spend their money on things that go up in value.