My Journey To Billionaire Club

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Com
What Rich Teach Their Kids About Money That Poor & Middle Class Dont? Author: Asav Patel, Ahmedabad, India
WHAT RICH & ULTR-RICH (BILLIONAIRES) TEACH THEIR KIDS ABOUT MONEY THAT POOR AND MIDDLE CLASS DONT?!!!!
Do You want to become Rich (Millionaire, Multi-Millionaire) or Ultra-Rich (Billionaire) one day in your life? Then learn the following 6 Lessons of Rich people. These are the lessons that rich people teach their kids but poor and middle class dont. Lesson: 1 Financial Statement Lesson: 2 Asset Versus Liability : 2.1 Asset Classes.. : 2.2 Business Mindset.. Lesson: 3 Active Versus Passive Income Lesson: 4 Good Versus Bad Expenses & Debt. Lesson: 5 Cashflow pattern of Rich, Middle class & Poor 06 11 24 32 40 51 58
If You Want to Discuss anything about this eBook or if you have any Query regarding any concept of this book than you can directly contact Author on Investta.com The Investors & Entrepreneurs Forum. Or you can give your feedbacks about the eBook directly to the Author (Asav Patel) at his Personal e-mail address asav4u@gmail.com Pa ge |1
MyJourneyToBillionaireClub.Com
Lesson: 6 The Power of Corporate Structure A) Save Tax B) Asset Protection C) Create NEW Wealth in the Economy
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.. 73 .. 82 .. 90
The History of Money, Gold Standard & Modern Banking 103 Asset is More Valuable than Money Myth: 1 Go To School Myth: 2 Get a Job . . .. 111 116 121 125 128 132 140
Myth: 3 Work Hard to Earn More Money.. Myth: 4 Save Money Myth: 5 My House is my Asset Myth: 6 Get Out of Debt Myth: 7 Live Below Your Means Myth: 8 Invest for the Long Term and Diversify Myth: 9 Retire With Pension Plans Myth: 10 Capital Gains Versus Cashflow .. .
.. 145 .. 149 153 .. 156
Everybody wants to get rich one day in their life. But unfortunately, our education system doesnt teach us anything about money. And thats why when people leave their schools and colleges, they struggle financially for the rest of their lives and live paycheck to paycheck. The above are the 6 basic Lessons that Rich teach their kids but poor and middle class dont. Rich have knowledge of these 6 lessons since their Childhood and thats why they get rich when they grow older.
If you want to get rich, millionaire or even billionaire than always remember these 6 lessons in your life. And impart these 6 lessons in your children also. So that they can also get rich. Also remember that there is a basic difference between 3 mindsets. 01) Middle Class Mindset 02) Rich (Millionaires & Multi-millionaires) Mindset & 03) Ultra-Rich (Billionaires) Mindset The basic difference between these 3 mindsets are, 01) Middle Class Work Hard for Money Middle Class people have a common mindset and that is, Finding out a safe and secure job, work hard at that job place for years, live paycheck to paycheck and retire at the age of 65 years when you become old. This mindset they derive from their parents and grand parents. For them, job security is the ultimate thing in their life. And they become fearful when they hear about Job loss or changing the jobs. These people have only one kind of skill and that is Earning money. These people trade their time in exchange of money and receive a paycheck at the end of each month in exchange of their time. 02) Rich Make their Money Work for them These are the millionaires and multi-millionaires. These people make their money work for them hard rather than work hard in the economy. Making your money work hard for you means Investments. These people know that managing money (Investing) is as important skill as earning money. Thus, these people are the Investors. These people invest their money in vast variety of assets such as stocks, bonds, gold, real estate, businesses, mutual funds, art, antiques, old wines, web properties, domain names, paintings and many other assets.
These people know that investment is a game of getting rich and financially free and thats why they start investing in their very early lives. These people know that the day you invest your money, it will start working hard for you and make you rich and financially free over a period of time. These group of people also teach their children the art of investing their money since their childhood. During the same time middle class people teach their children to work hard in the school to get good grades so that they can get a good, high paying safe and secure job. 03) Ultra-Rich (Billionaires) Create New Money/Wealth (Legally) in the Economy These are the Billionaires. And they have entirely different mindset than the Rich and Middle class people. I mean these people literally create new wealth in the economy. I mean these are the people who neither work for money (Like Middle Class) nor make their money work for them (Like Rich. Of course they invest their money like rich but in different way). But these are the people who print their own money in the economy and that is also legally. So How These Ultra-Rich people create new wealth in the Economy? How these Billionaires print their own money legally? Well, the answer is By developing successful businesses and later on taking those businesses to the public. And by selling the shares of their own company/business to literally millions of people they become ultra-rich. In short, they are the wealth creators.
You will learn in each and every lesson that How the Middle Class, Rich and Ultra-Rich use each and every Financial lesson in different way. The Financial lessons are the same but the way of analyzing and thinking these lessons is different. So Start reading these financial lessons one by one and understand the 3 core mindsets or Middle class, Rich and Ultra-Rich (Billionaires).
Lesson: 1 Financial Statement Basics
You must have heard the word Financial Statement but probably know little to nothing about it. The above is the simplified diagram of the financial statement. Once you leave your school and college, your Financial statement becomes your Score card. This is because in the real life your financial statement shows that how smart you are with your money. Rich (And Ultra-Rich) people teach their children the basics of Financial statement since their early childhood when they are in school. While Middle class people never teach their children about the financial statement. And this is the ONLY reason their children will also become middle class in the future.
And how can a middle class person teach their children the basics of financial statement? This is because he/she himself/herself doesnt know anything about the financial statement. Let me explain you that What is Financial Statement and Why is it so important to become rich in your life? Well, in simple words, Financial Statement is a on paper record of your income, expenses, assets and liabilities (In the next lessons you will learn in detail about these terms.). A Financial Statement has two parts Income Statement and a Balance Sheet as shown in the figure. Income statement has all the details of your various kind of Income such as Salary, Interest Income, Dividend Income, Rental Income, Business Income or any other kind of Income. It also has all the details of your all kind of Expenses such as Tax, Food, Clothes, Telephone Bill, Credit Card payment, EMIs and many others. Balance Sheet has two Columns Asset column and a Liability Column. Both of them have all the details about your Assets and liabilities. The Middle class people think that there is only one financial statement and that is their own. But well, this is a Myth. The Truth is that, any separate financial entity has its own financial statement such as Real Estate, Businesses.etc The basic characteristic of rich people is that, they play the game of money in multiple financial statements and most of the time they never own their valuable assets in their own name means on their own financial statements. Another important characteristic of Rich people is that, they always think in the financial statements. So whenever they think about starting their new business or investing their money they think that in which part of the financial statement that business or investment will fit and how it will make him more richer? While middle class people dont have any such kind of mindset and thats why they never think in the financial statements.
If you want to become Rich & Ultra-Rich (Billionaire) some day in your life then always think in financial statements. Make the habit of thinking in the financial statements. Rich teach their children to think in the financial statements and thats why their children also grow rich in the future. Middle class people never think in financial statements and this is the only reason of their financial struggle. Middle class people always focus on Income. They always focus on earning money. They dont have any element or basic education or training like thinking in the financial statements and thats why they also dont impart this knowledge to their children also and thus their children also become middle class in the future. But the kids of rich people always think in the financial statements. In fact, anyone who is rich or going to be rich always think in the financial statements. Unfortunately, Financial Statement is something that is not taught in any School. This is because the schools are designed to create employees and self-employees who can run the businesses of rich people. If School will teach everyone the basics of Financial statement than who will work like a slave to run those businesses of the rich people? And thats why the word Financial Statement and its importance is not taught in the school. And this is the reason why the word Financial Statement is purposefully deleted from the entire education system. This is because the rich people of the starting of the industrial age (1800) knew that Financial Statement and its knowledge is the gateway of becoming rich. If you want to become Rich in your life than remember that, The Financial Statement is the Gateway of becoming rich and Ultra-rich. Most of the Financial advisors will tell you that which mutual funds and stocks you should invest. But they will never tell you that You should first think in your financial statement that weather the particular investment will fit in your own financial statement or not?
Not the every investment will make you rich although every investment has potential to make you very rich. This is because you dont think in your financial statements and simply buy the financial products without thinking in your financial statements. But the rich people are those who think in their financial statements before making any investment in their life and thats why they never fail in any kind of investments. You will be surprised by knowing that, it were the rich people of the Industrial Age (Early 1800) who have designed our entire education system. And they have designed our education system in such a manner that it will never teach you the basics and importance of the financial statement to keep you middle class or poor and financially struggling for the rest of your life. This is because they did not want that all the people in this world learn the Financial Statement Basics The Gateway of becoming Rich and UltraRich. Remember that, The person who has basic knowledge and applications about the Financial Statement can never die poor. Exercises Ex: 1 See your own Financial Statement today. And if you are a school going or college going student and dont have your own financial statement (Ideally you should have) then see the Financial Statement of your Parents. Ask your parents to show their Financial Statement to you. Ex: 2 Now, go to the Internet and search for the Financial Statements of Publically listed companies on the various stock Exchanges. Type the Search keyword Financial Statement of XYZ Company in Google Search box and download and analyze the Financial Statement of the various companies. Ex: 3 Take a Paper and Pencil and draw the Simple line diagram of the Financial statement as shown in the above figure. And remember this
diagram very well. This is because the Financial Statement is the gateway of becoming rich in your life. Ex: 4 Teach your few friends, Children or parents the Financial Statement. And Discuss the Financial Statement basics with other friends. Ex: 5 Make a Habit to think in the Financial Statements. Means whenever the topic of Investments, Money, Business, Job or Personal Finance is discusses anywhere, think your own Financial Statement. Make this a Habit. This is because Rich teach their kids to make a habit of thinking in the financial statements.
If You Want to Discuss anything about this eBook or if you have any Query regarding any concept of this book than you can directly contact Author on Investta.com The Investors & Entrepreneurs Forum. Or you can give your feedbacks about the eBook directly to the Author (Asav Patel) at his Personal e-mail address asav4u@gmail.com P a g e | 10
Lesson: 2 Assets Versus Liabilities These are the another two terminologies which are not being taught in the school. And this is the reason most of the people remain middle class or poor and struggle financially for the entire life. If you understand the meaning and the difference of the two words Assets and Liabilities than you can really become rich and ultra-rich in your life. Rich people teach their kids the meaning of these two words very clearly since their childhood and thats why their children make excellent financial decisions when they grow younger.
Diagram 1: Financial Statement Showing Assets and Liabilities. Assets put Money into your pocket by generating cashflow while the liability takes money away from your pocket by making expenses.
Asset means anything which appreciates in its value (Capital Gains) and / or Put money into your Bank Accounts (Cashflow) weather you work or nor. Liability means anything which depreciates in its value and / or Takes money out of your Bank Accounts. These are the basic differences between the Assets and Liabilities. In other words, Anything which puts money into your pocket is an Asset while anything that takes money out of your pocket is a Liability. Rich people always buy Assets while middle class people always buy liabilities and after that struggle financially. Remember that, rich are those who spend their most of the life accumulating Assets. Examples of Assets are Stocks, Bonds, Gold, Real Estate, Mutual Funds, Businesses, Art & Paintings, Rare Wined, Web Properties (Blogs, Websites & Domain names), Intellectual properties, Copyrights, Patents .etc.. Examples of Liabilities are Debt, Car Loan, Credit card outstandings, EMIs, Club memberships, Luxurious Cars, Watches, Clothes, Status Symbols, Country Houses.etc
Diagram 2: Rich Focus on the Asset Column While the Middle Class focus on the Income (Hard Earned Money) and the Liability Column Most of the middle class think that High Income is the indicator of financial well beingness. Middle class think that people who earn high income are rich. But this is a Myth. The Truth is that, people who have more assets are rich. Income has nothing to do anything with your wealthiness. The more assets you own, the more rich you will become. Rich people accumulate more and more assets in their life and thats why they grow richer and richer. While Middle class people have a false belief that the higher they will earn, the richer they will become.
And thats why middle class work harder and harder at their job places to earn more income. This is because they think that the higher income they will have, the more richer they will become.
Diagram 3: Financial Statement of the Middle class Middle class work hard for the Active income and focus on buying liabilities and these liabilities make them expenses.
Diagram 4: Financial Statement of the Rich. Rich focus on growing their Asset column. They create, acquire and accumulate more and more assets in their asset column and these assets generate passive income for them. But well, Rich know that Assets make anyone richer and richer. The main limitation of Job Income is that, the day you will stop working, you will lose that entire income. But the advantage of owning the asset is that, once you acquire the asset after that weather you work or not, sleep or travel the world, your asset will keep generating passive income for you for the rest of your life and for your future generations even after you. And thats why owning an Asset is the smart thing to do rather than working hard at your job place to increase your income. Rich know this secret of owning assets since generations and thats why they teach their children
since their childhood the basic difference between assets and liabilities and importance of owning the assets. If you want to become rich in your life than always buy assets. Always focus on growing the Asset column of your financial statement. This is because rich always think of growing their Asset column of the financial statement. While middle class always focus on their Income. Middle class always look for the ways to increase their income. And thats why they work hard at their job places, do over time at their job place or even do the multiple part time jobs to increase their income. But they dont know that the day they will stop working, their entire income stream will suddenly disappear. Rich know this fact since their childhood and thats why they focus their time, money and energy to build their Asset column. And once they build sufficient asset column, after that weather they work or not, the money from their asset (Passive income) will keep flowing into their bank accounts for the rest of their lives and even after that. Have you ever think that why rich people dont work for anyone else? Why dont they like to do a job? Is this because they are rich? Nope. This is because the rich people know that working for someone else (Job) means trading your time in the exchange of the money. And the day you stop trading your time in the exchange of the money, your income will also stop. But well, if you have spent your time and energy to build assets in your life than after growing your asset column sufficiently, even if you stop working for the rest of your life, the income will still keep coming from your asset columns. And this is the prime reason why rich people start developing their own Businesses, Investments and Assets since their very early life. This is because they know that the time is very valuable asset and thats why they use their time and energy to create assets (Businesses & Investments) which can provide them unlimited cashflow weather they work, sleep or travel the world in the future.
Now, just think in your financial statement and the financial statement of the company for which you are working as an employee. Well, when you do a job means trade hours in the exchange of your time, you are developing the asset of someone else (The owner of the company) in exchange of a monthly paycheck. In other words, when you work for someone else. You are growing the asset column of that person by putting your time and energy in that business and thus making the owner of that asset/business more richer. So if you want to become rich or super rich in your life than start developing your own assets in your life. Never work for someone else (job) and trade your time in the exchange of the money. So How Rich people Grow their Asset Column? Keep in mind that, rich always think in the financial statements mainly in the Asset column of their financial statement. They always focus and work hard to grow the asset column of their financial statement. This is because they know very well that the asset column of the financial statement is the only thing which can make anyone Rich or Ultra-rich. You can grow your asset column by 3 ways. 01) Acquiring Assets out of your Hard earned money 02) Convert Something into Asset 03) Creating new Assets in the world The first way to grow the Asset column is you simply acquire assets out of your income. Say for example, you buy stocks, bonds, gold, real estate, mutual funds, web properties or any other asset out of your hard earned money. The second way to grow your asset column is, you convert something into assets. Say for Example, if you have a bicycle then you can give it on rent. Or if you have a good stamp collection then you can put your stamp
collection in exhibition and generate cashflow from it and thus, you have converted something into the asset.
Diagram: 5: Ultra-rich (Billionaires) Create New Assets in their Asset Columns by developing a successful business and later on taking it to the public. The third way to grow your asset column is, you create new assets in your asset column out of scratch. Super rich people think in this way and thats why over the time they become billionaires. Creating asset means developing businesses out of scratch or crating some kind of asset out of
nothing such as writing a novel, writing a book, recording a music, making an art or painting or making an online application or anything like that. You will have to use your mind very well to create assets out of nothing in your asset column. Say for example, take the example of Bill Gates. He developed the operating system for computers - Windows (Previously DOS) which he created out of nothing. Take the Example of Larry page who developed Google, the world famous search engine. See the authors, singers and artists around you. All of they create assets out of nothing and become rich. Thus, Rich teach their kids to focus mainly on the asset column of their financial statement. In fact, all the rich people around the world are busy with growing the asset column of their financial statement. They put their time, money and energy to grow their asset column. In contrast, Middle class people put their all time, money and energy to grow their income. And thats why the more money they earn, the more hard work they will have to do. But for rich, the more assets they will grow, the more money their assets will generate and the less hard work they will have to do. So understand the basic difference between Assets and liabilities and spend your time and energy behind growing your asset column. Many Financial Advisors and Finance Gurus around the world advise you to live below your means (It means Spend less than you Earn). Well, The basic logic behind this personal finance advise is that, by reducing your expenses, you increase your Cashflow (Income Expense). And this increased cashflow is used to buy more Assets. But for the most of the people this advise doesnt work. This is because they dont divert their Cashflow to grow their Assets. They dont use their cashflow to create and acquire more assets. And thats why not the all the people in this world who live below their means cant become rich. Remember that, living below your means will only make you rich if you are going to divert that cashflow to
