(Make Money, Don’t Spend Money)
What’s the one thing that can make the difference between increasing your wealth and decreasing it by 10x?
You might think I’m referring to luxurious material possessions. All over social media you see wealthy people who have nice watches, fancy cars like a Lamborghini or a Bentley, luxurious hotels and mansions–the list goes on.
We see all of these extravagant possessions that rich people have, but these possessions don’t reflect how they got to where they are. To get there, they buy assets, not liabilities. If you want to increase your wealth, you must do two critical things, starting with buying income-producing assets.
Watch this video on how to buy assets, not liabilities.
Buy Income-Producing Assets
You might be wondering what the difference is between assets and liabilities. Let’s start with explaining assets, which appreciate in value and will put money back in your pocket. An income-producing asset could be a piece of real estate, a company, or stock.
Liabilities do the opposite – they take money from your pocket. An example of a liability is your car, no matter if you lease it or buy it. Because even if you sell your car, you will never get back the same amount that you paid for it.
In his book Rich Dad Poor Dad, Robert Kiyosaki explains that an asset is something that you can profit from. It can make you money while you sleep. Many people think that their primary residence is an asset. But this is a common mistake.
Your primary home is a liability. Your home will eat away at your money while you sleep. Each month, you give away money in mortgage payments. People who are drowning in debt have similar financial statements. They have a lot of liabilities and zero assets. For example, the average mortgage debt per borrower in the USA in 2018 was $200,935.
Rich people buy assets first because the profit from those assets pays for our luxuries. Here’s a perfect example of their mentality: instead of wondering if they can afford something, rich people wonder how something can make them money.
When I wanted to buy a Bentley, I first bought an asset (a piece of real estate) that would generate enough cash flow to cover my monthly payment of my Bentley. Instead of buying the liability (the Bentley) I had to buy an asset first.
This way, instead of paying for my Bentley myself, out of pocket, I have my asset paying for my Bentley. Our assets are investments, and that’s the key. For example, if you own rental property, then your asset is your rental property because you receive rental payments every month.
Rich people are entrepreneurs who invest. If you’re a business owner, make some money from your business first, before you buy more things for your business. Put some of the money you make from your business into investments.
If you’ve watched my Wealth Triangle video, you know that there are three things that make up the wealth triangle: high-income skills, a scalable business, and high-return investments.
Now, there’s one more thing that the affluent buy besides assets. They know the value of their time, and they see it as something with monetary value.
Buy Time, Don’t Sell Time
People who struggle financially are usually employees who sell their time. They get paid based on how many hours they work, and their mentality is that it’s the norm to sell their time.
Rich people buy time because time is the one thing that cannot be replaced. Money is replaceable, customers are replaceable, but time is irreplaceable.
I can always make more money if I have the time. I can make a ton of money if I use my time wisely, but one thing is for sure: I cannot create or manufacture more time.
Time Is A Commodity
Time is a rich person’s most valuable commodity. That’s why wasting my time is worse than stealing money from me.
The reason we pay for people’s help, and pay for their time and talents, is to save us time. For example, I would never hesitate to pay someone to clean my home or mow my lawn, because I know how much time it will save me. This thinking applies to everyone, including CEOs.
I’ll tell you a story: One time, I was visiting a successful CEO of a company that was making about $20 million – $30 million per year on average. I couldn’t believe my eyes when I saw that he was mowing his lawn.
That tells me that this CEO does not value his time. He probably spent about two hours mowing his lawn. Couldn’t he have found a better way to invest his time or utilize his talents? Of course, I gave him a hard time about it.
ROTI Includes Family Time
Rich people think in terms of Return on Investment (ROI) but we also think in terms of our Return on Time Invested (ROTI). If we’re going to spend our valuable time doing something, we want to know what our return will be.
I know that if I spend two hours watching a movie, that movie is costing me much more than the ticket price. That movie is costing me thousands of dollars if not tens of thousands of dollars. I love watching movies, don’t get me wrong, but it’s always going to be an expensive movie.
I end up having to ask myself if that experience – that relaxing escape and time with my family – is worth that kind of money. Most of the time, it is worth the money. I need a break. I’m taking some time off to enjoy a movie with my family. I’m willing to spend the money.
But at least I’m conscious of what it’s costing me, rather than having no concept of what my time off costs me. I don’t have to be making money every hour, and I want to invest time with my family.
When you understand what your time off costs you, and you get the value of time, guess what? You’ll be more in the moment when you take that time off. You’ll make sure you enjoy it.
In other words: Rich people value their time. You have to value your time to be successful.
Bill Gates is a billionaire who books his appointments with people in six minute increments. My mentor books his appointments in 15 minute increments. I’ll book in 15 – 30 minute increments. How you manage your time and how you invest your time is key because it’s the most valuable investment you have.
Final Thoughts On Assets And Liabilities
So when it comes to increasing your wealth, don’t think about the fancy watches or luxury cars. These things don’t matter as much as your assets.
When you have money, don’t buy the luxury car as soon as you can afford it. I know you think that’s what rich people have, so that’s what you want to have. But always remember that rich people buy income-producing assets first. Buy the asset first, then buy the fancy watch later.
If you have an ego and you want to show off that you’ve “made it” by buying those things, you’re simply going to look rich instead of being rich. If you can let go of your ego, have self-control, and buy assets first – that’s when you can become rich.
You can buy those other luxuries later because your assets will pay for it. Your investments will provide for you, feed you, and pay for the luxuries in life.
I didn’t have luxury possessions for the first 10 years of my career as an entrepreneur. For several years, I drove a Mazda and then later an Audi, before I got my Bentley. People will look at where you are today, but they don’t look at where you came from.
And finally, treat time like a commodity. Take the time to relax and spend time with your family, but be very aware of what that time is costing you.
What is your most precious asset? Comment below.