Lesson 2: Spending money in the right order
To build a house, it isn’t enough just to have the materials, the tools, and the know-how; you have to build in the right order or the structure will never stand. Imagine a builder who tried to hang a ceiling fan before he finished putting up the walls. When building generational wealth, you must follow the right steps, which involve administering your money in the right way.
Throughout the centuries, the wealthy citizens of the world have followed a simple formula whenever they must spend their money, and this formula has allowed them to protect their wealth and to make it last from one generation to the next. If you can learn to follow it, then you can guarantee your financial success. In what order do the wealthy spend their money?
1) They spend money on more assets first. When the wealthy get their paychecks from their jobs, they first take a chunk of the money and invest it right away. Isn’t that interesting? Instead of investing whatever money they have left over at the end of the month, their first priority is to invest in a cash-producing asset.
2) They spend money on absolute needs second. Then they pay the bills that must be paid (mortgage, medical, groceries, etc.)
3) They spend money on toys last, using money from their investments. Rich people have big houses and nice cars, but their jobs did not pay for them. Truly wealthy people use the cash produced by their assets to buy their houses and cars.
4) They think long-term when spending and never sacrifice assets for luxuries. Everybody likes nice things but the wealthy know how to wait for them. Instead of selling an asset to get a car that may go down in value or to pay for a trip to the Bahamas, the wealthy wait until their assets have generated enough income to pay for these luxuries. Then they just sell the golden egg, knowing that the goose will soon produce another.
Like building a house, building a fortune does not happen overnight. It takes sacrifice and hard work. However, if you use your tools, materials, and knowledge and spend your money in the right order, then you can rest assured knowing that your wealth will last the rest of your lifetime and will take care of your family after you are gone.