grow your Asset column by either creating new assets or acquiring assets out of your Cashflow. Billionaires are Ultra-Rich (Billionaires) because of their Assets and not Because of their Income Now, let us discuss something about the billionaires. There are almost 1100 Billionaires in the world according to Forbes. Do you know that why these people are Billionaires? Well, most of the people in this world think that they are billionaires because they have earned those billions of dollars. But well, This is not the Truth. The Truth is that, these people are Billionaire because of the Net worth of their Assets in their Asset columns. They are Billionaires because of the Valuations of their Assets in their Asset column is above a Billion dollar. Say for Example, Bill Gates is a Billionaire and worlds richest person because his own stake (Shares/Asset) in his own corporation Microsoft is worth of Billions making him Forbes Billionaire. So the moral of the story is that, you dont have to earn a billion dollars to become a billionaire. But you need to acquire or create assets in your asset column which become worth of billions in the future. So focus on growing on your asset column rather than growing your Income like Middle class. Celebrities, Doctors & Lawyers are high Income professionals but not all of them are Rich Celebrities, Doctors and Lawyers are high income individuals. They earn lots of money in their financial statements but still not the all of them are rich or even billionaires. This is because they only earn high. The higher they earn the higher they will pay in taxes and less they will accumulate. Most of the high income professionals in this world have a false belief that they are Rich because their income is high. And thats why they never focus on growing their Asset column of the financial statement.
But the truth is that, you can be rich only by acquiring more assets in your asset column. You can not be rich by earning high income and without accumulating assets. This is because the day you stop working behind your hard earned income, it will suddenly stop while the income from your asset (passive income) will keep flowing into your bank accounts weather you work or not?
Diagram: 6: Biggest Offpaper Assets and Liabilities Biggest Off-paper Assets and Liabilities Some assets and liabilities are those which you can not write down or include on your Financial statements. This is because they are intangible. Here are they. The Biggest Off-paper Assets are, 01) Time 02) Financial Knowledge The Biggest Off-paper Liabilities are,
01) Spouse 02) Friends Rich accumulate more Assets and less liabilities. And this is the reason why true rich people understand the value of their time. They have been taught since their childhood from their parents that, The Los Money can be recovered but the lost time can never be recovered. And thats why the rich are time savvy. They spend their time in such a manner that it will produce On-paper assets. No matter how smart you become financially but if you become smart in your old age than there is no meaning. This is because you have lost your time to become financially smart. And thats why time is the biggest asset. Another great Off-paper Asset is your Financial Knowledge means Knowledge about money and how it works. Right now you are reading this article and gaining the Financial Education. This will be your biggest off-paper asset which will make you rich in the future. If you are young today but dont have the Financial Education of money than your biggest asset Time is of no value. This is because you dont know what to do with your time. You dont have any idea that you need to focus your time to grow the asset column of your financial statement. Now, let us talk about the off-paper Liabilities. Always chose your spouse and Friends very carefully. This is because spouse and friends which are not carefully chosen can be your biggest liability. They will suck your Biggest Asset Time and make you middle class or poor. You would have focus that time to grow your Asset column otherwise. Exercises Ex: 1 Make the habit of thinking about the Asset column of your financial statement. Before spending your time, energy and money always think first that how will your this particular move will help to grow your asset column?
Ex: 2 Take a paper and pencil and draw the Financial Statement line diagram on it. And think that How you can create new assets in your asset column? Think of starting your own business. Ex: 3 Take a paper and pencil and make a list of Assets in one column and liabilities in the other column. Now, think that which are the assets that you understand more? Focus on those assets and acquire more and more of those assets and grow your asset column like anything.
Lesson: 2.1 Asset Classes So now you understand the basic difference between Assets and Liabilities. Assets put money into your pocket weather you work or not while liabilities will take money out of your pocket. This is a simple definition of the asset. You also know that, Rich focus their time and energy to create and acquire assets. While middle class dont buy assets but they actually buy liabilities to look cool and rich. So if you want to become rich in your life than you will have to acquire more assets in your life. You will have to work hard to grow the asset column of your financial statement if you really want to become rich one day in your life.
Diagram: 42 - Financial Statement Showing 4 Basic Asset Classes In this article, we will discuss about various types of asset classes. Here are the 4 basic types of asset classes in the world.
01) Business 02) Real Estate 03) Paper Assets (Stocks, Bonds, Mutual Funds, Pension Plans..etc) 04) Precious Metals (Gold & Silver) There are several types of assets in this world. But the above are the 4 basic types of assets. Other Assets - Intellectual properties (Books, Music, Movies, Novels, Patents, Inventions, Copyrightsetc..) - Web Properties (Domain names, Websites, Blogs, Forums..etc..) - Art & paintings - Rare Wine - Vintage Cars - Collectibles (Stamps, coins, old coke bottlesetc..) Business First of all let me tell you that, Business is an Asset class. A Business is an asset because it puts money into your pocket weather you work or not. And thats why a Business is the asset. In fact, a business is the most valuable asset class in this world. This is because the owners of the business can get rich much faster than the owners of any other asset classes.
Diagram: 43 - Middle Class work hard for Money (Active Income) while Rich Work hard to create & Acquire new assets and grow the asset column of their financial statement (Passive Income) Developing a Business is all about creating new assets in the asset column of your financial statement. Bill Gates (Microsoft), Larry Page (Google), Mark Zuckerberg (Facebook), Dhirubhai Ambani (Reliance), Henry Ford (Ford Motors), Ray Kroc (McDonalds), Michael Dell (Dell Computers), Steve Jobs (Apple) have created their own Assets Their own businesses which are multi-billion dollar empires today making them billionaires. Business (& Real Estate) is the preferred asset class of the rich people. In fact, 99.99% of worlds rich people own at least one business in the asset column and thats why they are rich and ultra-rich. So if you want to become
very rich in your life than develop at least one successful business in your life. Real Estate This is the second asset class which is preferred by Rich people. This is because the rich can acquire this asset class by using good debt (Mortgage Loan). Say for example, if the real estate property is worth of $ 5 Million than a rich can acquire it just by putting $ 1 Million down (20%). This is the main advantage of real estate investments. You can use debt to acquire this asset and ultimately become more richer than ever. Paper Assets These are basically the assets of the Middle class and Upper middle class. This is because these are the assets for capital gains only. The Examples are Stocks, Bonds, paper Gold and Mutual Funds or any other kind of paper assets. Rich also invest in these assets but not from their hard earned money but from the passive income generated by their other cashflow assets (Businesses & Real Estate). Thus, for Rich paper assets are the last asset classes to acquire while for the middle class this is the first asset class to acquire. Today all the employees and self-employees around the world invest in this asset class mainly for the capital gains. But unfortunately, investing for the capital gains is the risky form of investing. While rich invest for both cashflow and capital gains. Precious Metals (Gold & Silver) After 1971, the US Government has removed the gold standard and the US Dollar became free float currency means the US Government can print as much money as it want according to the need of the economy after 1971.
And subsequently all the countries of the world have removed the gold standard. Thus, the more money the banks and governments from all around the world will print, the price of the precious metals will go up more. Well, of course Rich Invest in Gold. But the gold is not their primary asset class. This is because it is the Capital gains asset class. It doesnt provide you any cashflow. The problem with middle class people is that they invest in gold as a primary asset class and thats why they will have to depend on only one kind of profit and that is capital gain. This is really a risky Investment strategy.
Diagram: 44 - Difference between Middle class and Rich Investing (Middle Class Invest for the Capital Gains while Rich Invest for Cashflow & Capital Gains Both.)
The Difference between Rich & Middle class investing The rich and middle class both invest in all of the above asset classes but in the different way. After all, all of the above are the assets and as we have learned in the previous lesson that to become rich, all you need to do is to acquire more assets. So the more assets you will acquire, the more rich you will become. Thus, all of the above are after all the assets and can make you rich and richer. But the only problem with the middle class is that, they buy mainly Capital gain assets (Paper Assets & Precious Metals) from their hard earned money which is a risky thing. This is because the middle class have been taught in the school that Business is risky. While Rich people mainly buy (or create) Cashflow (+ Capital Gain) Assets (Businesses & Real Estate). And from the income generated by their cashflow assets, they buy the capital gain assets like Gold and Paper Assets (Stocks, Bonds & Mutual Funds). This is the single difference that can make you rich or middle class in the long run. Many middle class accumulate lots of assets in their Financial statements but most of them are paper assets & Gold the capital gain assets only. And thats why they will have to wait for years until the price of the asset goes up. While Rich primarily buy the cashflow (+ Capital gains) assets so the day they acquire these assets, their income and cashflow also improves immediately. Thus, they can enjoy their life very well as well as acquire more assets from their increased income very easily.
Online Assets - Information Age Assets After the birth of the Internet in 1990, the entirely new asset class has been created in world known as Web Assets or Web Properties. The Examples are Websites, Blogs, Forums & Domain Names. These web properties tend to appreciate so much fast that even high school going kids started becoming millionaires before leaving their high schools. In fact, today many self-made billionaires are in their twenties and thirties only because of the web properties. The founders of Facebook, Amazon, Google & eBay are the billionaires today. The reason why web properties appreciate so much faster is because the entire world is connected to the internet today which makes exponential growth of the web properties in its valuations as well as the cashflow. If you want to become very rich in your young age than try this asset class. This is because it is the only fastest appreciating asset class in the world which can make even a school going kid a millionaire or multi-millionaire before leaving his high school. Summary: If you want to become rich than acquire any kind of assets. Keep accumulating more and more assets out of your money. If you want to become rich than the only thing you need to focus is on the asset column of your financial statement and nothing else. However, there is a huge difference between the middle class and rich investing. Middle class invest primarily in the paper assets and gold while the rich invest primarily in the businesses and real estate and after that acquire other capital gain assets like paper assets and gold.
So if you want to become rich than it is advisable to start a Business or real estate investing first. This is because these are the cashflow assets which can acquire other assets afterwards without much efforts.
Lesson: 2.2 Business Mindset In lesson 2.1, We have learned that the Business is the preferred asset class of rich people. And the rich people teach their kids since their childhood that they should own a business first and later on acquire other asset classes such as paper assets and gold. We also learned in the previous lesson that, middle class mainly focus on acquiring paper assets and gold first while rich focus mainly on developing their own business first and after that they acquire and accumulate other asset classes. And this is the reason why people should have at least one privately owned or a business on which you have at least 10% of the management control. Thus, starting your own business should be the first thing you should do to grow the asset column of your financial statement. And thats why the financial advise to get rich is Start your own Business as early as possible. Now, the only problem with starting and running a successful business is that,most of the people dont have any mindset to start and run a business. Why Middle class Dont have mindset to Own their own Business? Because of the Education System. The entire Education system is designed in such a manner that the schools and colleges will only teach and motivate you to become employees and self-employees. The reason why most of the people afraid of starting their own business even though they know that it is very important asset class to own to become rich is Because Schools have trained them to become employees and Self-employees. When people leave the school, they leave their schools physically but they dont know that their school has imparted a mindset of becoming an employee or self-employee. Over the time, the school has developed various
reflexes in your brain that you will feel fear when you think of starting and owning your own business.
Diagram: 45 - School imparts different sets of keywords (Middle class) in your mind while to become a rich you will need different sets of keywords The keywords of Rich. So Which are those Reflexes that prevent you to start your own Business? 01) Well, the first Reflex the school develops in you since childhood is, Exam fear. In the exams, if you ask the answer of some question to your friend or colleague, you will be punished. This kind of system is designed because the school wants you to become employee or a self-employee (Doctor, lawyer) in the future.
And thats why you will have to do all of your work by yourself. While in the real life, Businesses run with the team work. So by taking exams, Schools are developing a false mindset and a reflex to not to do a team work. This is because the schools know that if you will do a team work, you will definitely become successful. And this is what a Successful Business requires. Any successful Business in this world is the end product of a great tea work. Before taking any key decision, the board of directors, management team and key officials of any business discuss that issue and after working on that issue as a team, they collectively take a decision. And this type of mindset is EXTREMELY IMPORTANT to develop a successful business which can work even without your presence generations to generations. But Schools have been designed in such a manner that, such kind of mindset that is extremely important to develop a successful business doesnt develop in your mind. This is because the basic function of a school is to develop a mindset in your mind of that of Employees & Self-Employees who have to work hard alone by themselves for the business owners. And thats why you are not allowed to do a team work in your exams. And if you try to do it, you will be punished in your school. Now, when you leave your school, this mindset of working alone and doing everything by yourself makes you a perfect employee or a self-employee. And thats why after leaving your schools and colleges, you wander here and there to find a job. This is because now you fear of doing a team work. This is because the school has punished you or prevent you to do a team work in your childhood. Now, take the examples of various Billionaires who are high school and college drop outs. Say for Example, Bill Gates, Dhirubhai Ambani, Mark Zuckerberg, Subhash Chandra, Steve Jobs, Henry Ford and many others.
These people have left their schools and colleges before completing their education and thats why the school system failed to develop a mindset of working alone in these people. And thats why these people did the team work and made their fortunes. Today they are billionaires. So if you want to start your own business than first of all think of doing a team work. Try to understand that the school system has imparted this mindset of working alone while you need to do a team work to become a successful business owner. And this is the reason why many small business owners dont make any fortunes from their businesses. This is because they do everything by their own in their businesses. 02) Second reflex the school develops in you is, fear of thinking about money. Our School system teaches us the following words repeatedly. - Go to School - Work Hard - Get Good Grades - Get a Job The worst keyword that can prevent you being rich. The Schools give you only one option to make money and that is job. And this simple keyword is so much smartly incorporated into your brain by education system that you can not think anything other than getting a job once you leave your school. So first of all delete this keyword from your mind. - Job Security - Become a Doctor - Job Safety - Do it yourself - Dont ask for anyones help - Be Self Dependent
- Dont think about money during your school timeetc.. Thus, the above keywords are embossed in our minds when we leave a school. Unfortunately, the schools dont teach us the following words that rich teach their kids. - Financial Statements - Assets - Liabilities - Good & Bad Debt - Cashflow - Active & Passive Income - Investments - Business - Create Jobs - Real Estate Investingetc The above are the keywords that should be embossed in your mind if you want to become rich and ultra-rich. But the above words are smartly removed from the entire education system. So that you dont think and understand the game of money. Thus, when you leave your school, you leave your school with the first set of the keywords which are taught to you in school. And thats why even after becoming a high skilled doctor, you prefer to work as an employee at government hospital or some privately owned multi-speciality hospital. This is because in your sub conscious mind, the first set of keywords are embossed by your schools. And over the time, these keywords have become your subconscious (Spinal) reflexes.
While to grow rich, you will need to emboss the second set (Shown above) of keywords in your mind. These are the keywords by which you can understand money and the game of money. And thats why rich emboss the above keywords in the mind of their kids since their childhood. It is the School which emboss the false keywords in your mind since your childhood and thats why when they enter into the real life, they fear of starting their own business and cant understand the game of money. This is because the only keywords which are embossed in their mind are get a job, job security, go to school, work hard, do it yourselfetc So now, if you want to start your own business than first of all remove the above two reflexes from your mind which the school system has developed in your mind. And after that incorporate a new mindset by learning and understanding the new sets of keywords given in this lessons series. Creating Your own Business is the Ultimate Way to Become Rich So now, you know that rich are rich because of their asset column. Rich are rich because they keep acquiring more and more assets out of their money. Rich accumulate all types of assets such as Businesses, Real Estate, Gold, Paper Assets, Web assets and many other types of assets. But the Business is the only Asset which is the most valuable asset that rich people have. Creating a new business out of scratch is all about creating new asset in your asset column. And the Business will generate passive income for you from which you can acquire other Cashflow or Capital gain assets to grow richer. What common mistake the middle class people do is, they start acquiring capital gain assets first like gold and paper assets (Stocks & Mutual Funds) and thats why they cant grow rich than certain limit. While rich teach their kids to develop a Business first and later on from the passive income of their businesses, acquire other assets. Thus, start
developing your own business since your very young age and become rich and financially free. Middle Class people buy capital gain assets like gold and paper assets from their hard earned active income. While rich people buy these assets from the passive income generated by their ultimate Asset Business. And this is the core difference between the rich and middle class.
