I write a lot about the empowerment of wealth. I also speak about how wealth is so much more impactful and well-rounded than being rich. Wealth is a philosophy and a state of being, rather than dollars accumulated. For today, however, let’s talk about wealth’s kid brother, Richie Rich!
These things don’t always have to be mutually exclusive. Quite frankly, being rich is not philosophical; it’s quite tangible. In 10 seconds, I can look at your balance sheet and tell if you’re rich or not. Additionally, being and becoming rich is substantially easier than becoming wealthy, which takes soul searching, hard conversations, digging deep, and constant work. Being rich is by no stretch “easy,” but when comparing the two, it’s certainly the easier route.
There are lots of ways to become rich and truthfully, lots of hacks. Today, however, I’m going to focus on one key piece and answer the age-old question: how do I become rich? Before I get into it, I will use my famous Andrew disclaimer—you don’t have to like this advice, you don’t have to believe in this advice, and certainly, you don’t have to take this advice. That said, I’ve coached and have been witness to thousands of people on their financial journey. I’ve seen more millionaires and multimillionaires than likely anyone you know.
Now, I can’t take credit for this advice. It came from my good friend and mentor, Frank Levy, who founded Diversified over 40 years ago. Now he’s retired and living the good life, but years ago, I used to hear him say a certain phrase over and over again. The phrase has stuck with me ever since, and I’ve seen it play out many times over.
So, what did he say that was so profound? What advice did he give to becoming rich? (Get to it already, Andrew!) Alright, here’s that the little nugget.
“The rich get rich by using other people’s money.”
What? Do explain? You see, this advice is really simple, but yet complex. It takes a different mindset, some real resolve, a true belief, and likely getting out of your comfort zone.
Let’s start with the basics. Can I get a show of hands if you own a home? Now keep those hands up if you used a mortgage to buy that home? Do you still have a mortgage on that home? If so, keep those hands up. Now put your hands down if you have ever overpaid the mortgage, even just a little. Notice most of the hands have gone down. At the simplest level, you learned the lesson of the different mindset of the rich.
You see, the rich believe that they can do more with their dollars than a 3% interest rate, be it investing in themselves, a business, or the stock market. Most of us aren’t born with a silver spoon in our mouths. But the rich understand the benefit of leveraging other people’s money.
Let me bring you into a conversation I have probably five times a week. (It’s possible I’ve even had it with you at some point.)
“Andrew, I just got my bonus and I have $50,000 sitting in my bank account. I need to do something with it.”
“Handsome Client, OK let’s review your finances and figure out what we should do.”
“Alright. I have $15,000 left on my car loan, $4,000 on the HVAC loan, the mortgage has $150,000 left on it, and student loans of $24,000.”
“Handsome Client, what interest rates are they all at?”
“Let’s see, Andrew. My car loan is at 1.99%, HVAC is at 5%, Mortgage is at 3.25%, and student loans are at 5.5%.”
“Andrew, I know what you’re going to say. Invest it you’ll do much better that way.”
Rich Habits Vs. Safe Habits
If this thought process has entered your mind, welcome to the hard decisions between rich habits and “safe” habits. You even know the answer on how to get rich, but still, many of us choose the safe habit. Sometimes it’s security. Or, sometimes it’s religious. Sometimes it’s fear.
Does that make it wrong to pay down those debts? ABSOLUTELY not! That’s the beauty of financial planning; there is no one-size-fits-all. But this isn’t an article about financial planning. This even isn’t an article about wealth. This is an article about getting rich!
Above is one example, but the list goes continues. Do you think business owners buy businesses in all cash? Nope! Do you think Amazon, which has more money than small countries, builds new office buildings or makes acquisitions using all cash? Nope. That’s why they sell bonds.
The reality is simple. The application is the hard part.
Will the markets be higher tomorrow than they are today? 51% chance the answer is yes. How about one year from now? 75% chance the answer is yes. The longer we go, the more likely the answer will be yes. We’ve all seen the studies that the US markets have averaged about 10% a year.
Think about that, if it wasn’t your money and just a math problem. If you were trying to have the most money at the end of 20 years, should you overpay 3%, 4%, or even 5% interest rate or put that money into higher-earning stuff? The question is almost rhetorical, as the answer is glaringly obvious. Yet when we add emotions and other variables into the mix, it certainly muddies the waters.
The difference is the rich mindset.
Their ability to believe in markets, their business ventures, and more. They have an ability to keep swinging when the rest of us would stop or take the less “risky” route.
Our economy was built on the fabric of using other people’s money, like it or not. In theory, the more capital you can access at lower rates and turn that capital into higher ROR, the larger and quicker one’s wealth will accumulate. At the end of the day, it’s simple math.
Now you know one of the many little dirty secrets of the rich way of thinking. I owe this tidbit, and much more, to my man, Frank.
As I stated when I began, there are lots of ways to get rich, and don’t think this is the only means. It’s not right for everyone. What I do know is that the next time you ask the question, should you pay off a low-interest rate or utilize that capital on higher-earning stuff, you are now armed with the mindset behind both.
Alright as always, stay wealthy, stay healthy, stay happy (and possibly rich 😊).