Edit: I just wanted to add one of the biggest secrets that people tend to not realize. The biggest secret to wealth is a desire to learn. The biggest difference between wealthy and unwealthy, is that the wealthy sought information to learn how to become wealthy. So congrats for asking this question, and seeking these answers. That's the first secret to wealth…and one 95% of people ignore.
The greatest secret of wealth comes from The Richest Man in Babylon:
“A portion of that which I earn, I get to keep for myself.”
Few understand this. We've all heard the save 10% of your income line…but few understand what it truly means.
I hear the critics already: “what if I can't afford to put away 10%? Then how will you ever afford to pay for your debts? If I can't afford my bills or savings, I still pay my savings first! That is the key of wealth. The only way out of the rat race is to build your own wealth…and that is the most important place to put your money. Pay. Yourself. First!
If you put away 10% of that which you earn first and foremost, then you will become wealthy, period. For every dollar that is earned by this, will in turn go back in and earn more dollars. The key is to leverage this 10% in order to earn. The key is true investing…and that brings me to another secret:
Income is taxed, wealth is not.
Understanding this will truly yield great results.
The average person lives in an income, which is taxed, in order to spend money, which is taxed, on accumulating possessions that get taxed (estate taxes). The average person's solution to paying off the debt their accumulation of possessions and living requirements cost, is to get a raise and earn more, thus paying more tax. It's a positive feedback loop from hell. One that is only escaped by understanding that income is taxed, and wealth is not.
If one invests their income, they can divert taxes. This can be done through investment portfolios, real estate investing, starting a business, or investing into other businesses. Starting your own, and real estate have great potential through accumulating wealth instead of income. By purchasing loans for either, you can write off this debt from your taxable income, and then collect rent from the property, or revenue from the business. This cash flow then pays off expenses prior to tax. If you incorporate, even better.
While the average person says I want to own a Mercedes, so they work hard to earn the income, pay more in tax, then buy the car with what's left over (including more sales tax), usually by taking out a loan, that they then pay interest on. Meanwhile the wealthy allow their own business corporation to buy the car, write it off as a taxable business expense (including the tax and interest on the loan), then pay tax on the revenue left over. In other words, while average people are busy trying to work harder to own more, the financially intelligent are working hard to own less, so they can control more.
The key lessons to learn:
- Take out loans and acquire debt for assets that others pay for (by property rent, or goods and services sales).
- Leverage other people's money through 1. In order to generate revenue.
- Acquire goods and services through your business, and then pay taxes on what's left.
- Know your time's worth. Don't spend time doing things you could pay less to have done for you. You can always write off that payment as a business expense as well.
- Don't fixate on aquiring possessions. Focus instead on aquiring residual cash flow that pays for the shiny things you like.
- Forget everything you know about work/life balance. The truly successful have no time for balance. They are too focused on abundance. Don't settle for balancing work and family, etc. I don't want a balanced love life, I want an abundant love life. I don't want a balanced family life, I want an abundant family life. I don't want balance in work, I want abundance. Enjoy what you do. If you don't, why do it? Do it only to achieve the end state of doing what you want, and that means finding ways to build the cash flow that allows it.