Diagram: 46 - Middle Class Work hard to earn money and Buy Capital Gain Assets While Rich Work hard to create their own Asset (Business) First which hires other Assets. First of all you should develop your own Business first and later on you should buy other assets to become rich while the middle class do exactly reverse means they first of all buy capital gain assets like gold and paper assets hoping that one day they will become rich and later on start their own business!!! Exercises: - Entirely remove the first set of keywords from your mind. Never think about those keywords in your mind.
- Start learning and thinking the second set of keywords in your mind. This is because these are the keywords which are required to win the game of money. You can not win a game of money by using the first set of keywords. - Develop a habit of doing everything in a team work. Start developing a great team for your business. - Develop a habit of thinking in the financial statements.
Lesson: 3 Active Versus Passive Income The reason why most of the people in this world struggle financially and live paycheck to paycheck for their entire life is, because they dont know the basic difference between the Active versus Passive income. While rich people know this difference since their early years of life and not only this but they teach their children this basic difference since their early childhood and thats why their children also grow rich.
Diagram: 7 Active Versus Passive Income Active income means the income to earn which you have to work hard and the day you stop working for your active income, your this income stream will be suddenly disappear. Say for Example your job income or the income from your profession such as doctors, lawyers, accountantsetc
The only problem with the active income is that, to maintain this income stream, you will have to keep working hard for your entire life and once you stop working behind your active income, it will be lost. Passive Income means the income to earn which you will have to work hard at once only. And once you do that hard work, your job is over. After that weather you work or not, this income will keep flowing into your bank accounts for the rest of your life and even after that. In other words, Income generated by Assets is known as Passive Income. Here you will have to work hard at once only to acquire or create that asset and once you have that asset in the asset column of your financial statement, your job is over. After that weather you work or not, the income will keep flowing into your bank accounts forever. The Examples of Passive income are Interest Income, Dividend Income, Capital Gains, Business Income, Rental Income, Website/blog Income, Online Applications Income, Royalties of Books, Music & Moviesetc.. Middle class people dont know the concept of Financial Statement, Assets versus liabilities and the difference between active and passive income. And thats why they teach their children to work hard in their schools to get good grades and later on work hard at their job places to earn high income. While Rich people teach their kids the difference between the active and passive income. And teach their children to work hard for the passive income. They teach their children to work hard to grow their Asset column so that someday in life if they plan to not to work then also the passive income from their assets keep flowing into their pockets. And how can the middle class know the difference between active and passive income? This is because our education system only teach us how to earn money but it never teaches us how to make our money work for us.
Diagram: 8 Middle Class Work Hard for Active Income
Diagram: 9 Rich Work Hard for Passive Income
Both the Rich and middle class people teach their children to work hard in their life. But the middle class teach their children to work hard for the active income (Job, Profession) while the Rich teach their children to work hard for growing the asset column of their financial statement and generate passive income. The main problem with working hard for the active income is that, here you are trading your time in exchange of money. And the time in anyones life is limited. So the day you will become old or disabled, your this income stream will disappear from your financial statement. But if you have worked hard and spend your time and energy to build your own asset column than even if someday you stop working, your assets will still generate money for you for the rest of your life and for your future generations. Say for Example Business. A Business is an asset. And you will have to work hard for once only to develop a successful business. After that you can higher business managers to run and grow your business even without your presence. Another Example is Royalties. A Writer/Author works hard at once only to create a great novel or a book. After that weather he works or not, the royalty income will keep flowing into his bank accounts for the rest of his life and even after that. This is because people will never stop consuming his novel/book and he will never stop making money. So rich or Middle class, all have to work hard. But the basic difference is that Rich work hard for growing their asset column and generating passive income while the middle class work hard to increase their active income. And thats why in the long run, Rich beat the game of money.
Diagram: 10 Ultra-Rich (Billionaires) Work Hard to create Assets Now, let us talk about Ultra-rich (Billionaires) people. Ultra-rich people develop a successful business out of scratch since their early life (20s) and later on take that business to the public and grow it even larger. Remember that, Rich people always think in the financial statements and before working hard, they make sure that they are working hard to grow their asset column and generate the passive income. Also remember that the Active Income is not the indicator of how rich you are. But it is the Asset column of your financial statement and the passive income which are the indicators of how rich you are. Say for Example, a Doctor earning lots of money from his medical practice is not necessarily rich. He may be rich. But for that we will have to see his financial statement and its asset column and the passive income.
Most of the time, middle class people consider those people rich who are earning lots of income (Active income) from their jobs and spend lots of money and buy expensive cars, mobiles, watches and clothes. But well, this is the middle class thinking. While Rich never predict anyones financial status from his cars, mobiles, watches and clothes. But from his Financial Statement. It is the Asset column and the passive income of anyones financial statement which makes someone rich. So never judge anyones financial status from his Active income. But always think and analyze that how many assets that particular person really owns and how much passive income his assets generate.
Diagram: 11 Middle Class Afford Liabilities from Active Income
Diagram: 12 Rich Afford Liabilities from Passive Income Rich afford Liabilities and Luxurious Items from their Passive Income While Middle class afford them from their Active Income This is another great difference between rich and middle class. Rich, Middle class or poor, every human being on this earth wants to buy luxurious cars, expensive clothes, watches & mobile and want to do expensive shopping and travel the world. After all we are human beings and we love to buy luxurious items. But Rich people first of all grow their asset column to such a level that from that level their asset column throws sufficient passive income that they can afford all of liabilities and luxurious items from their passive income while middle class dont have such kind of mindset or understanding of difference between Active and Passive income and thats why they try to afford everything from their Active income which is really a dangerous thing.
The Smart thing is to grow your Asset column and generate passive income first and after that afford all of those liabilities rather than affording liabilities and luxurious status toys from your hard earned active income. Hyper consumption Treadmill
Diagram: 13 Middle Class afford everything from Hard Earned money while Rich have assets to afford everything Ultra-Rich, Rich or Middle class All of us are the Consumers. We love to consume things. We love to do shopping, dating, travel the world, buy luxurious cars, watches, clothes and status symbols. This is because as a human being, we love to buy all the luxurious items in our lives and love to enjoy our lives. In fact, Middle Class and Rich people
spend the same amount of money behind their consumer lifestyle. But there is a vast difference between the way they earn. Middle class have Active Income while Rich have Passive Income. Thus, Middle class people afford everything from their hard earned active income while on the other hand rich afford everything from their passive income. Both Rich and Middle class work very hard and spend lots of money behind their lifestyle. But the basic difference between the hard work of rich and everyone else is that, Rich work hard to grow their asset column of their financial statement first and from the passive income of their asset column they afford all of the luxuries of their lives. While the Middle class work hard to increase their income first and afford everything from their active income. And this is the reason, the more they spend money, the more they work hard at their workplace to earn more active income and this goes on like treadmill, the treadmill of the hyperconsumption. One day comes when they have acquired so many liabilities from their active income that they cant afford all of these liabilities and thus they go to some personal finance advisor or read some book on personal finance. Now, the problem of taking advise from a personal finance book or the advisor that, the book author or the advisor himself a middle class person who will give the middle class advises to the middle class person like to spend less than he earns, live below your means and buy only the things that you really need and not you really want. Unfortunately, these are the moral killing advises. And these advises are for people who want to remain middle class only. Live below your means is a great financial advise for you if you want to stay middle class for the rest of your life. Understanding the difference between the need and want is really beneficial if you want to kill your feelings of buying luxurious and status items in your life.
But well, if you want to become rich and want to enjoy all the luxuries of your life than these are not the financial advises for you. This is because these financial advises will kill your moral, feelings and make you feel depressed. So What is the Financial Advise for people who want to be Rich as well as enjoy all the luxuries of their lives? Well, The Advise is - WORK HARD TO GROW YOUR ASSET COLUMN FIRST AND GENERATE PASSIVE INCOME FROM YOUR ASSET COLUMN AND AFTER THAT AFFORD ALL THE LUXURIES of THE LIFE FROM THE PASSIVE INCOME OF YOUR ASSET COLUMN. Affording the Luxurious Lifestyle with your Active Hard earned Income is a Fools Plan. So if you want to buy a luxurious car like Mercedes or BMW in your life or want to afford luxuries in your life then grow your asset column first. First of all work hard to create and acquire assets in your asset column of your financial statement and after that afford all of these luxuries in your life. Say for Example, when Rich want to buy a luxuries car, he first of all buy a rental property and from the rental income of his rental property he will pay his car loan payments. Or he will develop a Business first and from the passive income of his business he will afford the car loan payments of his luxurious car as well as other luxuries. While Middle class also buy a luxurious cars but they afford all the car loan payments from their active income and thats why to make the car loan payments, they will have to work harder and harder while the rich will still keep making the same amount of money weather they work or not. This is because they work hard to create and acquire more assets and these assets generate income for them.
Exercises: Ex: 1 Take a piece of paper and pencil and make a list of all the possible types of Active income (means the income that will stop when you will stop working for it) and Passive income (means the income that wont stop flowing into your bank accounts even if you stop working for it.) Ex: 2 Teach your friends, kids, relatives, parents the difference between Active and Passive Income. And tell them to work hard for the passive income and not the active income. Ex: 3 Find out your own Passive Income. Let me give you the Example. Say for Example Business. A Business Income is your passive income. So take a break and think that which business you want to develop? Ex: 4 Draw a Line diagram of Financial Statement on paper and make a list of assets in the asset column from which you want to generate passive income.
Lesson: 4 Good Versus Bad Expenses and Debt So by far you know that your financial statement has two parts Income Statement and Balance Sheet. Income is of two types Active and Passive. While Balance sheet has two columns Asset and Liability. You now understand the basic meanings of the terms Financial Statement, Asset, Liability, Active and Passive Income. Now, let us discuss about the Expenses and Debt. There are basically two types of Expenses and Debt Good and Bad.
Diagram: 14 Good Versus Bad Expense / Debt A Good Expense or Debt is one which is Asset producing. Any Asset producing debt or expense is known as Good Debt/Expense. A Bad Expense or Debt is one which is Liability producing. Any Liability producing debt or expense is known as Bad Debt/Expense.
Just see the above diagrams. According to the diagrams, any expense/debt which produce assets at the end is known as a good expense/debt. While any expense/debt which produce liabilities at the end is known as bad expense/debt. Rich people always do the good expenses while the middle class people always do the bad expenses. Rich understand that, the Asset column of the financial statement is very important to generate passive income and getting rich. And thats why they always do the expenses to acquire more and more assets out of their money. Middle class people only love to look cool and rich. And thats why they do the expenses and ultimately acquire liabilities which depreciate in its value over the period of time and making them poorer. If you want to become rich one day in your life than always do asset producing expenses (Good expenses) and never do Liability producing expenses (Bad expenses). The Examples of Asset producing expenses are, Educational fees, college fees, tuition fees, Stocks, Bonds, Gold, Businesses, Real Estate, Mutual Funds, Web properties, Intellectual propertiesetc.. The Examples of Liability producing expenses are Luxurious Cars, Mobiles, Clothes, Travelling, Club memberships, Shopping, Country Clubs, Luxurious Watches, Credit card debt, car loans, personal loans, Shopping EMIsetc.. Rich and middle class both do lots of expenses. But one type of expense (Good / Asset producing) makes you rich while the other type of expense (Bad / Liability producing) makes you middle class or even poor. Rich people teach their children the basic differences between Good and Bad expenses since their childhood and thats why the rich think in financial statements before doing any kind of expense. Before doing any kind of expense, rich think in their own financial statement that weather this
expense will produce asset or liability in the future. And if that expense is going to produce liability in the future then the rich will simply avoid that expense. This is the ultimate secret of the rich.
Diagram: 15 Good Debt
Diagram: 16 Bad Debt Another great secret of the rich people is that, they understand the basic difference between good and bad debt. Middle class people use debt (Loans) to buy new cars, shopping, personal loans, club memberships and world tours. They believe in buy today and pay tomorrow type of mentality. And this is a bad debt. Once you buy a luxurious car by taking a car loan, within 4 years it will lose its 60% of value. And rich dont like depreciating items (Liabilities). Rich people use debt (Loans) to buy Assets from it to add them into their asset column to grow richer such as Educational loans, Business loans, Loans to start or expand a business, loans to do the investments or any other kind of debt/loan to acquire assets out of it. This is because rich know that assets appreciate in its price over the period of time and also produce passive income and thus make them richer.
Once the debt will be completely payed, the middle class will have liability in their financial statement which will rapidly depreciate in its value and also make expenses from their pockets. While the rich will have asset in the asset column of their financial statement which will appreciate in its value and also generate passive income and make them more richer than ever. All the middle class people afraid to take Good debt. You just observe any middle class. Any middle class will really enjoy and love to take bad debt. But he will afraid of taking good debt. Say for Example, when it comes to buy a new car, the middle class will readily take a huge car loan to buy a new car but the same middle class will be afraid of taking a loan to start his own business or acquire or develop any other kind of asset. And for this, they will proudly give excuse that, this is because the business is risky. But how can a middle class take a good asset producing debt? This is because our education system has never taught us the difference between assets & Liabilities, Active & Passive Income and the Good versus Bad Debt. And this is the reason, when most of the people enter into the real life, they afraid of taking good debt which produce assets at the end. But to become rich, the middle class need to do exactly reverse means taking more and more asset producing debts and less and less liability producing debts. What happens when the middle class find themselves in a deep debt that they cant repay? Well, they go to some financial planner, advisor, debt counselor or some blog on the internet and these financial planners will tell them that debt is a bad thing and you should get out of it as early as possible and never take it again in your life. Well, getting out of bad debt is really a good financial advise. But never taking a debt is not a sound financial advise. The financial planners and advisors wont tell you that never take a bad debt. And this is the reason after going into a deep bad debt, all the middle class people become so much scared of taking a debt that they teach their children not to take any kind of debt in their lives.
And thats why one more generation of middle class generates in the world. A generation which afraid to take any kind of debt and think that not taking a debt is a wise financial decision. While rich people teach their kids since childhood that if they want to become richer and richer like their parents than they will always have to buy assets out of their money (Good Expense/Debt) and never buy liabilities out of their money (Bad Expense/Debt). Rich people teach their kids that there is not any problem in taking a debt if that debt ultimately produces asset. In other words, kids of rich people know since childhood that there is not any problem in taking a debt if you are going to buy assets out of that debt. This is the advantage of thinking in the financial statements. Middle class dont have any element or training to think in the financial statements and thats why before taking a car loan or buying anything they never think that weather the thing they are going to buy will fit into their Asset Column or the Liability Column and what will happen if the asset column or liability column of their financial statement will grow? In other words, if you want to become rich and super-rich than always focus on the Asset column of your financial statement. Always spend your money to buy more and more assets or grow the existing assets in your asset column (like business). If you never think in financial statements and never focus on growing the asset column of your financial statement than you can never be Rich!!! Exercises: Ex: 1 Take a paper and Pencil and draw the line diagram of a Financial Statement and write down the various assets you own and the various liabilities you own in your financial statement. And after that think of increasing assets and reducing liabilities.
Ex: 2 On a piece of paper, write down all of your monthly expenses and after that differentiate between Good and Bad Expenses. If you really want to become rich than eliminate all of your bad expenses and increase the good expenses. Of course, Basic expenses like food, clothing, Internet connection and housing rental are not counted towards the bad expenses. Ex: 3 Teach your friends, kids, parents and relatives the difference between the Good and Bad Expenses. Draw the line diagram of Financial Statement and teach your friends, kids and parents the difference between Good and Bad Expenses and Debt.
Lesson: 5 Cashflow Pattern of Rich, Middle Class and Poor The Cashflow pattern on your financial statement will determine that weather you will become rich, middle class or poor in the future. And suppose if you are a born rich or inherited a fortune by any means such as lottery, parents or spouse than also your cashflow pattern will determine that weather you will grow richer, middle class or even poor. Cashflow means the flow of money in your financial statement. Cashflow literally means the circulation of money in your financial statement. It means that in which direction the money is flowing onto your financial statement. Now, the above is the laymans simple definition of the Cashflow. In sophisticated language, Cashflow means Income Expense. So suppose if you earn $ 3000 every month and your monthly Expense is $ 1000 than your cashflow is $ 1000 every month.
Diagram: 17 Cashflow Pattern of Asset
Diagram: 18 Cashflow Pattern of Liability Now, how you divert this cashflow will determine that weather you will become rich, middle class or poor. This is because rich, middle class and poor all have different kind of cashflow patterns on their financial statements. Thus, from the Cashflow pattern of anyones (Individual or Business) Financial Statement, you can predict the financial future of that person. Well, yes. If you can understand the cashflow pattern than you can become a Financial Astrologer!!!!
