I believe that you can be rich — no matter where you are at financially right now.
But in order to build wealth, you need to think a certain way about money.
Below is a list of what I’m calling 12 money secrets you’ve never heard before (meaning things that you need to know in order to build wealth yourself but that aren’t talked about much).
Growing up, I was taught to go to school, go to college, then go to more college (long story short, that’s how I ended up as a lawyer). The point of going through that much schooling was to ensure a good career where I could support myself and my family (i.e., school leads to job leads to money). But after graduating law school with $206,000 in student loan debt, I discovered that the path I had taken was not set up for building wealth.
Disclaimer: I have yet to make millions, but I’m well on my way to creating more income from blogging! (Read this post to learn how bloggers make money.)
Before you learn how to think about money now, you have to know what you’re already doing that’s wrong…
The Traditional Way of Thinking About Money
The traditional way to think about money is: work hard, get a good education, then you’ll get a good job.
This is what we’re taught by our family and our education system. If you save enough money from working, you’ll be able to retire one day.
Essentially, trade your time for money.
The problem: There’s only so much time in the day. Even if you worked all day and all night, there will always be a cap on your income because there are only so many hours in the day.
Making money by working is only one way to receive income, and it’s known as earned (active) income. But if you want a lot of money, you have to get money another way. Money has to work for you instead of you always working for the money.
The New Way of Thinking About Money
After reading Rich Dad Poor Dad by Robert Kiyosaki, I was introduced to a different way of thinking about money. Since then, I’ve read a lot of books on passive income, wealth creation, and business (read my favorite books here). I’ve learned so much about how to think about money, in a way that is different than “work hard for your money.”
So, here’s my list of 12 money secrets I doubt anyone has talked much about to you.
12 Money secrets no one taught you in school
- It is really hard to get ahead and make a lot of money by relying on one source of active income. (Here’s a list of 45 ways to make extra money if you want to get started with more ways to earn an income!)
- Relying on one source of income means you’re completely dependent on that source for money. It’s better to diversify your sources of income. Or put differently, create multiple streams of income. Read my post about 31 side hustle blog posts to learn more about creating multiple sources of income.
- There are three types of income. If you work and then are paid for that work, what you’re receiving is called “active income”. But if you invest in the market and make money from your investments, that income is called “portfolio income.” Finally, if you have a business or real estate that produces income, that income is called “passive income.” These types of income are all taxed differently (active income is taxed the highest).
- Passive income and portfolio income are the shiz-nit. They’re the best way (in my opinion) to make money and build wealth (because they’re taxed better and not contingent on trading time for money).
- The word “assets” includes: business, real estate, investments, and property. To really be wealthy, you have to have assets. It’s not enough to just make a lot of money. Here’s a look at each asset class…
- Business. A business is an asset. It produces passive income and sometimes active income. I make money from blogging. This is a small business. I actually made $29k from blogging just a side job last year alone. So, if you’re stuck and need to make more money, starting a business, like a blog, may be your answer. I can teach you how to start a blog (it’s super easy, actually).
- Real estate. Real Estate creates cash flow and is considered an asset when you own it as a rental property. Buying a house with a 30 year mortgage for personal use (without any equity in it) is only an asset, to the extent you have equity in your home (i.e. you’ve paid down your mortgage). Be very careful considering your personal residence as an asset. People make this mistake all the time. In general, it’s really meant to be your home, not to produce income as an asset. Read my home-buyers guide for more info on home ownership.
- Investing. When you invest in the stock market and your investments grow, you earn portfolio income. You do this in your retirement accounts (learn how to save for retirement here) and in your own personal investment account. Investing is one of the most common and popular ways to build wealth.
- Property. Owning other types of property is considered owning assets. Examples include cars, jewelry, fine art, etc. Just be careful when you think about accumulating these things. Typically they don’t produce income for your to use until you sell them, and some are even depreciating assets (cars).
- In order to accumulate assets, it’s important to learn a lot about investing, real estate, and business. I recommend the book I Will Teach You To Be Rich by Ramit Sethi as a introduction to investing.
- Building wealth requires a positive net worth. This means your assets are worth more than your liabilities (e.g.: you don’t have credit card debt, student loan debt, etc.). Mortgage debt may be okay, but not too much of it. In general, think about owning things outright when you think about being wealthy. Debt should be minimal. (I can teach you how to to get out of debt here.)
- There’s an important difference between budgeting and net worth. Budgeting looks at your monthly income and expenses (also called your cash flow) — it’s the money coming in during the month. This affects your lifestyle day to day. I can teach you how to budget in The Ultimate Budgeting Guide. However, net worth is different. It measures your assets against your liabilities. It’s a measure of your wealth. You should be tracking your net worth, too. It’s important! (Download my budget and net worth templates to get started tracking both now.)
- We all have a money blueprint. A money blueprint is the beliefs we hold about money from our past (usually how our family talked to us about money growing up). We all have certain views about money and we act accordingly. Even if you think you want to be rich, if you hold negative feelings about rich people, you’ll find it very difficult, if not impossible, to actually build wealth. You just won’t attract the opportunities you need to in order to be wealthy.
- Money is a reflection of you. You, yourself, will attract or repel money and opportunities. If your money is a mess right now, you need to work on yourself before you can work on your money. I have a cool post about 19 ways to become a better person. Start there.
- You are the average of the five people with whom you spend the most time (more on that here). So, if you want to be successful and make money, start hanging out with other people who are successful and know how to make money.
- No one will care about your money as much as you do, so choose professionals carefully. This is why I learn about personal finance. It’s too important not to.
A Final Note!
These 12 money lessons are things I never learned.
Learning about money is the first step toward creating a solid financial foundation. And there are so many ways to do this!
Here are a few ways I recommend:
- Personal Capital (to track your net worth online)
- The Real Life Money Plan (to get your money under control)
- I Will Teach You To Be Rich by Ramit Sethi (an awesome book that explains investing in an easy-to-understand way)
- Budgeting For Budget Haters (to learn how to budget once and for all)
You can also get my weekly emails to help you keep money on your mind. Reading blogs is how I started learning about money, so I highly recommend it.
I have learned so much about money over the last three years and it has undoubtedly changed my life forever! 🙂 Cheers to a better financial life.