7 rules of capital formation

Folks, have you ever wondered why some people are wealthy and others are not? How can you get into this situation? How can you change your life so you can have all the things you ever wanted? A few very simple yet proven strategies will put you on the path to financial freedom and true wealth. Read these 7 rules of building wealth.

1. Develop a “wealthy” mindset

Without a doubt, the most important factor that determines whether you will get rich or not is the way you think. True wealth and abundance come from a prosperous psychology. You must eliminate any disempowering beliefs you hold about yourself or money. Buy a copy of Napoleon Hill’s Think and Grow Rich if you want to understand how thinking makes you rich (or not!). Whatever you think about, you bring about the law of attraction, for example.

2. Spend less than you earn and invest the rest wisely.

The average person spends 105% of their income, meaning they are in debt. Debt is only good if it is used to build wealth. That’s a good debt! You need to have a spending plan for your life to make sure you only spend what you have and then save and/or invest what’s left. It is recommended that you save at least 10% of your income. When investing, only seek advice from someone who is as wealthy as you want to be.

3. Learn the language and mechanics of money

Making money and getting rich can be a bit like learning a foreign language. There are many terms like: assets, liabilities, liquidity, net worth, leverage, leverage, etc. and you need to know what they mean to become a good investor. The mechanisms (tools, strategies, investment instruments, etc.) must also be learned so that you can competently put them into practice.

4. Pay off your debt…quickly!

You can literally get rich by getting rid of debt! Start by paying off the loan with the highest interest rate first. It could very well be your credit card debt. Then start the debt at the next higher interest rate. Do this by setting a payment schedule month-to-month until that debt is gone. If you think you don’t have enough left over from your monthly paycheck to start paying off that debt…think again. Anyone can buy one less capuchino each day, make a sandwich for lunch, walk instead of catching a cab, etc. Simple things, but it makes a difference to your net position at the end of each month.

5. Acquire assets

There are two ways to increase your net worth… 1. Reduce your liabilities (debt) which we talked about in Rule 4. The second way is to increase your equity (wealth). There are essentially 3 types of assets: paper assets (stocks, bonds, annuities, etc.); Real estate (residential, commercial, development) & companies (founding, buying, renting). It is imperative that you learn about investing in these asset classes in order to build wealth. Work within your own limits. Only acquire assets you can afford, or learn how to manage other people’s money (see Rule 7).

6. Know the power of compounding

Did you know that if you started investing just $5,000 per year at an average return of 7% starting at age 25, you would be a millionaire by age 65. Okay, many of you want to be millionaires when you’re younger, but it illustrates the point. It’s important that you decide on an absolute dollar amount that you’re going to invest each month, no matter what, and stick to it to see your wealth grow through compounding.

7. Use other people’s money, other people’s time

I don’t know how many times I’ve heard people say, “I don’t have the money for this”. Listen, nobody does. But saying so is a nice excuse that allows you to stay in your comfort zone. The solution to any problem is always outside of your comfort zone. One of the keys to getting out of the rat race and creating financial independence is to know the secret to using other people’s time (OPT) and other people’s money (OPM). The ability to collect and use OPM and OPT is critical to gaining the financial freedom you desire.