Diagram: 19 Cashflow Pattern of Poor Cashflow Pattern of Poor See the above diagram. The above line diagram is a Cashflow pattern of the poor person. See in the Financial statement of the poor person. See that everything the poor person earns will be spent for basic lifestyle expenses. Thus, a poor person works hard and bring money to home every month via salary or paycheck and at the end of the month, he spends all of his money and thus become poor. Nothing goes towards Asset column which is the ultimate key to become Rich. Suppose if today you are rich because of inheritance or by any other means (Such as Lottery) and if your Cashflow pattern is like this than you are in danger. You are in danger of becoming poor in the future. And you urgently need to modify your Cashflow pattern.
Diagram: 20 Cashflow Pattern of Middle Class Cashflow Pattern of Middle Class See the Above diagram. The above diagram is a Cashflow pattern of typical middle class people. It is almost same like poor people. The only main difference is that, the middle class first of all buy liabilities (Expensive Cars, Expensive Travels, mobiles, luxurious items, credit cards, bad debt, personal loans, club memberships, country club memberships, exclusive clubsetc..) from their hard earned money (Active Income) and after that these liabilities make recurrent expenses and takes money out of their financial statements from the expense column. The typical middle class mentality is that, the more they earn the more liabilities they acquire and these liabilities do tremendous expenses over the time and thats why to afford these liabilities they need to work harder and harder at their workplace to earn more and more money. The main difference between the rich and middle class is that, Rich afford every liability from their Passive Income while the Middle class afford their all liabilities from their Active Income. And thats why weather rich work or
not, they can afford liabilities for the rest of their lives while middle class have to work hard until they want to afford those liabilities. Unfortunately, What most of the financial advisors and Finance gurus advise people is that - Live Below your means. Well, this is really a cool theoretical advise but practically it is impossible to follow. After all, we are human beings and we love to drive expensive cars, buy expensive mobiles, travel the world and date with beautiful women in expensive restaurants. Thus, Rich or Middle class all of us love to buy new cars, clothes, expensive watches, dating and travel the world. The only difference is the Cashflow pattern and the type of Income. The cashflow pattern of middle class person is in such a manner that he afford all of these luxuries and liabilities from his hard earned active income while a rich person afford everything from his passive income. Because his cashflow pattern is designed in such a manner.
Diagram: 21 Cashflow Pattern of Rich Cashflow Pattern of Rich This is the Cashflow pattern of Rich. See the above diagram. Rich first of all acquire assets out of his money and grow his asset column. This is because rich knows the secret that Asset column is the only thing in the life which can make anyone rich. And thats why rather than focusing on the Income like Middle class, Rich buy assets out of his hard earned money. And because of this, over the time their Assets grow and start throwing passive income into their financial statements and from this passive income, the rich again buy more and more assets and grow richer and richer. One day comes when the passive income from the Asset Column of the rich crosses the monthly expense of the rich and from that day, he stops working hard for the money to earn active income. This is the day of Financial Freedom. Because from this day, weather he works or not, the money will
still flow into his financial statements from his Asset column in the form of passive income. Rich and Middle class both love to buy luxurious cars, expensive watches, clothes, foods, dating and status toys. But well, the basic difference between the two is the Cashflow pattern. Middle class afford every luxury from his Active Income while Rich afford every luxury from his Passive Income. This Cashflow pattern difference of Rich and Middle class makes all the differences in the future. Over the time, Middle class cant afford all the luxurious for his entire life because one day comes when he wont work as hard as he used to work when he was young. And from that day, he will suddenly lose his active income. But well, Rich has worked hard to grow the asset column of his financial statement and generate the passive income. And thats why even the rich will stop working someday, he will still continue affording all of the luxuries and status toys for the rest of his life and even after his death (Means his future generations will also afford the same luxurious items).
Diagram: 22 Cashflow Pattern of Ultra-Rich Cashflow Pattern of Ultra-Rich (Billionaires) The Cashflow Pattern of Ultra-rich is also obviously the Asset Column focused just like rich. But there is one major difference that makes them Ultra-rich. See the above diagram. Well, Rich people acquire assets (Stocks, Bonds, Gold, Real Estate, Businesses, Mutual Funds, Art, Web propertiesetc..) from their Income while Ultra-Rich people simply create Assets out of nothing in their Asset columns and these assets start generating passive income for them. Say For Example Bill Gates, The founder of Microsoft and world class Operating system Windows. Bill Gates has created Asset (Microsoft & Windows) in his financial statement and his this single asset has grown to
such a level that he is today worlds most richest person since last more than 15 years. Larry Page had created the Asset in his Asset column known as Google. Mark Zuckerberg also had created the Asset in his Asset column known as Facebook and Dhirubhai Ambani also had created an Asset in the Asset Column of his Financial Statement known as Reliance Industries. The rest Cashflow pattern is the same as that of rich. Means Ultra-rich create Assets in their Financial Statements> Generate Passive Income > This Passive Income acquire other Assets (Stocks, Bonds, Gold, Other Businesses, Art, etc..) Rich acquire assets out of their money while the ultra-rich create assets which generate huge passive income and from this passive income they acquire other assets and grow more richer!!! Exercises: Ex: 1 Take a paper and pencil and draw the financial statement on it and also draw your current cashflow pattern. Now, see that weather your current cashflow pattern is that of rich and Ultra-rich? If yes than stick to it. If now then think that how you can change it? Ex: 2 Draw the Cashflow pattern of your friends, parents and family members on paper and see that weather they are affording their luxurious lifestyle from their Hard earned Active income or from the Asset Column generated Passive Income. Ex: 3 Teach the Cashflow Pattern or Rich and Ultra-Rich to your friends, parents and Kids. If you are the young adult having kids than it is extremely important to teach all of these Cashflow patterns to your Kids.
Lesson: 6 The Power of Corporate Structure The Rich teach their children the power of structure and various corporate strategies since their early life and thats why their children use this power of corporate structure to save more tax, protect their assets and even create new wealth in the economy. While Middle class dont know the power of the corporate structure and thats why they dont impart any kind of financial education about the corporate structure to their children. To use the power of corporate structure, you need to be master in the financial statements. You must have trained your mind to think in the financial statements to use this power in your favour to grow rich. You must understand the difference between the active and passive income, assets and liabilities, Good versus Bad Debt and the Cashflow pattern of rich, middle class, poor and ultra-rich. Without having the knowledge of these things, you cant understand use the power of the corporate structure in your favour to grow rich. What is The Company? Well, to understand the power of the corporate structure, you first of all need to understand that what it means by a Company? All of you must have heard the word Company right? But Suppose what if I ask you that Do you own a Company? What will you think in your mind if I ask you this simple question? Well, of course by reading or hearing the word Company, in your mind huge buildings, large infrastructure, huge machineries, huge offices, Big factories and huge manpower will come.Am I Right?
Diagram: 23 The Company is nothing but a file having some legal documents in it. Well, This is not the Truth. The Company is just a folder/file of some legal documents of Company registration details and other company incorporation certificates in it and nothing more than that. Well, Yes. A Company is only a file of some legal documents inside it and nothing else. It is not necessary that you must own huge buildings and large infrastructure to start your own Company. You can register and start your own company without owning anything by showing your home as your company address. And even if you are living in a rental house, you can still show it as your company office and register a company with your government. Registering a company is a fortnight process and it will require just few thousand rupees of expense and nothing else.
Anyone in this world can start his own company (A File having some legal documents inside it) if he is a tax payer. And nothing else.
Diagram: 24 Individual & a Company has a different Financial Statement The Company has its own Financial Statement So owning your own company is not a big deal. You just have to consult some corporate lawyer or the chartered accountant and he will do all the legal formalities and documentations to start your own company. Remember that for the law, The Company is the separate financial entity just like you. So your company will have its own Financial Statement. So once you own a Company, you will have now two financial statements in your control Your and Your Companys.
This is the trick. This is what actually rich people want. This is what actually the rich people want to teach their children Means playing in the multiple financial statements. Rich people teach their children everything about the financial statement because they want themselves and their children to play in the multiple financial statements. This is the real difference between the rich and middle class. Middle class play the game of money in just one financial statement while rich play the game of money in multiple financial statements and thats why, - The Rich pay Less taxes than the Middle class - The Rich can protect their Assets/Wealth very well - The Rich can create new wealth (Printing your own money legally) in the economy In the subsequent lessons, I will explain you one by one that how exactly rich people do this by using the power of the corporate structure? What is The Corporate Structure & Corporate Strategies? Well, the corporate structure is nothing but the arrangement of various kind of companies with each other. The Corporate strategies are nothing but the arrangement of the financial statements of the rich and their various companies in such a manner that this structure can save lots of tax, protect the wealth/assets of the rich and can create new wealth in the economy. In the subsequent lessons, We will see that how the rich use this power of corporate structure and design various corporate strategies to grow extremely rich?
If you Want to Become Rich, Own as many Companies as Possible Thus, it is clear that to become a rich, you MUST MUST need to own a company. Then and only you will have multiple financial statements and by controlling the cashflow between these multiple financial statements, you will save more tax than the middle class, protect your assets and create new wealth in the economy and become richer and richer. So if you dont own a Company than first of all register at least one company. First of all start playing in multiple financial statements. Remember that the company is the gateway of becoming rich and ultra-rich. And yes, Dont worry. You dont need lakhs and crores of infrastructure to register and start your own company. You just need few thousand rupees to start your own company. After all a Company is nothing more than a folder having some legal documents inside it. Here are the 3 Powers of the Corporate Structure that Rich people use in their favour to get Rich. Power: 1 Save Tax Power: 2 Asset Protection Power: 3 Create New Wealth in the Economy In fact, the Rich people teach their Children these 3 powers of the Corporate structures since their school life. While during the same time, Middle class people teach their children that how to find a safe and secure job and what is the importance of doing a job? While the Kids of Rich are learning the power of Corporate structure, the Kids of Middle class are learning how to write a successful job letter and getting approved for the dream job.!!! Exercises: Ex: 1 Consult some good Corporate Lawyer or Chartered Accountant in your city and ask him about the charges and documents required to register a
company. Dont worry. Most of the Accountants will advise you to not to register a company. Dont believe in them. This is because they are nothing but the middle class people. So even though they know everything about the company registration, they dont know the above basic lessons on money. Ex: 2 Now, decide the objective of your company. I mean in which sector you want to start your business? You can consult your Corporate lawyer for this. Ex: 3 Teach your Children, Parents and Friends the power of corporate structure. Teach and educate them that what is basically a Company and the corporate Structure?
Power: 1 Save Tax using corporate Structure So now, you understand the power of the corporate structure. Rich own companies and play in multiple financial statements and save lots of tax. Middle class people work hard to earn more money. They focus on increasing their income but they dont realize that the more money they will earn, the more tax they will have to pay. While rich know the power of the corporate structure and the advantage of playing in the multiple financial statements since years and thats why they use this knowledge of the corporate structure to pay less taxes. In fact, today worlds many Fortune 500 companies are the ZERO Tax Empires developed by their founders. These companies virtually pay little to no tax in comparison to their annual revenues (Income). Let me explain you that how the rich save lots of tax legally by owning a Company and how the middle class struggle so hard to earn more money and still end up paying lots of taxes.
Diagram 25 Financial Statement of an Individual The Individual Pays Tax First See the above Diagram. The above diagram is of the financial statement of the middle class. The middle class work very hard and focus all of their time and energy to increase the income. And the higher they earn money, in the higher tax brackets they will fall and the higher tax they will pay. Different Tax Laws for the Individual and a Company For the Individual and for a Company the Tax laws are different. Well, yes. This is true. For Rich, the tax laws are different while for the middle class people, the tax laws are different. And the tax laws favour the rich people. Here is the difference between the tax laws for the individuals and the companies.
The Individual will have to pay Tax FIRST from his Income. And after paying the tax, whatever remains at the end, the individual can spend. Thus, for the Individual the first expense is the Tax. While the Company will have to pat Tax LAST from its Income after deducting all of its expenses. So For the Company, the Tax is the last expense.
Diagram: 26 Individual & Company Financial Statement The Individual pays tax first while the Company pays the tax last. Thus, whenever the middle class receive a paycheck, some amount of money is already deducted from his paycheck every month as a tax even before he sees that money. Now, Let us understand how Rich use this knowledge of tax differences between the companies and the individuals. Let us discuss it with one Example.
Diagram: 27 Financial Statement of a Middle Class Doctor The above statement is of a doctor earning high Income. This doctor earns Rs.1 Crore every year from his medical practice. See in the above financial statement the income of this doctor. He earns Rs.1 Crore from his medical practice by working at some multi-speciality clinic. The problem is that, this doctor is well educated but dont have any knowledge of the financial statements, assets, liabilities and the power of the corporate structure. This is because he comes from the middle class family. And his parents had taught him since childhood that to become rich, he will have to work hard at school to get admission in the medical school and after that becoming a doctor, he will have to work hard to earn more money. And thats why this doctor works very hard and focus his all the time and energy to increase his income.
Now, see in the Expense column of the above financial statement. This doctor falls under 30% Tax bracket. And thats why every year, he will have to pay Rs.30 Lakhs as a tax to the government first. The Tax is the first expense of this doctor. And after paying Rs.30 Lakhs, only Rs.70 Lakhs remains at the end and from this 70 lakhs, he will have to do all of his expenses. Thus, this doctor earns very high and people also think that he is earning very high so he is rich. But the reality is that, he end ups paying lots of taxes from his hard earned money. This is because he receives all of his income on his own financial statement and thats why very little money goes towards long term investing and building some serious wealth in comparison to his income.
Diagram: 28 Financial Statement of a Rich Doctor Now, see the above diagram. The above diagram is of a Doctor who is coming from the rich family. He also earns Rs.1 Crore a year just like Doctor 1. But he comes from the rich family. And thats why since his childhood his
rich parents have imparted the basic lessons of money, financial statements, assets, liabilities and the power of the corporate structure to him. And thats why this doctor has decided to play the game of money like rich. This doctor has decided to play the game of money in the multiple financial statements to use the power of corporate structure and to save more tax than Doctor 1. See the above diagram. This second doctor owns his own Company XYZ Health Care Private Limited. So he plays in two financial statement His own and his Companys. Thus, he has shown on paper that he is the employee of his company and receives salary from his company every month. And he receives all of his medical practice income in the name of his own Company XYZ Health Care Private Limited. Thus, the multispeciality Hospital in which he works issue all of his payments in the name of his own company via cheques and bank drafts. Thus, every year he receives his entire 1 Crore income on the financial statement of his own Company XYZ Health Care Private Limited. Now, as you know that the individual has to pay tax first and the company has to pay taxes last. So to save tax, what this doctor do is, He takes only Rs.50000 of monthly salary from his own company. And keep rest of the money in his own company. So How this will benefit to save the tax? Well, This will benefit like this. He receives just Rs.6 lakhs of annual income on his financial statement in the form of salary from his own company even though he himself makes all of this 1 Crore. And the rest Rs.96 lakhs will be in the financial statement of his own Company. Now, at the end of the year, he will have to pay 30% tax on his 6 lakh income and that is just Rs. 1.80 Lakhs. Now comes the company tax. So as you know that for the company tax is the last expense. This is because the tax laws favour the rich and the companies. For the companies, all the expenses are tax deductible.
So What he will do is, - His newly bought car will be shown as his Business Vehicle - His New Laptop will be shown his Business Equipment - His International and Domestic Travels will be shown as his Business meetings and Business travels - His Investments will be shown as the Capital Expenses to expand his own Business. - And so on. And from this 94 lakhs, his company will do almost 90 lakhs of expenses mostly to acquire new assets (Stocks, Bonds, Gold, Real Estate, Mutual Funds) and other lifestyle and travel expenses and at the end only 4 lakhs will remain and on this 4 lakhs his company will pay 30% tax and that will be Rs.1.20 lakhs only. Thus, his total tax liability will be Rs.1.80 + Rs.1.20 = Rs. 3 Lakhs Only!!! Thus, the Doctor 1 and 2 both earn the same amount of money. But first doctor ends up paying Rs.30 lakhs of tax while the second ends up paying just Rs.3 lakhs of tax. This is because the second doctor has the knowledge of the power of the corporate structure. His rich parents have imparted the knowledge of the financial statements, assets, liabilities and the power of the corporate structure in him since his school time. And thats why he learned from his rich parents to play the game of money in multiple financial statements. While the first doctor learned from his parents to work hard for money to earn more income and play the game of money in the single financial statement only. He doesnt have any knowledge of financial statements, assets, liabilities and the power of the corporate structure and thats why he ends up paying 10 times more than the Rich Doctor.
Diagram: 29 Financial Statement Large Corporations ZERO TAX STRATEGY Today worlds biggest companies and businesses are the ZERO Tax empires. They pay little to no tax to the governments by using this strategy. This is because everything the companies of rich people earn will be spend to either expand the business, to acquire more assets and to support the lifestyle of the owners of those companies and later on shown as Business Expansion expenses, Business Equipment expenses and Business Vehicle Expenses. Remember, that it is the middle class people in any country who pay the highest tax. While rich people are those who use this knowledge and pay the least tax legally by using the power of the corporate structure.
