Anyone trying to be rich knows nothing about personal finance
Investors pour their money into assets for various reasons: saving up for a house, planning for retirement, or preparing for an expensive getaway.
However, one goal popular among many investors is quite toxic and can lead to significant losses. The Goal: Get Rich.
Everyone wants enough money where it no longer worries them. They can comfortably afford their lifestyle and have a little extra too.
The goal of getting rich creates a vague, perceived image of wealth.
If you look up the definition of rich on Google, here’s what comes up:
“Having a great deal of money or assets; wealthy”
These two definitions boil down to possessing a large surplus of money. Most investors don’t start off rich. They work for their money and invest what they can after paying off expenses.
Given the slow-and-steady nature of most investors, many people leaning towards the vague goal of accumulating riches gravitate towards riskier strategies. These people buy options that expire in a few days and take on margin.
These investments produce life-changing results either way. You can see your investment quickly multiply or dwindle precariously close to $0. Many of these investors succumb to greed, and no dollar amount is ever enough. This mentality eventually leads to humbling losses.
Review Your Numbers
Striving to get rich ignores critical details around personal finance. Rather than aim for ‘rich,’ aim for a number. What type of life do you want for yourself? Are you already living it? If not, how can you close the gap, and is the gap worth closing?
Any lifestyle costs money, but what does your lifestyle cost? The moment you identify your monthly expenses, you get significantly closer to financial freedom. Upon a closer review, you may decide to cut back on some expenses that aren’t worth the money.
Cutting back on expenses in a healthy way doesn’t involve downgrading your lifestyle. It’s an upgrade because you get to focus on what matters. Minimalists believe in a “less is more” philosophy. Lowering their cost of living lowers the amount of money they need to retire.
When people don’t know costs, they tend to over exaggerate. People believe they need far more than what they actually need. This common trap leads investors towards riskier assets that can quickly soar or crater.
Crunching the numbers and setting realistic expectations allows you to avoid the over-exaggeration trap. It’s possible to find affordable choices that increase your standard of living.
Generate Cash Flow
Investing is the path to wealth, but cash flow is the path to financial independence. Cash flow covers some ground when your income lags, and building up your cash flow gives you greater flexibility.
Cash flow can cover enough of your expenses where you consider taking an extra day off each week or shifting to a part-time job. It takes several years to reach this possibility, but if cash flow remains your focal point, you will reach this dream sooner.
Focusing on the long-term nature of investing makes you less prone to high-risk investments. Warren Buffett once said that the stock market is a device for transferring money from the impatient to the patient. Wait, play the long game, and build up your cash flow.
It’s not a get-rich-quick strategy, and it’s not even a get-rich strategy. A cash flow-oriented approach places cost of living as the main focus. The goal is to live comfortably rather than luxuriously.
Pursuing a luxurious lifestyle without a luxurious income brings forth greedy investing and overspending. Identify the essentials, your few wants, and ignore the rest.
Getting rich is the wrong goal. Define your version of a comfortable lifestyle and strive towards that with your investments.
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