How rich people think and remain rich

what is net worth Rich people focus on their net worth. Poor people focus on their working income. When it comes to money, people in our society typically ask, “How much do you make?” Seldom do you hear the question “What is your net worth?” Few people talk this way, ex-cept of course at the country club. In country clubs, the financial discussion almost always centers around net worth: “Jim just sold his stock options; he’s worth over three million. Paul’s company just went public; he’s worth eight million. Sue just sold her business; she’s now worth twelve million.” At the country club, you’re not going to hear, “Hey, did you hear that Joe got a raise? Yeah, and a two percent cost- of-living allowance to boot?” If you did hear that, you’d know you’re listening to a guest for the day. WEALTH PRINCIPLE: The true measure of wealth is net worth, not working income. The true measure of wealth is net worth, not working income. Always has been, always will be. Net worth is the financial value of everything you own. To determine your net worth, add up the value of everything you own, including your cash and investments such as stocks, bonds, real estate, the current value of your business if you own one, the value of your residence if you own it, and then subtract everything you owe. Net worth is the ultimate measure of wealth because, if necessary, what you own can eventually be liquidated into cash. Rich people understand the huge distinction between working income and net worth. Working income is important, but it is only one of the four factors that determine your net worth. The four net worth factors are: 1. Income 2. Savings 3. Investments 4. Simplification Rich people understand that building a high net worth is an equation that contains all four elements. Because all of these factors are essential, let’s examine each one. Income comes in two forms: working income and passive income. Working income is the money earned from active work. This includes a paycheck from a day- to-day job, or for an entrepreneur, the profits or income taken from a business. Working income requires that you are investing your own time and labor to earn money. Working income is important because, without it, it is almost impossible to address the other three net worth factors. Working income is how we fill up our financial “funnel,” so to speak. All things being equal, the more working income you earn, the more you can save and invest. Although working income is critical, again it is only valuable as a part of the entire net worth equation. Unfortunately, poor and many middle-class people focus exclusively on working income, out of the four factors. Con-sequently, they end up with a low or no net worth. Passive income is money earned without you actively working. We will discuss passive income in greater detail a little later, but for now, consider it another stream of income filling up the funnel, which can then be used for spending, saving, and investing. Savings is also imperative. You can earn wads of money. But if you don’t keep any of it, you will never create wealth. Many people have a financial blueprint that is wired for spending. Whatever money they have, they spend. They choose immediate gratification over long- term balance. Spenders have three mottoes. Their first motto is “It’s only money.” Therefore, money is something they don’t have much of. Their second motto is “What goes around, comes around.” At least they hope so, because their third motto is “Sorry, I can’t right now. I’m broke.” Without creating income to fill the funnel and savings to keep it there, it is impossible to address the next net worth factor. Once you’ve begun saving a decent portion of your income, then you can move to the next stage and make your money grow through investing. Generally, the better you are at investing, the faster your money will grow and generate a greater net worth. Rich people take the time and energy to learn about investing and investments. They pride themselves on being excellent investors or at least hiring excellent investors to invest for them. Poor people think investing is only for rich people, so they never learn about it and stay broke. Again, every part of the equation is important. Our fourth net worth factor may well be the “dark horse” of the bunch, because few people recognize its importance in creating wealth. This is the factor of “simplification.” It goes hand in hand with saving money, whereby you consciously create a lifestyle in which you need less money to live on. By decreasing your cost of living, you increase your savings and the amount of funds available for investing. To illustrate the power of simplification, here’s the story of one of our Millionaire Mind participants. When Sue was only twenty-three, she made a wise choice: she purchased a home. She paid just under $300,000 at the time. Seven years later, in a sizzling hot market, Sue sold her home for over $600,000, meaning she profited over $300,000. She considered buying a new home, but after attending the Millionaire Mind Intensive Seminar, she recognized that if she invested her money in a secure second mortgage at 10 percent interest and simplified her lifestyle, she could actually be quite comfortable living on the earnings from her investments and not have to work ever again. Instead of purchasing a new home, she moved in with her sister. Now, at thirty years of age, Sue is financially free. She won her independence not through earning a ton of money, but by consciously scaling back her personal overhead. Yes, she still works—because she enjoys it—but she doesn’t have to. In fact, she only works six months of the year. The rest of the time she spends in Fiji, first because she loves it, and second, she says, her money goes even further there. Because she lives with the locals rather than the tourists, she doesn’t spend a lot. How many people do you know who would love to spend six months of each year living on a tropical island, never having to work again, at the ripe old age of thirty? How about forty? Fifty? Sixty? Ever? It’s all because Sue created a simple lifestyle and, consequently, doesn’t need a fortune to live on.