So Start playing in multiple financial statements and save more tax legally like rich. Summary 01) Rich receive all of their income on the financial statements of their own companies. They do everything in the name of their own companies and they themselves take very little salaries from their companies on their own financial statements and pay very little tax. They use the income of their companies to acquire more and more assets as a pre-tax expenses and pay almost nil tax from their companies. Because nothing left at the end of the year on their companys financial statement to pay any tax. 02) Middle class people depend on the government tax breaks which are very minimal. Say for Example, In India the Individual tax breaks under Section 80C are just Rs. 1 Lakh maximum. And these middle class focus their all the time and energy to save this 1 lakh of tax every year. This is because they play in the single financial statement and that is their own financial statement. While Rich think big and play in multiple financial statements and use the power of corporate structure to pay less taxes and acquire more assets.
Power: 2 Asset Protection Using Corporate Structure The second power of the corporate structure is Asset Protection. Rich protect their Assets/Wealth by using this power of the corporate structure very well from following events. - Divorce - Sue - Legal law suitsetc Only Building the Asset column is not sufficient to become rich. You will also need to protect your assets from events like Divorce, Sue and Legal Law Suits. This is because the richer you will get, The more people will look at your assets and try to grab your assets from you by illegal or fraudulent ways. High Income Earning Middle class people dont have any kind of financial knowledge to protect their assets while Rich know that how to protect their assets very well. How Rich Protect Their Assets by Using the Corporate Structure? Well, Here is the secret of how rich protect their assets using the corporate structure. Well, as I have already told you in the previous lessons that rich play the game of money in the multiple financial statements to save tax. Now, another advantage of playing the game of money in multiple financial statements is, Rich dont own any Asset in their own name. But they own everything in the name of their companies. And thats why during the time of Divorce, sues or legal law suits, Every Asset that the rich have build during their entire life are owned by their companies. And companies are the separate financial entities according to laws. Thus, the Asset Column of the Financial Statement of the rich is empty. It does not contain any asset. While all of their assets are owned by their own companies.
In other words, Rich develop their assets in the asset column of the financial statements of their own companies. Thus, Rich own nothing in their own name but they own everything in the name of their companies. They legally dont own any asset. But they just control the assets via their ownership control over their companies. Example Let us discuss this by one simple example. Akshay has started his own Restaurant Business. But he come from the typical middle class family so he doesnt know the power of corporate structure and importance of playing the game of money in different financial statements. And thats why His Financial Statement will look like this.
Diagram: 30 Akshay owns his Restaurant building in his own name.
In the above financial statement, Akshay owns his Restaurant Building (Real Estate) in his own name. And thats why the Asset column of his financial statement shows his restaurant building as an asset. He also do all the investments like Stocks, Bonds, Gold, Mutual funds..etc.. in his own name. And thats why you can see all of these assets in his own financial statement. Most of the Small Business owners play the game of money like this only. They own everything in their own name which is very risky. They dont know that in the event of divorce or Sues, their Asset column will be affected. Legal law suits will directly affect their asset column. One day, one of his regular customer did a sue on Akshay. And he end up losing his entire restaurant building to settle that sue. Now, take the Example of Sandip. Sandip has also recently started his own restaurant business. But he comes from rich family and his rich parents had taught him since his childhood the power of corporate structure. And thats why he understands the power of corporate structure and decided to play the game of money in multiple financial statements to save tax as well as protect his assets. Here is the Corporate structure that Sandip has developed to protect his core asset of his Restaurant Business Restaurant Building.
Diagram: 31 Financial Statement of Sandip A Smart Business Owner Sandip has registered two companies before starting his restaurant business. As you now know that a company is nothing but a file/folder having some legal documents in it and nothing else. So Sandip has registered two companies A Food Business Company & a Real Estate Company. So the Financial statement of Sandip will look like this.
Diagram: 32 Financial statement of Sandip showing controlling shares of his 2 companies. See the Diagram No.2. In the diagram 2, the restaurant building of Sandips Restaurant business is owned by his own Real Estate Company. And his own Food Company which will do the restaurant business will be shown as on rental basis. Thus, the Food Business company pays rental to his own Real Estate Company which owns his restaurant building. Thus, every month all the profits from his food business company is siphoned out into his real estate company. You can see that there are no assets in the asset column of the financial statement of his Food Business company. And all the profit is siphoned out
from his food business company to his real estate company which owns his restaurant building. And this real estate company is used to do his various real estate and other investments. Thus, it is the real estate company of Sandip which owns his every asset mainly real estate. And thats why Sandip doesnt own any asset in his own name but in the name of his real estate company. One day, one customer of his restaurant sued his Food Business company because of the quality of food. But well, his food business company did not have any assets in its asset column and ultimately gone for the Bankruptcy. Now, what happened to his Bankrupted Food Business Company?Nothing. After all it was just a file having some legal documents of his company registration inside it. So after few weeks, Sandip registered a new food business company and again started his restaurant business in the same restaurant building owned by his own real estate company. The only thing was changed was the name of his restaurant. This is how the rich protect their Assets.
Diagram: 33 Asset Protection Strategies of Ultra-Rich (Billionaires) How Billionaires protect their Wealth? Billionaires and the founders of Fortune 500 companies protect their assets just like the above way. The only difference is that, the above is the over simplified example. Billionaires and the founders of the fortune 500 companies play the game of money in literally hundreds of Financial Statements. They have registered literally hundreds of companies and their assets are owned by their hundreds of companies and not by them. And thats why during the sues, their assets become protected Bullet-Proof".
So if you want to protect your Assets like rich than learn the power of the corporate structure and play the game of money in multiple financial statements.
Power: 3 Create New Wealth in the Economy using the Power of Corporate Structure Print Your Own Money Legally This is the ultimate power of the corporate structure. You can create new wealth in the economy if you have the knowledge of this power. In Laymans language, You can print your own money in the economy legally by using the corporate structure. Rich are wealth builders while the Ultra-Rich (Billionaires) are the wealth creators. Billionaires are billionaires not because they have earned billions of dollars by their companies. They are billionaires because they have printed billions of new dollars in the economy legally by using the power of corporate structure. Bill Gates is a Forbes Billionaire and worlds richest person having net worth of US $ 60 Billion not because he has earned $ 60 Billion in his life via Microsoft. This is because he has printed $ 60 Billion from his Microsoft. So How Ultra-Rich create new Wealth in the Economy by using the power of corporate structure? How you can print your own billions of dollars legally in the economy by using the corporate structure? Well, You can create new wealth in the economy (Print your own Money) by developing a successful business by registering a company and later on taking that company to the public and by selling the stocks/shares of your company to literally millions of people, you can create new wealth in the economy and become a multi-millionaire or even a Billionaire.
Diagram: 34 Middle Class Work Hard For Money The secret of printing your own new money in the economy legally is taking your business to the public and listing it on the various stock exchanges in your own country as well on the stock exchanges of other countries.
Diagram: 35 Rich Make Their Money Work For Them (Investments)
Diagram: 36 Ultra-rich (Billionaires) Create Their Own Money Middle class spend their whole life to buy shares of other companies, invest in mutual funds, diversify and hold for the long term. But well, Kids of the rich people have been taught since their childhood that they can not become ultra-rich by simply buying the stocks of someone elses companies but they can be ultra-rich by selling the shares of their own companies to literally millions of other rich and middle class people. And thats thy this knowledge of the power of corporate structure is imparted to the kids of rich people since their childhood by their parents and mentors. While the Children of Middle class people are studying hard in the school and forced by their parents to work hard to get good grades so that they can find a good job or a profession (Doctor, Lawyers), the parents of rich business community are teaching their children this ultimate power of corporate structure How to Print your own money Legally?
Rich know since their childhood this secret of corporate structure. Rich have been taught by their parents and mentors since their school time that the real power of the corporate structure is One can print his own money by developing a business and later on taking that business to the public. And thats why since early life, ultra-rich people focus only on developing a successful business and later on taking that business to the public. Middle class dont have such kind of financial knowledge. For them, the Billionaires are billionaires because they are hard workers. For Middle class, Billionaires have earn their billions of dollars by doing businesses. But well, the Truth is that, these billionaires have printed their own new billions of dollars in the economy by taking their businesses to the public. Bill Gates (Microsoft), Larry Page (Google), Dhirubhai Ambani (Reliance), Lakshmi Mittal (Arcelor Mittal), Mukesh and Anil Ambani (Reliance), Michael Dell (Dell) and all the other Forbes Billionaires are billionaires because they have developed successful businesses out of scratch and later on taken their businesses to the public. And by selling the partial ownership (Shares) of their companies to literally millions of small to large investors, they became billionaires. These people are now billionaires because their own stake
(Ownership/Shares) in their own publically listed companies/businesses are worth of Billions making them billionaires. Bill Gates is a Billionaires because his 8% Stake in his own publically listed Company Microsoft is worth of Billions. Mukesh Ambani is a Multi-Billionaire because his own stake in Reliance Industries is worth of Billions of Dollars.
Diagram: 37 Billionaires Are Wealth Creators These Billions of Dollars are not earned by their owners. But these Billions of Dollars are printed legally in the economy by their owners. These Billions of Dollars are the VALUATIONS of the stake of the billionaires in their own publically listed companies/businesses/corporations.
Diagram: 38 Middle Class Earn Money, Rich Make their Money Work for Them & Ultra-Rich print their own money Legally Middle class people think that these people are lucky because they have EARNED billions of dollars in their lives. But well, the Truth is that, these are the Wealth Creators. And by using the Power of Corporate Structure, They have PRINTED Billions of Dollars by taking their Businesses to the Public. Remember that, Nobody can earn billions of dollars in their lives. Very few people like Tiger Woods, The famous Golf Player can earn a billion dollar in their life time. But well, to earn this much, Tiger Woods will have to pay lots of tax and ultimately he wont stay long in the billionaire club. If you want to become ultra-rich (Billionaire) in your life than you will have to simply print this much of new money in the economy legally by using the power of the corporate structure.
Now, let us discuss in Financial Statements that, How Rich people create the new wealth in the economy by using this knowledge about the corporate structure. Let us discuss that what rich people teach their children about corporate structure in financial statements that their children become billionaires ? So Here we Go..!!!
Diagram: 39 Financial Statement of Rich Individual (Rich and his spouse) & his own Company The above is a corporate Structure that a typical rich use. I mean the rich play in the multiple financial statements. In the above diagram, you can see total 3 financial statements of a rich person. One is his own financial statement (Individual), the second is the financial statement of his wife (Individual) and the third is his Companys Financial Statement.
This rich couple has promoted a company. As you know that A Company is nothing but a file having some legal documents inside it and most of the time this file remains in the drawer of your desktop. You can see that, the Husband owns 90% shares of the Company in the Asset column of his Financial statement while the wife owns 10% shares of the Company in the Asset Column of his Financial statement. Thus, right now the whole the company is fully owned by this couple 90% by a Husband and 10% by a wife.
Diagram: 40 Shareholding Pattern of the Company Right now all the shares are owned by rich and his spouse.
Now, see the above diagram. This is the pie diagram showing the shareholding pattern of the company. You can see that right now there are only two owners of the company 90% Owner is Husband and 10% owner is a wife. Now, the couple works hard for a decade to develop a business, hire people of various skills under their company and grow their business. After working hard behind their company for a decade, they plan to become extremely wealthy. So they plan to take their company to the public. They have plan to sell the 30% of their company to the public. Ok So What happens is the couple sells 30% of their company to the public? What will be the new shareholding pattern of a company?
Diagram: 41 Shareholding pattern after selling 30% of the company So after taking a company to the public and selling 30% of the shares of that company, the new shareholding pattern can be like above. The Husband will have 65% stake in his new listed company (Because he sold his 25% shares to the public) and a wife will have 5% stake in her new listed company (Because she sold her 5% shares to the public). And the public will have 30% of the shares. Now, you will ask that then how a Husband can become a Billionaire by selling just 25% of his shares? Well, the founders of the publically listed can
become billionaires anytime when the share price of their listed companies go high and the valuation of their own stake in their own listed companies cross the 1 Billion mark. Say for Example, post listing the valuation of the 65% stake of this Rich person is US $ 500 Million and he sold the shares to the public at $ 10 per share. And now, after few years the share price of his company doubles to $ 20 because of the good financial results of the company, then his net worth will also double and cross the $ 1 Billion mark. Thus, by taking his business to the public, his net worth shoot up to $ 500 million which now become $ 1 Billion because of the rise in the share price of his own listed company. And this additional $ 500 Millions are printed newly in the economy because the share price of his listed company doubles in few years of listing. This is not the hard earned money. But this is the Valuation of his Asset (His stake in his listed company) going up. And this is the newly printed money in the economy. So every time the share price of the owners of the listed companies go up, the new wealth is created in the economy and they get richer and richer. This is how the ultra-rich print their own money in the economy legally. [ Important NOTE: The above is the over-simplified example of taking a business to the public. In the real life one more stage will come in between before taking your business to the public and that is the stage of Angel Investors or Venture Funding. Once you develop a successful business at small scale, you will have to go for Venture Capital Fund to raise money for your business. Venture Capitalists also known as Private Equity Players will infuse capital in your business to make it sufficiently large that you can take it to the public and hit the stock market. So if you seriously want to become a billionaire in your life than keep this step in your mind. After developing a successful business at small level, go to the Venture Capitalists first and convince them to invest in your business. Taking a Business to the public is the third and last step. Here for the simplicity of the discussion, I have
omitted this very important step. But the serious readers should always keep in mind this step. Once you develop a small business, search for venture capitalists and angel investors in your own city, state or country and try to negotiate the terms with them.]
The History of Money, Gold Standard & Modern Banking The History of Money, Gold Standard, Modern Banking and taxes is very important to understand the basics of money and learning important financial queries. The History of Money and Modern Banking System evolved like this. 01) Barter lessons. The History of money is very interesting. And understanding the history will help you to answer many of your financial
This kind of trading is since the history of mankind. It is older than 9000 B.C. Bartering means exchange of goods with each other rather than money. There was not any concept of money at that time. So suppose if you give 3 eggs to the shoe maker, he will give you a pair of shoes. And if someone gives you 2 chickens, you will provide them some kind of goods or service. This is how people used to trade. But unfortunately the problem with such kind of system was that, how can you say that 3 eggs are equal to a pair of shoes? Thus, there were several disputes in such kind of trading.
02) Cowry Shells A Trade currency After that in 1200 B.C., China started trading in Cowry Shells. Thus, these Cowry shells were the first currency just like a bank note in your pocket. After that Cowry has served as a medium of exchange and served as money through out the history until the middle of 20th Century.
03) Silver&Leather Currency In 500 B.C.m Silver started first time as a medium of currency. 04) Gold Coins as a Currency Now, the real history of money started. In around 200 B.C., Gold started as a currency. The Emperors started gold coins as a trading unit. And thats why every good or service in the economy had some value that was equal to some amount of gold.
Gold and silver were an integral part of business and trade as far back as the early civilizations of Sumer (the land between the rivers Euphrates and Tigris in what is now Iraq) and Egypt. But up to the 6th Century BC, the gold was traded as weight of the metal. But the first coin was made in 6th Century BC. And thus, The Gold was the First Real Money. It is because the gold was the valuable metal. And it was not easily available in the world. And thats why it was unique and the chances of counterfeiting were less. And thats why the gold started as a trading unit. After that, Gold became the world wide accepted currency. As the Civilization, evolved, the transactions became large sized and thats why huge amount of gold started trading and changing hands. Unfortunately, the gold is a heavy metal and thats why transferring gold from one country to another country with safety was very difficult. And thats why traders started the new concept and that was, they started depositing their gold with the reputed jewellers and in the exchange of that the jewelleres started giving them the on paper signed paper stating that this paper owner will be paid this much amount of gold instantly. And this was the first paper money. Thus, the first bankers were jewellers. After that, people like this concept so much that they started depositing their gold with the jewellers and started taking paper money from their jewellers. And this is how over the time, paper money had took over the entire trading system and gold just became the idle asset sitting in the bank reserves. 1816, The UK started the Gold Standard In 1816, the UK started the Gold Standard means any currency is valued with some amount of gold to protect it from the inflation. And thats why the original bank notes were backed by some amount of gold and you would be
able to exchange with your bank for gold if you dont have any trust in the bank notes of your government bank notes. This is how the inflation used to control.
Saving Money was the Golden financial Advise during the Gold Standard Thus, During the Gold Standard, Saving money was the Golden financial advise. And thats why your parents and grand parents used to teach you to save money. This is because during the gold standard, saving money means saving gold, the real money. And thats why if you save money during the gold standard, you definitely become rich and not only this but you also stay rich. 1971, The USA removed the Gold Standard In 1971, President Nixon had removed the Gold Standard and thats why the US Dollar stop became money any more but it became debt. President Nixon in 1971 declared that, The United States will no longer redeem their dollars with the gold because the US Dollar is backed by the full faith of the US Government This means that after 1971, the US can print as much money as it want according to the need of the economy. Thus, today the Dollar is a piece of paper without having intrinsic value in it. And this was the cause of Inflation. And after that the entire world had removed the gold standard from their currencies. Today very few countries follow the gold standard. After 1971, Savers are Losers Thus, After 1971, the rules of money have been changed. This is because the modern money is not a money in the true since. The Modern money
