The Top 7 Myths About Wealth
Myth #1 You Can Save Your Way to Wealth
Most financial gurus tout savings as a sure path to wealth. They encourage you to rely on the stock market in building your wealth.
Do you want to invest your hard-earned money and energy in something you cannot control? I don’t. You can gamble off some of your retirement funds in the stock market. However, putting it all in 401(k)s and IRAs makes very little sense.
I am neither encouraging you to spend all your money nor to put it in a traditional savings vehicle. You do need to have some cash for emergencies.
However, the wealthy never think in terms of cash. The wealthy think in terms of cashflow producing assets.
Currencies devalues overtime and you lose your purchasing power when you hold your wealth in cash. That is why the cash is king belief has earned a spot on our top 7 list.
Myth #2 Investing in a 401(k) Will Make You Wealthy
You cannot build wealth if you have no control over your investments. The stock market represents such an investment where you have no impact on returns. Once you put your money in a 401(k), you leave your wealth to chance.
Furthermore, 401(k) fund manager fees compound overtime and take a decent chunk out of your wealth.
People have been publicly debating whether 401(k) is a scam. After all, a multi-level pyramid has been a business model in many industries. The multi-level pyramid predicates final gains of the top participants on future contributions of new participants.
You ultimately choose what works for you. All in all, a 401(k) plan will not create wealth overtime.
Myth #3 Taking Advice about Wealth Building From A Financial Advisor
Taking advice on a subject from a person who has never succeeded in it makes absolutely no sense. Remember, The Richest Man in Babylon?
If you want to build wealth, find someone who has done it and follow what they have done.
This piece of advice stands true today as it was true almost a hundred years ago.
If you are following advice of a financial advisor on how to build wealth, you are asking for trouble. A person who makes her living from a job has never built wealth. Therefore, she cannot map out a successful path to wealth for you.
Myth #4 Your House is an Asset
The house you live in sucks money out of your pocket.
Your house is not an asset by definition.
An asset is supposed to produce income.Your house doesn’t. The house you live in takes money out of your pocket. You waste precious energy and time to maintain it. You could use that energy to build a business, an asset that will put money in your pocket.
Moreover, when you buy a house with a 30-year mortgage you triple the price of the house overtime due to the interest, property taxes and maintenance.
Myth #5 Cash is King
To understand why cash is not king, you must understand the currency cycles, purchasing power and inflation.
Myth #6 Debt is Bad
Leverage gives an opportunity to buy assets you wouldn’t have afforded otherwise. Not all debt is created equal.
You buy real estate with leverage at 2% and rent it out for an annual return of 6%. Suddenly, debt make sense as an asset building tool.
Myth #7 A Good Job Can Make You Wealthy
Let’s be clear: a job is not a source of wealth.
Wealth is derived from the amount of value you create for others and the number of problems you can solve for them.
The difference in the mindset of the middle class and the wealthy lies in the fact that the middle class prefers comfort, the wealthy take calculated risks.
The middle class deceives themselves by the security of their jobs. The wealthy take risks and create jobs.
To build wealth you need an opportunity, not a job.