does not have any gold back up. Your government can print it as much according to the need of the economy. So today if you save money than it means that you are saving depreciating item which will lose its value over the period of time making you poor. Today Asset is more valuable than money. So the Modern Financial Advise after 1971 is Save & Invest. Today also you save money but dont forget to invest that money otherwise the inflation will erode its purchasing power. How the Modern Money is Created by Banks? The Fractional Reserve Banking So now, you know that your money is not a real money after 1971 and it is a debt now. So have you ever think that how the modern money is created? Well, whenever you, your government or any business in your country takes any kind of debt/loan, the new money is created in the economy at that time and when you pay off your debt, that money disappears. This is known as Credit System. Suppose you have a credit card in your pocket and you swipe it for $ 100, at that time the $ 100 is created newly in the economy. You feel that your bank has given you this money from its own pocket. But it is not the truth. This $ 100 is newly created because you have borrow it to buy something. Whenever you take a car loan, home loan or any other kind of loan, that money is newly created in the economy. This is because previously this money was not in the economy. Whenever a Government borrows money by issuing bonds, the new money is created. Thus, whenever you or the government or the businesses in the economy borrow money, the new money is created in the economy our of thin air and pushed into the circulation. And this newly printed money dilutes
the purchasing power of the existing money in the economy by causing the inflation. Rich Know How to Create New Money by Using Good Debt & to Get Richer Rich people know that after 1971, the rules of money have been changed. And thats why get out of debt and never borrow money from anyone is now no longer an effective financial advise to get rich. In fact, after 1971, two types of debts created in the economy Good Debt & a Bad Debt. Any Asset producing debt was a good debt while any liability producing debt was a bad debt. Thus, What Rich do is, by borrowing money to acquire assets, they print new money in the economy. And after paying this debt they become the owners of the valuable assets and get richer than ever. Rich never afraid of taking a good debt. While Middle class in this world still think that a debt is bad. In fact, all the financial advises today are age old financial advises. They will tell you to not to borrow money and get out of the debt. Well, this advise is partially true today. Means You should get out of bad debt and stay away from bad debt only. But you should take as much as good debt to acquire more assets and getting richer. Fractional Reserve Banking Today the new money is created in the economy by factional reserve banking. Means banks can lend 10 dollars for every 1 dollar of deposit. This means that suppose if you deposit $ 100 in your bank than the bank can give $ 1000 amount of loan. But well, if you deposit just $ 100 in your bank than from where did this additional $ 900 come from? Well, This additional $ 900 are created out of thin air. In other words, these additional $ 900 are created newly out of thin air.
So bank will give you 4% interest every year on your $ 100 deposit. And that is $ 4 every year. Now, the bank will lend $ 1000 to the people for various purposes and charge 10% interest rate. So the bank will make $ 100 every year from this $ 1000. Thus, from your deposit of $ 100, you will make $ 4 every year and the bank will make $ 100 every year from it. This is known as the fractional reserve banking.
In 2008, the US Government has printed US $ 1.2 Trillion out of thin air and pushed it into the circulation. You can see the massive expansion of US Monetary base in the above diagram. Thus, since 2007, the US Monetary base has been expanded from $ 800 Billion to US $ 2 Trillion. So How Fed Chairman Bernanke printed $ 1.2 Trillion out of thin air? Well, in the normal condition when the US Government issues the Treasury Bonds, the investors and countries around the world buy it like China, India, Japanetc.. And this is how the new money is created by borrowing it from the others. But $ 1.2 Trillion is such a massive amount that there was virtually no demand of US Treasury securities by other countries of the world and thats why the US Government has issued Treasury bonds worth of $ 1.2 Trillion
and the Federal Reserve has bought it from the US Government and created $ 1.2 Trillion. In other words, the US Government has printed treasury bonds and itself has bought the same bonds. In Laymans Language, the troubled bank has printed its own money and give the loan to itself. Moral of the Story: This is how the modern money is printed in the economy today. Central Banks and Governments from all around the world are printing money out of thin air and pushing it into the circulation. So What Should be the Financial Advise for you? Well, the Asset is always more valuable than the modern paper money. The modern money is a paper money. Its not the real money. So if you are the owner of some kind of asset than never sell that asset. Because the asset is something which is likely to appreciate but the money will depreciate because of the inflation. Acquire more and more assets out of your money. Save money but dont accumulate money. Rather than that use your saved money to buy assets and grow the asset column of your financial statement. The moral of this entire article is that, You should focus on creating and acquiring assets in your life. Never focus on earning money. But spend your time and energy to create and acquire assets. This is the only way to become and stay rich for generations to generations!!!
Asset is More Valuable than Money Which is more Valuable Asset or Money? For the Rich, Asset is more valuable than money (Now Currency) while for everyone else, Money(Currency) is more valuable than the Asset. Let me explain you why Asset (Stocks, Bonds, Gold, Real Estate, Mutual Funds, Businesses, Web Properties, Intellectual Propertiesetc.) is more valuable than money? Well, This is because Asset is something which keeps appreciating in its value forever while money is something which will lose its purchasing power over the period of time because of the inflation. In 2003, the Gold price was US $ 300 per ounce and in 2010, it is $ 1200 per ounce. This means that in 2003, you would able to buy the some amount of goods and services for $ 300 and today in 2010, you can buy the same amount of goods and services for whooping $ 1200. And this is the depreciation of money by four times in just 7 years because of the inflation. So it means that if today (In 2010) you have $ 1200 in your pocket than after 10 years, you wont be able to buy the same amount of goods and services in the economy. But if today you have 1 ounce of gold (Or any other Equivalent Asset such as stocks, bonds, real estate, websites, blogs, art, mutual fundsetc..) in your pocket than even after 10, 20, 50 years you will be able to buy the same amount of goods and services from the economy. In fact, you will be able to buy much more amount of goods from your assets in the future.
Diagram: 48 - Old Financial Advise Save Money. Modern Financial Advise Save & Invest Money In other words, Assets preserve and increase your purchasing power. While money reduces your purchasing power because of the inflation. And this is the reason why Rich people focus on the Asset column of their financial statement rather than the Income (Like Middle Class people) and accumulate more and more assets out of their money. Rich buy assets in exchange of their money while middle class save and accumulate money thinking that one day they will become rich. See the rules of money have been changed after 1971 when the US president Nixon has removed the Gold Standard and made US Dollar the free float currency and later on the entire world has removed the gold standard. Middle class people are savers and the savers are losers because the money that you save in your bank accounts will eventually lose its purchasing power over a period of time because of the inflation making you poor.
So the smart thing is to create or acquire assets. Rich people know this secret of money and assets since their early life and thats why from very early life they spend their time and energy to either create assets or acquire assets out of their money. Whenever rich have surplus money on their hand, they simply buy assets out of their money. They keep accumulating more and more assets in their asset columns rather than saving more and more money like middle class. In True Sense, Money is not your Asset but its your liability. This is because your saved money which sits idle into your bank savings accounts will ultimately lose its purchasing power and the value because of the inflation. While the Asset not only beat the inflation but also appreciate in its value as well as provide you a steady passive income. Thus, acquiring assets is one time hard work and after that weather you work or not, money will keep flowing into your bank accounts (Passive Income). While Saving money is a life long process. No matter how much you save, if you are not going to buy assets from your saved money than ultimately you are going to be poor in spite of how much you save. Rich teach their kids since their childhood that the Asset is more valuable than money and thats why they should always think to grow the asset column of their financial statement rather than focusing on the Income (Active Hard Earned Income). While Middle class people teach their kids since their childhood to focus only on the income and nothing else. And thats why they force their children to work hard at school to get good grades and after that find a safe and secure job and work hard at the job place to earn higher monthly income. The middle class people think around the Income. They focus their time, energy and mind to increase their Income. And to increase their income they take more and more educational degrees and work over time at their jobs or take part time jobs to increase their income.
But they dont know that this is the active income and the day they will stop working for their active income, their entire income stream will be suddenly disappear. Plus their saved money will also lose its purchasing power over the period of time. The inflation will erode the purchasing power of their money. While Rich know that Asset is more valuable than the Income and thats why they focus their mind, time, money and energy to create and acquire more and more assets and grow their asset column. They also know that building the Asset column is thee one time hard work only and after that their Asset column will generate passive income for them to maintain which they wont have to work any more. So after building the Asset column, even if the Rich will stop working, the money will still keep flowing into their bank accounts for the rest of their lives and even after that. So if you want to become rich than give more importance to create and acquire assets. To become rich, you need to focus on growing the Asset column of your Financial Statement. By only saving lots of money, you can not become rich. But to become rich, you need to acquire assets out of your saved money. One most common and age old financial advise in this world is Live below your means. It means that spend less money than you earn. Most of the people spend more than they earn by scratching credit cards and taking excessive bad debts like personal loans, car loans and shopping EMIs. And thats why finance gurus from all around the world teach their children to live below their means. They advise people to spend less than they earn. So that they can save more money. But This Financial advise was effective once upon a time in this world means before 1971. But after 1971, this Financial advise is no longer effective to ensure any kind of financial success in your life because USA has removed the Gold Standard (The Gold Back up to the Dollars) in 1971. In fact, if today you follow this advise and save lots of
money than you will surely be in financial trouble in the future. Because you are accumulating (Saving) Something (Money) which is going to depreciate over the period of time because of the inflation. And thats why the Modern Financial Advise is Dont Live Below your means. Spend most of your money to create or acquire assets and grow your asset column so that in the future your Asset column generates passive income for you which can make you financially free and rich. Asset is Always more Valuable than the Money.
Myth: 1 Go To School to work hard, get good grades & get a good job Reality: Go to School But not to get good grades to get a good job once you leave the school but to learn the basic vocational education only. This is one of the most commonest Myth among the Middle class people. They set a mindset to their children since their childhood that going to school, work hard and getting a good job once you leave your school and college is the ultimate way of financial success in anyones life. And thats why since childhood, their parents force and punish them to work hard at school and dont let their kids to focus on anything else except the school education. While Rich people know that School education is very important but not for getting rich and financially free but for the vocational education only (Languages & Mathematics). Our Schools give us two kind of Education. 01) Vocational The skill of reading, writing and calculating the numbers and sums. 02) Professional In Colleges they give us some kind of professional education such as Medicine, Engineering, Software, Lawyers, Art..etc.. Rich know that the Schools (& Colleges) are lacking in one kind of Education and that is --> Financial Education The knowledge about What is Money, How it Works and the Power of the Corporate Structure and thinking in Financial Statements and understanding the meaning of basic financial terms like Assets, Liabilities, Active & Passive Income, Good & Bad Expenses/Debtetc Why Schools dont teach us Financial Education? The only thing that I learned from my school about money, Business & Investing was It is Risky.
While when I entered into the real life, I realized that not having Assets (business and investments) in the Asset Column of the Financial Statement is Risky. In fact, today my school mates whose parents have build Asset columns (Stocks, Bonds, Gold, Mutual Funds, Businesses, Real Estate..etc..) for their children are more financially safe and secure than me and those children whose parents have taught them to depend on the job security.
Diagram: 46 - Middle Class Work Hard to Earn Money While Rich Work Hard to Develop Businesses Schools are training people to become Employees to work for the Businesses owned by Rich People. This is because our age old school system is designed and manipulated by the rich people of the starting of the Industrial age (1800). During the starting of the 19th Century, the industrial age was started in Europe and the rich industrialists of that time needed people of various specific skills in mass volume to run their industrial age businesses. And thats why they have decided to take the financial education out of the school system so that
the people who work hard in the school can never become more than employees of the large corporations. Rich people of the world still know this history and the facts about the school system. They know that Schools are important for the vocational education like languages & Mathematics but the schools are not the right place to learn the financial education The knowledge about how money works. And thats why the rich people impart the financial knowledge to their kids separately along with their school education. Thus, the school system is designed to brain wash the young generations to think only about becoming employees & Self-employees once they leave the school and work hard for the rich who own the businesses. Ultra-Rich (Billionaire) people are High School or College Drop outs The Following famous Billionaires & Entrepreneurs are the high school or college drop outs. And still they have made a fortune and become rich. This is because the school fail to change the mindset of these entrepreneurs because these entrepreneurs have left the schools and colleges before the education system can change their mindset and turn them into the employees. - Bill Gates Microsoft - Steve Jobs Apple - Michael Dell Dell Computers - Dhirubhai Ambani Reliance - Henry Ford Ford Motors - Larry Ellison Oracle - David Neeleman Jet Blues - J.D. Rockefeller Standard Oil - Ray Kroc McDonalds
- Ralph Lauren Polo - Tom Anderson MySpace - Mark Zuckerberg Facebook - Larry Page Google - Walt Disney Disney Land - Thomas Edison General Electric - Jerry Yang Yahoo - Subhash Chandra Zee Networks - And many many more Your Financial Statement is your score card once you leave your school. This is because it shows that how smart you are smart with your money. Your Banker will give you a loan not by watching your educational degrees but by watching your financial statement and thats why rich teach their children the basics of financial statement and develop the habit of thinking in the financial statements. Moral: The moral is that, Motivate your children to go to school to take the vocational education. But dont force them to work hard to become employees and work like a slave at rich peoples businesses. Rather than that, also teach your children the basic lessons of money during their school time that the rich people teach their kids. So that in the future they can also become rich and financially free. So rather than focusing and working hard only on getting good grades in the school, it is advisable to become financially smart. It is advisable to be smart with your money also. So that when you enter in the real world, you dont have to live paycheck to paycheck.
Remember, that it is not your educational degrees which will make you rich one day. It is the Asset column of your financial statement which will make you rich one day. So focus on Growing the Asset Column of your Financial Statement to become Rich & Financially Free one day in your life.
Myth: 2 Get a Job Reality: Why to do a job when you can create jobs, Save more taxes and use other peoples time to get rich quick? One of the most stupid financial advise that the middle class people give their children is Get a Safe & Secure Job, Work Hard and earn high income. In fact, the entire education system will give you just one option to make money in your life and that is Get a Job. When I was in School, my classmates who came from the middle class background were all the day talking about getting a good high paying safe and secure job after finishing their school and college education. This is because their middle class parents had taught them that getting a high paying job is the most wise financial decision one can take. While Rich people know that one can not be rich and financially free by doing a job only. And thats why they teach their kids to create jobs by starting their own businesses rather than doing job at someone elses business to make the owners of that business rich. What is the Problem with Doing a Job? The biggest problem with doing a job is that, You will pay the high taxes and remain middle class and poor. You can never get rich by doing a job. This is because it is the employees of any country who pay the highest amount of tax. And thats why some middle class people advise their kids to become a doctor, lawyer or Chartered Accountant so that they can earn high income and become financially free. But well, again the problem with being a selfemployee professionals is that, you will pay even higher taxes than the employees. Self-employees like doctors and lawyers pay the highest amount of tax. And they form the major portion of the tax revenues of any government.
Being a Doctor or a Lawyer is not a bad thing. After all, the economy needs the quality medical and legal services. The only problem is with the mindset of the people. Even if many people become doctors and lawyer, their mindset is still that of the middle class people and thats why rather than starting their own business and company of medical or legal services, they prefer to do a job at some government hospital or at some multispeciality hospital owned by a pharmaceutical company at higher pay scale. And thats why these high skilled people earn lots of money but still end up paying more in taxes and thus accumulate less in assets. While Rich people have different mindsets and thats why even they take professional qualifications like Medicine and Lawyers, they will still focus on creating and acquiring assets in the asset column of their financial statement to grow more rich. On the other hand, Business owners and Investors are the people who pay the least taxes to the governments legally because they use the power of corporate structure to save more taxes. While people having middle class mindset dont have any knowledge about the Financial Statements, habit of thinking in financial statements and focusing on growing the Asset column and many other things about Money and Financial Education which are required to grow rich. Some Business owners and Investors use the power of corporate structure so much wisely that even after earning lots of money, they virtually pay no taxes at all. Thus, if you will chose to become an employee or self-employee, you will end up paying higher taxes to the government and nothing else. Rich know the fact that, the tax laws favour the Business owners and Investors who by creating or investing in Businesses create new jobs in the economy. And thats why rather than doing a job, they teach their kids to own businesses and the power of the corporate structure to save more
taxes, protect their assets and create new money in the economy legally by taking their businesses to the public. The Government provides the maximum tax benefits to the Business owners and Investors and the least tax benefits to the employees and selfemployees. Is there really something like a Job Security in the World? NO. There is nothing like a job security in the 21st Century. The idea of having a safe and secure job was an Industrial age idea. And this is the information age. The Idea of having a safe job used to work before 1990 means before starting of the Information age. But today, depending on the job security is the most stupid thing you can do. This is because when you have a job, you have only one client and that is your boss. But when you own a business, you have literally hundreds and thousands of clients Your customers. So if one client (Customer) will fire you, there wont be any problem. But if your boss fires you, you are in a big trouble. Job is for Financially Illiterate People Without having financial education you will have to get a job. And this is the reason why schools dont give you the financial education. This is because then you will be automatically diverted towards getting a job even after becoming a doctor or a lawyer. What most of the Middle class people do is They go to School > Work hard > Get good grades > Go to colleges > Get good graduation degrees > Get a job and start earning money > After few years again go to some other college for specialty degrees > Take another job which will pay higher salary than the previous job > Work hard their through out life > Live paycheck to paycheck > Struggle Financially And so on and on.
The only focus of the middle class people is to increase their income by any means. While Rich people focus on different thing The Asset column of their Financial Statement. What Rich people do is They go to School > Work hard to take vocational education > Simultaneously take the financial education from their parents or mentors > Learn the power of the corporate structure > Go to College > Start developing their own Business (Asset) during their college time or start running their family business > Take the Graduation degree from their college or even drop out because they know that it is of no value > Hire more employees and use their time to grow their own business > Take their Business to the public because they have learned the power of the corporate structure > Become multi-millionaires and even billionaires and financially free > Now, there businesses are running even without their presence > So weather they work or not, the money will still keep flowing into their bank accounts > They focus on acquiring more assets and grow the asset column of their financial statement. Moral: - Rich teach their children since their school time that doing a job is the most stupid thing anyone can do in his life. Rather than that they teach their kids to create businesses, save more taxes and create new jobs in the economy. - The job is the highest risk profession - Learn the basic lessons on money and master them as early as possible in your life means now so that you can become rich and financially free one day in your life.
Myth: 3 Work Hard to Earn More Money Reality: Rich & Middle class both work hard. But the Middle class work hard to increase their Income while rich work hard to increase the Asset Column of their Financial Statement This is one of the most common myth about money that middle class people pass on generations to generations. And this is the reason why their generations remain the middle class, work hard and live paycheck to paycheck and still struggle financially. So Whats problem in working hard for the money? After all Rich and Ultrarich people like Bill Gate, Mukesh Ambani, Lakshmi Mittal, Anil Ambani, Michael Dell, Donald Trump and all the other billionaires also work hard. Than why working hard for the money is a myth?
Diagram: 47 - School Teach Us to Work Hard for Money While to Become Rich, We need to Work Hard for Assets
Rich & Middle class both Work hard But Middle class work hard to increase their income while Rich work hard to increase their Assets Everybody in this world should work hard. And there is nothing wrong in it. But the main difference between the rich and everyone else is that, The rich work hard to create and acquire more assets in their asset column. The rich work hard to grow their asset column of their own financial statement. While Middle class work hard to earn more money and increase their income. Diagram of the above Whats the problem with working hard for income? Well, there are two problems of working hard for the money. 01) The harder you work for your income, the more you will pay in taxes. 02) Working hard for money (And to increase your income) means you are working for the Active income means you will have to keep working hard for the rest of your life and if you stop working hard for the income or fired by your company, your that income will suddenly disappear. What is the advantage of working hard for the Assets? There are two advantages of working hard for Assets. 01) The harder you work to create more assets in your asset column, the less you will pay in taxes because you are working for creating assets 02) Working hard for Assets means you are working hard for the Passive income. And thats why it is the one time hard work only. So once you do this hard work, your job is over. After that weather you will work or not, that passive income generated by your assets will keep flowing into your bank accounts for the rest of your life and even after that. Thus, rich and middle class both work hard. But there is a huge difference between their hard work. Initially the hard work of rich and middle class looks the same but in the long run, the hard work done by rich overtake the hard work done by the middle class.
Both Rich and middle class teach their kids since their school time to work hard in their lives. But the Middle class teach their kids to work hard to increase the income while rich teach their kids to work hard for the Assets. They teach their kids to work hard for growing the asset column of their financial statement by creating and acquiring more and more assets. And this is the ultimate advantage of understanding the basics of financial statement and words like Assets, Liabilities, Cashflow, Active & Passive Income and the power of the Corporate Structure. Second Job to increase Income The Foolest Ides Many Middle class people start a second job to increase their income. This is because now they are married and have children. They say proudly that, I am scarifying my personal life for my children. They say proudly that, I am doing it for the future of my Children. Well, This is the most foolest thing that one can ever do. Rather than doing a second job to increase your income, increase your financial education and wok hard to grow the asset column of your financial statement. And also impart the financial education to your children during their school time. Moral: If you want to become rich in your life than simply work hard for Assets. Work very hard to grow the Asset column of your financial statement by creating and acquiring more and more assets. This is because Assets generate Passive income which flow into your bank accounts even if you stop working one day, travel the world or die. Working hard to increase your income is a Fools Plan.
Myth: 4 Save Money Reality: Saving Money will not make you Rich anymore if you are not going to buy Assets out of your Saved Money So The Modern Financial Advise is Save & Invest Save Money is the age old Golden financial advise. And the people who save money are really wise people. And it was saying that, those who save at least 10% of their monthly income wont have any financial trouble in the future. Thus, Save Money is the golden financial advise. And after all, the old is gold. But well, unfortunately, After 1971, the gold (money) doesnt remain gold anymore. The Gold become separated from the money. The Gold Standard had been removed by President Nixon of USA in 1971 and followed by that, all the world has followed the same rule. Today Gold is different and Paper Money (Currency) is different. So What all these have related to this golden financial advise Save Money? Well, the problem is that, after 1971 the money stop being money and became currency. The money became debt after 1971. In laymans language, After 1971, the central banks and Governments from all around the world can print as much money as they want according to the need of economy. And thats why one new silent wealth killer came into this world which was Inflation. Because of the printing activity of the governments and central banks around the world, the more money is printed and pushed into the circulation which is now diluting the purchasing power of the existing money in the circulation by causing hyperinflation.
Diagram: 48 - Save Money Old Financial Advise. Save & Invest Money Modern Financial Advise So What all these have to do with our ancient financial advise Save Money? Well, After 1971, SAVERS ARE LOSERS!!! The Modern Financial Advise is Save & Invest. This is because if you spend your entire life just to save money and not investing it to acquire or create more assets, the purchasing power of your saved money will be eroded by several folds because of the inflation. Unfortunately, Money is not the Asset any more but money becomes Liability after 1971.!!!! Well, Yes. I know that this is really a breaking statement and hard to engulf and believe. But this is the Truth Your Money is not the asset anymore after 1971.
This is because according to the definition of Asset, an Asset is something which puts money into your pocket weather you work or not as well as appreciate in its value over the period of time. Now, after 1971, because of the inflation, your money doesnt appreciate in its value over the period of time and provide you any income. And thats why your Saved Money is your Biggest Liability. Because the value of your saved money will go down markedly because of the inflation. Rich know this fact about money since 1971. Rich know that the rules of money have been changed in 1971 by President Nixon when he removed The Gold Standard and remove the back up of money with gold. While Middle class still dont know that the rules of money are changed. The money is no longer a money anymore. But it is just a piece of paper without any intrinsic value in it. The government can print as much money as it want according to the need of the economy. So What Rich Teach their Kids about Saving Money? Well, Rich teach their kids to save money but also dont keep your saved money with you. They teach their kids to create or acquire assets out of their money to grow the asset column of their financial statement. This is because the rich know that, Money can not make anyone Rich. It is the Assets which can make anyone Rich. And thats why you should not only save money but rather than Save & Invest your money to buy more assets out of your money. Buy Stocks, Gold, Bonds, Real Estate, Businesses, Mutual Funds, Art, Web properties, Rare wines or any other type of asset from your saved money. Dont just play the game of money like Middle class anymore. Saving money was an effective financial advise once upon a time but not now. The problem with School system is that, it will teach you only one thing about Assets (Businesses & Investment) and that is Risky. And thats why
the most of the people save good amount of money but they afraid of buying more assets out of their money. While Rich teach their children the basics of financial statements, ability to think in the financial statements and the difference between various financial words like Assets, Liabilities, Active-Passive Income and Cashflowetc.. Moral: Save Lots of Money. Saving Money is really a good thing. But dont just keep this money with you. Buy Assets out of your money. Create Businesses out of your money. Invest your money in stocks, gold, bond, real estate, mutual funds or any other Assets. Use your saved money to grow the asset column of your financial statement if you want to become rich someday in your life. Modern Financial Advise is Dont only Save Money But Save & Invest Your Money.
Myth: 5 My House is my Asset Reality: Well, Your House is not your asset but it is your Biggest Liability because it doesnt put money into your pocket weather you work or not.
Diagram: 49 Your House is not your asset but the liability because it doesnt put money into your pocket every month but takes money out of your pocket by making expenses This is the biggest Myth about Assets and money in the history of mankind. Today most of the people in this world still believe that the house in which they live is their biggest asset.
But well, if you understand the financial statements and the cashflow pattern of the money in the financial statements than you will find that your house in which you are living is not your asset but it is your liability. Basically the house in which you live is the Asset of your, - Government & - Your Mortgage Lender. Diagram > Asset puts money as income and house keep money out of your financial statement Diagram > Governments and mortgage lenders financial statement your house is their asset and not yours. Just see the above two line diagrams. The above two line diagrams show that every month your house takes money out of your financial statement by making various kind of expenses. While for the governments and banks (Mortgage lenders), your house makes passive income in their financial statements as tax income and mortgage payment and interest income. Thus, in reality, your house is the asset of your government and your mortgage lender. But the Government is giving Tax breaks Under Section 80C & Section 24 (b) in India Many Financial advisors and tax planners will give you this advise. They will tell you that buy a bigger home and take a bigger home loan because the government is giving you the tax break. Under Section 80c, You can save up to Rs.1 lakh of tax on the principal of your house in India and Under Section 24(b) you can save up to Rs.1.5 lakhs of tax on your interest payment on your housing loan every year in India. In fact, many people take home loans only for this purpose only and tell proudly to their friends that they are saving tax smartly.
But well, these fool people really dont know that to save just MAXIMUM Rs.2.5 lakh of annual tax, they are taking more than 20 lakhs of loan!!!! It is true that, by using Section 80c and 24b, you can reduce your taxable income by Rs.2.5 lakhs. So say for example if your taxable income is Rs. 4 lakhs than your taxable income will now be just Rs. 1.5 Lakhs. So you will save a tax on Rs.2.5 lakhs of your Income. Now, just think that how much tax you have to pay on your 2.5 lakhs of Income in India at the rate of highest tax slab bracket and that is 30%? Rs. 75,000. So to save MAXIMUM Rs. 75,000 of tax annually, you are taking a home loans of literally lakhs of rupees?!!!!! And Is this what your Financial Advisor or the Tax Advisor or the Accountant or a Banker told you? Is this what you tell a smart tax planning? To save just Rs. 75,000 of tax annually, you are going into a deep debt. So dont give such kind of excuses anymore. And if someone tell you that he is saving tax smartly by taking a home loan that tell that fool to read this article. But the House appreciates in its value and give you the Capital Gains Many Middle class people, your bank, your government and even financial advisors will argue this. They will tell you that your house is your biggest asset by giving you the above reason. In fact, - Your Government will give you more tax breaks on buying a home by give you home loan tax benefits
- Your Banker will also tell you to take bigger mortgage loan to buy a bigger house for you by telling you that, after all you are buying an Asset and thats why it is the investment of your money. In fact, most of the people in this world mainly in India still have a false belief that, Myth: The Price of Real Estate go in One Direction Only UP!!! Reality: The Price of the Real Estate can go in any Direction Up or Down. The price of any asset in this world can go in two directions Up & Down. Most of the Middle class people buy bigger home by fooling themselves that after all they are buying an asset out of it. After all they are investing their money in the real estate and on the top of that, the government is also giving the tax break on home loans. But well, This is The Biggest Trap by your government & banks. Basically the Banks and the governments are fooling you. They are giving you the false information. They are hiding the right information from you. Just see the USA Housing Bubble burst in 2006. Before that the people in the USA were also used to think that the price of real estate can go in only in one direction and that is up. And thats why they used to buy homes worth of $ 200,000. And today they have already paid up $ 150,000 in their home equity and the price of their homes is just $ 50-80k. Because there is no buyer in the economy which is ready to pay more than $ 200,000 for those houses. The same thing can happen in India or any other country also. And thats why depending on the Capital gains of the real estate of your house and thinking that its your asset is a bad idea.
You are Emotionally Attached with your House Now, suppose think that the price of Real estate can go in only one direction and that is up. Now, in that case also your house cant be your asset. This is because suppose if you have bought an excellent house in good locality for Rs. 1 crore and in 3 years its price will double to Rs.2 crores than will you sell it? Of course not. This is because you are now emotionally attached with your house and thats why you are not going to sell your house. And suppose if you sell your house than probably you wont be able to buy back it in the future. While if you have 1 crores of Shares of Reliance Industries which doubles in its price to Rs.2 crores than you can sell it and again buy it when the market goes down. You can also do the same thing with gold or any other asset. But you can not do the same thing with your House. Because you are emotionally attached with your house. So One Should not Buy a House for Life Time & Live in the Rental Apartment/House Only? Well, NO. Rich dont teach their children such kind of moral killing things. In fact, Rich motivate their kids to buy luxurious houses and enjoy their lives. So here the Rich advise is not that You should never live in your own house because its a liability. The logic of understanding this difference is that, You should not give the first priority to buy a home. Just think in your financial statement and think that What Advise I had given you in the lessons on money & Financial Education? Well, I told you that if you want to become rich in your life than focus only on thing Asset Column of your Financial Statement.
So first of all build the Asset column of your financial statement. Work hard to build the asset column of your financial statement to such a level that from that level it can throw sufficient passive income by which you can afford all of your monthly home loan (mortgage) payments. Rich afford their luxurious houses like this. So that they dont need to work hard to pay those monthly mortgage payments. This is because their mortgage payments are afforded by the passive income from their Asset column of their financial statement. What Most of the Middle class will do is, Take a Job > Work Hard > Earn High income > Take a Big Home loan and buy a big house > Work more and more hard for 15-20 years to pay the monthly loan payments of their home > Ultimately they fail to build some serious wealth because all of their hard earned money goes to pay those home loan payments > Remain middle class or poor. Rich play the game of money like this, Have Basic Financial Knowledge > Start Focusing on building their own Asset Column First > Create Businesses & Do Investments > Grow the Asset column large > The Asset column will start generating passive income > Put a Down payment > The Passive income from their asset column will afford the monthly mortgage payments of their house > After that weather the rich work or not he will be still able to pay his mortgage payments. This is because his Assets are affording his Liability (House).
Diagram: 50 - Your Rental Property is Your Asset because it puts money into your pocket. Well, The house in which you live is your liability. But if you own a rental property which gives you positive cashflow after deducting all the expenses like tax and mortgage payments than its your asset. This is because your rental property can put money into your pocket weather you work or not.
Moral: Your House is not your asset but its your biggest liability. This is because every month your house takes money out of your financial statement. Middle class buy a house from the first day of their career or during their early career years and after that struggle hard to pay the mortgage payments of their house. Now, this money would have gone to build the asset column and becoming rich and financially free. Rich first of all work hard to grow their asset column first. And once their asset column starts throwing sufficient passive income, they buy a house and pay their monthly mortgage payments from the passive income from their asset column. Thus, Rich and Middle class both love to buy expensive houses and both of them buy a dream house for them also. But Rich remains rich even after buying a luxurious house while a middle class remain middle class or even become poor after buying a luxurious house.
Myth: 6 Get Out of Debt Reality: Get Out of Bad Debt only But take more and more Good Debt Whenever you read some personal finance book or a blog, they will teach you and motivate you to get out of debt. They will tell you that get out of debt and never take any kind of debt if you want to become financially free. They will also teach you that how you can get out of debt by cutting down your credit cards, earning more income and many other things. Well, at a first look this sounds really a cool financial advise. But unfortunately, setting such kind of mindset really affects your growth. This is because this financial advise is for a bad debt only. While in the real life, the two kinds of debt exists Good Debt and a Bad Debt.
Diagram: 51 Good Versus Bad Debt

A Good Debt is one which puts money in to your pocket. A Good Debt is one which is used to acquire the assets and when you pay this debt, you become the full owner of some kind of Asset. Say for Example, the debt that you take to grow your business is a good debt. This is because it is used to grow your asset Your Business. A Debt that is taken to buy a rental property is a good debt because after paying this debt, you will become the owner of that rental property which will generate endless cashflow for you. A Bad Debt is one which take money out of your financial statement and makes you poor. A Bad debt is one which is used to acquire liabilities and when you pay this debt, you will become the owner of the liability which will not only depreciate in its value markedly but also will make you expenses. Say For Example, The Car loan is a bad debt. This is because after paying your entire car loan, you will become the owner of something which will lose its value. A newly bought car will lose almost 60% of its value within first 4 years. Credit card debt used to do shopping and buy products which are depreciating is a bad debt. Should You Cut Down Your Credit Cards? - Of course yes. If you are financially illiterate. - Of course No. If you are financially educated. A Credit card can be your good as well as bad debt. So if you dont understand the difference between the good and bad debt and if you dont have any kind of knowledge of financial statements and habit of thinking in financial statements and the difference between the words like assets and liabilities than it is better to cut down all of your credit cards and stay away from it. This is because the credit card is the highest interest debt which can make you even Bankrupt.
Thus, cutting down credit cards is the financial advise for the Middle class people. While Rich people dont need to cut down their credit cards. Not because they are rich and have good bank balance. But because they have the clear understanding of good versus bad debt. Rich use their credit cards to take a good debt and become more richer than ever. This is because rich always buy Assets out of their credit cards. Rich always use their credit cards to acquire assets like Domain names, web properties, Business debt, payments to buy assetsetc.. And thats why they grow richer when they pay off their credit card outstanding. While middle class use their credit cards to buy liabilities which depreciate faster and lose their most of the value within first few years of buying. Thus, if you are going to use the credit card debt to acquire assets than have a credit card. No problem in it. In fact, the entire money supply of the world is debt today. This is because in the 1971, President Nixon of America removed the gold standard and dollar became debt followed by all the currencies of the world became debt. So whenever our government take a debt from public by issuing bonds, the new money is created in the economy. Whenever you scratch your credit card to buy things worth of Rs.1000, the new 1000 rupees are created in the economy at that time and when you pay that 1000 rupees back to your bank, that money disappears from the economy. So whenever you, me, businesses or the government borrows money, the new money is created in the economy and whenever we pay that debt, that newly created money disappears. Thus, when you take a car loan of Rs. 5 lakhs, this 5 lakhs are newly created in the economy. And when you pay back this loan, this money disappears. This is known as Fractional Reserve Banking. In short, the entire world grows like this only.
Rich know this fact about the money and thats why they use the debt to acquire more assets and grow richer. Rich use debt to expand their businesses, buy profitable rental properties or acquire any other kind of assets and thus become richer and richer. While middle class people take huge loans to buy cars, travelling abroad, shopping and to acquire several other kind of liabilities and become poorer or remain middle class only. And thats why following financial advises about debt are for middle class only. - Get out of Debt - Cut down all of your credit cards - Stay away from Debt - Never Take Debt The above are the financial advises for the middle class people only. Rich cant follow the above advises. This is because if they will also start following the above advises than how they will become richer? Basically rich use debt to get more richer. How Rich Use Debt to get Richer? Well, Rich use debt to get more and more richer. Say for Example, the rich puts Rs.1 Crore as a down payment to acquire the Rental Property (Asset) of Rs. 5 Crore (20% Down payment). Thus, he takes a loan of Rs.4 Crore to acquire the asset. This is known as leverage. So he acquires the asset worth of 5 crores by putting just 1 crore down. Now the rental income from that real estate will pay off all of that mortgage loan. So rich dont have to pay the mortgage loan payments from his own pocket or from his hard earned income. So after 10 or 15 years, the rich will have the Asset which will be worth more than 5 crores. This is because during such a long time horizon, the
price of real estate will also appreciate making him richer. Also the rentals will increase improving his cashflow. On conservative side, within 15 years the price of that property will at least doubled if not tripled. So after 15 years he will have an asset worth of Rs.10 Crores minimum. And all of this is from the investment of just Rs.1 Crore. Ok. Now, let us talk about Middle class people. The Financial advisors advise middle class people to not to take a debt and rather than that invest money in the mutual funds via SIP. Now, just tell me that how much money you will have to invest today in Mutual Funds to grow it to 10 crores after 15 years? Let us assume that Indian Equity will give you 20% Compounded annual return. Around 85 Lakhs. So suppose if you today invest 85 lakhs in mutual funds than after 15 years it will become 10 crores.Well, this is really cool. But do you know that how much money you will need to earn to save Rs.85 lakhs? Almost double. This is because you will have to pay almost 40% tax on your hard earned income. Thus, growing rich without taking a good debt is almost impossible. While if you have use Rs. 1 crore to take 4 crores of debt than you will not only able to acquire the asset of 5 crores but you will also have tax benefits of 5 crores for investing just Rs. 1 crore. Rich people take lots of good debt to expand and grow their businesses. This is because business is an asset which pays off all of their debt. Moral: Learn to use good debt. Increase your Financial IQ and understand the difference between good and bad debt. Always take a good debt to grow richer and stay away from the bad debt. A Good debt will make you richer while a bad debt will make you poorer.
Myth: 7 Live Below Your Means Live Below Your Means is the most moral killing and psychologically disturbing personal finance advise that various personal finance authors and bloggers give people. In fact, many personal finance gurus say proudly that they are living below their means and thats why they are financially free. And people should also live below their means to become rich and financially free. Well, than what is the meaning of being rich if ultimately you are going to live below your means? Its like, Live Poor but Die Rich!!! In fact, nobody wants to live poor and die rich. Such kind of financial advises look really good when you advise someone to live below his/her means. But when it comes to you, its really a moral killing financial advise. Well, it is true that most of the people in this world have to live below their means because they are deep in debt and their income is very low. The logic behind the advise - Live Below your means is that, by living below your means you are decreasing your expenses and thus improves your cashflow (Income Expense). Now, this is really a good thing. Increasing your Cashflow by reducing your expenses is really a good idea. In fact, Fortune 500 companies also cut down their un necessary expenses to increase their Cashflow. But unfortunately, most of the people dont know that what to do with this Additional Cashflow? Remember that, Live Below your means will only work for you if you are going to divert your increased cashflow to buy more assets and grow your asset column. Most of the people blindly follow the advise of the financial planners and live below their means. This really improves their cashflow. But this doesnt help
them to get rich and financially free. Because they dont acquire assets out of their improved cashflow. In fact, they dont have any knowledge about the words like Cashflow, Assets, Liabilities and Financial Statements and thats why even after living below their means they dont become rich in their financial statements because they dont acquire any assets. What You should do if you dont want to Live Below Your Means? Rich, Middle class or poor, nobody wants to live below their means. And thats why both middle class and rich buy more liabilities, luxurious items and status symbols from their money. This is because its a human nature. We love to drive expensive cars, wear expensive watches and travel the world. Rich, Middle class or poor all of us love to enjoy great lifestyle. But well, the rich and middle class play the game of money differently to afford their lifestyles. Here is how.
Diagram: 52 - No need to Live Below Your Means. Increase Your Asset Column and afford every luxury from the Income generated by your Assets Middle class Person > Loves to live a lavish lifestyle > Study Hard > Get good degrees > Get Good High Paying Job > Earn more > Afford Luxurious lifestyle from Hard Earned Income > Wants to upgrade lifestyle > Work more hard > Get a Second Job > Improves Income > Upgradation of lifestyle > Finished > Now he can not upgrade more from this level because one day has only 24 hours and he can not work more than 18 hours a day > Not only this but to maintain current lifestyle he has to work hard 15 hours a day > He cant stop working because if he stops working, he wont afford his luxurious lifestyle Rich Person > Loves to live a lavish lifestyle > Study hard > Parents have given financial education > Dont do job but start focusing on growing
the Asset column of his financial statement > Start a Business as developing a Business is all about creating new assets > Work hard to create and acquire assets > Generate Passive income from his asset column > Affords luxurious lifestyle from his passive income > Wants to upgrade lifestyle > Buy More Assets > Passive Income will improve > Upgrades lifestyle > Again wants to improve lifestyle > Again buy more assets and generate more passive income > Upgrades lifestyle > And so on and on > One day he stops working > Still he and his children will be able to afford the same level of lifestyle without working hard because their assets afford their lifestyle and not the hard earned income. Moral: Thus, the rich dont have to live below their means. This is because they know that they need to acquire more and more assets to expand their means. If the rich want to upgrade their lifestyle, they will acquire assets first and generate passive income from their assets and after that buy liabilities from that passive income. In other words, for rich, their assets afford all of their liabilities. Middle class people buy liabilities from their hard earned money and thats why they need to keep working hard to afford those liabilities and lifestyle And if they stop working, they will have to compromise with their lifestyle and live below their means. So if you want to live like rich than spend your time and energy to create and acquire more and more assets in your life. Grow the asset column of your financial statement such a large that the passive income generated by it can afford all of your expenses and liabilities.
Myth: 8 Invest for the Long Term and Diversify Reality:When you Invest for long term in Paper assets, you are investing for the Capital Gains which is very risky. Diversification is for those financially uneducated investors who dont know what they are doing One of the most common financial advise is, Invest in Mutual Funds, Diversify your investments and Invest for Long term. This is like a Buy, Hold & Pray Advise. Problem with Investing for Capital Gains The only problem with the paper assets like stocks, bonds and mutual funds is that, you only have control over one thing and thats when you sell. You dont have any other control than this. This is known as investing for the capital gains. Means depending on the price of that asset going up. Here you dont have any other kind of control over that asset. Say for Example, if you buy a stock of Reliance Industries, What you are investing is investing for the capital gains. You dont have any kind of management or cashflow control over the Reliance Industries. And this is very risky. And this is like a gambling. It is because to make profits from the Reliance Industries or any other stock, you will have only one option and that is wait for the long time to increase the valuations of the stocks of that company (Capital Gains). And this is what I call investing for the Capital Gains. Now, let us discuss about the Mukesh Ambani and other directors of the Reliance Industries who are also the shareholders of Reliance Industries just like you and me. Their main advantage is that, they have more control over the business than you and me say for example control over the management team, control over the assets of the companies, control over the cashflow and profits and several other controls. So the owners of that business can
take out any amount of money from the company whenever they want because they have more control over Reliance Industries than you and me. This is true for any paper asset. This is true for any stock. When you buy a stock from the stock market, the only control you have is on the selling. And the only profit you can make is the capital gains. And thats why this form of investing is very dangerous. Today most of the employees and self-employees are investing for the capital gains and thats why they have stay invested for the long run. This is the Middle class investment strategy. While Rich teach their kids to promote their own companies and do the business from their company, take their company to the public and sell the shares of their own companies to literally millions of people. Thus, Stock investing is a really profitable game if you are on selling side. So promote your own companies, do a business from your company, have a better control on your asset and sell the shares of your company to people. This is what the rich teach their kids about the stock investing. Problem with Investing in Mutual Funds The financial advise Invest in mutual funds for long term and diversify is also a financial advise for the middle class people. Here also you invest for the capital gains only. Means the only control you will have on your investment will be Sell. Mutual Funds do nothing but divert all of your money towards the financial markets. While Rich teach their kids to Invest for Both the Cashflow & Capital Gains. The problem with investing in mutual funds that, you put your money and take 100% of the risk and the fund house makes money by charging various expenses from you. So weather you make money or not from your
investments in the mutual funds, your fund house will definitely make money weather you win or lose. Today when I see the various Personal Finance bloggers around the world, many of them are earning lots of money from their Authority Blogs. They are running their own successful blog businesses. But basically they invest like middle class. Means they invest all of the profit of their blog business to buy mutual funds. While I personally dont like to invest for the Capital Gains. So I keep reinvesting the profit of this blog to hire more writers and create more unique and quality content for this blog. This also improves the Cashflow. Why should I invest in mutual funds and stocks for capital gains when I have a full control over my Blog Business My Own Asset? This is because the more I invest in my own asset (This Blog), the more cashflow it will generate and thus more richer I will get. Of course, if your business is large enough and you dont want to grow it anymore than definitely go for investing in the mutual funds and assets for capital gains only. Problem with Diversifying your Money This is another most widely distributed financial advise. The advise is, Diversify your money. Well, If Bill Gates had diversified his money than today you and me would not be using Windows. The point is that, Diversifying your money is really an effective financial advise for the Middle class people only. If somebody is a middle class and financially not educated much than Diversification is really a good financial advise for him. This is because according to Warren Buffet, Wide Diversification is only required when the Investor Doesnt Understand what He/She is Doing
But if you know that what you are doing than Diversification is not the financial advise for you. The Basic Difference Between the Rich & Middle Class Investing The basic difference between the Rich & Middle class investing is, The Rich Invest for the Cashflow (& Capital Gains both) While the Middle class Invest only for the Capital Gains (Buy, Hold & Pray). Investing for Capital Gains is a form of gambling. This is because here you will have to depend on the price of the asset going up. When you invest for the Capital gains, you dont have any control over your asset except selling it. While Rich Invest for Cashflow means they invest in their own businesses to generate Cashflow or invest in rental properties or any other asset on which they have a more control can can generate passive income from it.
Myth: 9 Retire With Pension Plans Reality: You can not retire with the modern pension plans (Defined Contribution Plans). You will have to build your own retirement corpus by your own One of the commonest Myth about money is, Invest in Pension plans for years and get retire on them. Well, This was the financial advise which was really effective before 1974. But after 1974, you can not retire on the pension plans anymore. What Happened in 1974 with our Pension Plans? Well, in 1974, The US Government has changed Defined Benefit Pension plans into Defined Contribution Pension Plans. And after that the entire world has also changed this rule. So now most of the countries of this world have defined contribution Pension Plans. This small change in the rule has changed the pension plans and the entire concept of the pension. Defined Benefit Pension plans means you work whole of your life for the government or a company and for your entire life hard work, you will get a definite paycheck for the rest of your life. So Defined Benefit Pension plans were the real pension plans. But Define Contribution Pension plans means what you will get after your retirement is, all what you put in the pension plans for your entire working life. This means that, to become retire and financially free, you will have to pay some amount of money every month or a year in the pension plans for 10, 15 or 25 years. These pension plans divert your this money towards the stock market and make capital gains and build the retirement corpus for you. And after your retirement, you will get your own invested money and nothing more than that.
So What is the problem with Defined Contribution Pension Plans? Well, The main problem with the Defined Contribution pension plans is, they divert your money towards the stock market to generate capital gains for you. Now, This is really risky for the people. This is because the main object of the defined benefit pension plans was to provide safety and security after the retirement. And thats why these pension plans should be risk free. But now, the problem is that these pension plans are no longer the defined benefit pension plans but they are now the defined contribution pension plans. So they diver your money towards the stock markets to generate high returns. The problem with such kind of investing is that, what if during the time of your retirement, the stock market crashes? Well, This is not just the prediction or fear. But this really has happened in USA in 2008. Because of the US Recession and market crash in 2008, literally trillions of dollars of wealth of pension plans have been shrink and thats why today the baby boomer generation is in trouble. The baby boomer generation had dream about financially peaceful
retirement but now many baby boomers are saying that is the market wont recover in few years than they will have to keep working for the rest of their lives to meet the ends. So The Modern pension plans are nothing but the machines to divert the money of large number of small investors to the stock markets. Today, No Investment is a SAFE Investment in this world. Even if you plan to stay away from the stock market, virtually all the financial products have equity component in it. So virtually all the financial products will divert your money towards the stock market which is really a risky thing.
Thus, this is a time to become financially literate. The Rich teach their kids the basics of financial statements and the meaning of the words, Assets, Liabilities, Cashflow and active-passive income. They teach their kids the importance of growing their Asset column of the financial statement so that they dont have to depend on anyone after their retirement. Moral: This is the time to become financially literate and start doing your own investments by yourself. Learn the basic financial education and develop the skill of investing your money. Rather than depending on the pension plans and mutual funds to build your retirement, it is better to develop your own businesses and cashflow assets on which you have full control. So even after your retirement, you will still continue making money from your businesses and cashflow assets. The key of successful retirement is, you start building your own cashflow assets portfolio (Businesses, Rental Properties, Intellectual Properties, Web Propertiesetc..).
Myth: 10 Capital Gains Versus Cashflow Reality: Middle class invest for the Capital Gains While the Rich invest for Cashflow and Capital Gains Both There are basically two forms of Investing. 01) Investing for Capital Gains 02) Investing for Cashflow (& Capital Gains Both) Unfortunately, most of the people in this world know only one form of Investing and that is Investing for Capital gains. In fact, all the financial products available in the market (Mutual funds, Stocks, Pension plans, ULIPs, Child future plans, Retirement plansetc..) are the Capital Gains products only.
Diagram: 44 - Difference Between Rich & Middle Class Investing
Remember that, Middle class invest for the Capital Gains while the Rich Invest for Cashflow and Capital gains both. First of all let us understand what it means by investing for capital gains and cashflow and then we will discuss why rich invest for cashflow rather than only for capital gains? What is Investing for Capital Gains? Well, in very simple language, investing for capital gains means investing for the price of asset going up. This means that you are investing in some asset hoping that the price of that asset will go up in the future. Say for Example, Investing in Stocks, Gold, Mutual Funds, Pension plans, ULIPs, retirement plansetc.. Almost all the paper assets are the investing for the capital gains. And all the employees and self-employees of the world invest mainly in the paper assets for the capital gains. Say for Example, you invest in stocks at lower price or when the market is down and stay invested in it for a long time horizon hoping that the price of the stock will go up and when you will sell it in the future, you will have a huge capital gains. In fact, today most of the people in our world invest for the capital gains only and this is really a risky thing. Its basically a kind of gambling. What is Investing for Cashflow? Investing for the Cashflow means you are buying some assets not because you think that the price of that asset will go up. But you are buying that asset because of its cashflow. Here basically you are buying a passive income stream. So once you will acquire that asset, your passive income and cashflow will improve ultimately.
This is a smart form of investing and rich invest for cashflow and capital gains both. Say for Example Rental Properties. You buy a rental property which will not only give you the regular rental income but also appreciate in its price (Capital gains). Another Example is Business. When you invest your money to start your own business or acquire the already established business, you are investing for the cashflow. This is because you dont have to worry about the valuations of your business. This is because as long as you will own your business, it will give you steady cashflow which can afford your lifestyle as well as other assets also. Why Investing for Capital Gains is Risky? So What is the problem with investing for the capital gains? Well, the only problem with investing for the capital gains is that, you will have only once control over your asset and that is, Selling. You can not do nothing more than selling of your assets to realize the profit when you are investing for the capital gains only. You dont have any other kind of control over that asset. Say for Example, when you buy shares of Reliance Industries (RIL), you are basically investing for the capital gains means you are hoping that the fundamentals of the company are strong so the price of this stock should go up in the future and thats why you put a bet on this stock. You risk your money on the stock. But What is the price of the stock you buy will go down in the future? Well, in that case you will end up losing your money no matter how valuable and profitable Reliance Industries is. Rich avoid this form of investing. Basically rich always invest for the cashflow and capital gains both.
Believe me, Investing for the capital gains is really risky and some day you will lose all of your wealth in such kind of investing and become financially poor in the single shot. Gold is the Investing for Capital Gains Risky Investment Today many people around the world (Mainly in India) are diverted towards investing in the gold. This is because since 2003, the price of the gold has been appreciated very well. And thats why many people are liquidating their other investments to only invest in gold. Now, this is really an extreme form of investing. This is because when you invest in gold, you are basically invest for the capital gains. All the people are investing in gold because they hope that the gold price can go only in the one direction and that is up. But well, this is not the truth. The truth is that, the price of any asset can go in any direction Up & Down. But unfortunately, middle class people think that the price of the asset can go only up. And this is the reason why most of the middle class people in India invest in gold hoping that all of them will become very rich one day when the gold price will doubled, tripled or quadrupled. Unfortunately, Gold is not the investment for cashflow. It doesnt provide you any cashflow. And thats why Gold is not the preferred asset class of the rich people. Today, all the rich people invest mainly in 2 assets. 01) Business 02) Real Estate Almost 99.99% of Worlds rich people own some kind of Business on which they have a management control. Business continues to be the preferred asset class of the rich. This is because your business can provide you a cashflow on which you can live. The Gold of course can provide you capital gains but never give you a cashflow. And thats why this form of investing is really risky.
If you already have one or more cashflow assets like Businesses, Intellectual properties and Real Estate (Rental properties) than it is alright if you buy gold from the passive income of your cashflow assets. But buying a gold (Non Cashflow producing, Capital Gain Asset) from your hard earned money than its surely a fools plan. Why Rich Invest for Cashflow? - Advantages of Investing for Cashflow Rich always invest for the Cashflow. They always analyze that how much cashflow particular asset will generate for them once they will acquire that asset. This is really a smart financial move. This is because when you invest for the cashflow, you dont have to worry about the daily ups and downs of the price/valuation of that asset. This is because even if the price of that asset will go down, you will still have cashflow income from that asset (Passive Income) which you can enjoy or use to acquire more assets. Say for Example, Rental Properties. Once you acquire the rental property, you wont have to worry about the price of that rental property. Even if the price of the real estate crashes because of the real estate bubble burst, you will still have a passive income from your real estate. When you own some business, you have several controls over your business such as, 01) Control over the management team 02) Control over the Cashflow 03) Control over the Income 04) Control over the Expenses 05) Control over the Assets
Thus, even if the price of your business goes down, you will still make money from other controls. Say for example, Mukesh Ambani, the Chairman of Reliance Industries (RIL) will still make money from RIL even if the stock price of the RIL goes down by 50%. This is because he has a control over management team, cashflow, income, expenses and the assets of the company. But suppose, if you buy the stocks of Reliance Industries and the price of the stock will go down by 50% than you will simply lose 50% of your wealth and nothing else. This is because you have invested for the capital gains which is nothing but a form of gambling. Flippers are Losers Flipping means buying low and selling high. And a flipper is a person who flips assets for making profit. There are basically 3 common types of flippers in the world. 01) Real Estate Flippers 02) Stock Flippers 03) Website & Domain Flippers Real Estate flipper buy a real estate property at low price, modify and fix it and later on sell it to a new buyer for huge profits after holding it for 6 months to a year. Stock flippers buy stocks at low price and sell at higher price. Website flippers develop a website out of scratch or acquire the already established website, work hard on it to grow a web traffic and revenue of that website and later on sell it to a new buyer for a huge profit. Initially these kind of money making opportunities look cool. But these are very risky things. This is because here you are investing your money for the capital gains. And thats why one day you will lose your entire wealth in flipping.
Of course, rich never afraid of taking calculated risks. But taking such kind of risk is literally an insanity. Playing with capital gains is a gambling. And the thing is that, flippers call themselves a business owner but in reality flipping is not a business but its your profession. This is because here you dont accumulate assets and grow your asset column. But here you just trade assets to generate income. And thats why the day you will stop doing flipping, you will stop making money. While rich are those who acquire cashflow assets. Rich accumulate assets. Basically they dont just sell their assets when the price of their assets goes up. And this is the main difference between the rich and the flippers. Moral: Rich want more control over their investments. And thats why they invest for Cashflow. This is because if you have a control over the cashflow of any asset, you will feel more secure and comfortable with your that investment. The reason why middle class people dont feel secure and comfortable with their investments is because they only invest for the capital gains. If you only invest for the capital gains, one day you will lose all of your money. So Think like rich and always invest for the Cashflow and Capital Gains both.

My Journey To Billionaire Club

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My Journey To Billionaire Club

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MyJourneyToBillionaireClub.

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Lesson: 1 Financial Statement Basics

Diagram: 8 Middle Class Work Hard for Active Income

Diagram: 9 Rich Work Hard for Passive Income

Diagram: 11 Middle Class Afford Liabilities from Active Income

Diagram: 15 Good Debt

Diagram: 17 Cashflow Pattern of Asset

Diagram: 30 Akshay owns his Restaurant building in his own name.

Diagram: 35 Rich Make Their Money Work For Them (Investments)

Diagram: 51 Good Versus Bad Debt

Diagram: 44 - Difference Between Rich & Middle Class Investing

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