The secret to becoming rich

What do we mean when we say RICH?

Being rich can be defined in many ways. My personal definition of rich is being financially free. By this I mean your income covers your expenses and having very little liabilities. The poor and the middle class think that they are acquiring assets, however they are in reality acquiring liabilities because they don’t understand the fundamental differences in liabilities and assets. A liability is something where you rely on another source of income to keep it. For example a loan on a car. This is a liability because it does not generate an income of its own and you personally do not own 100% of the car, the company that lent you the money to buy the car owns a share of the car as well. Because the car does not generate an income you have to pay back the loan using another income source. Hence if you are made redundant you can no longer pay for the loan on the car and would have to sell the car. An example of an asset would be a buy-to-let property because it generates its own income which pays for the mortgage on the property. A benefit of buying buy-to-let property is that it generally appreciates in value over time and you can use leverage to buy the property. Leverage is essentially a loan where you can magnify the amount of money you started out with over time. E.g. if you start with £30,000 for a 30% deposit on a £100,000 property you are leveraging that money just over 3 times the original amount and by the end of the mortgage period you will own 100% of the property. Over a standard 25 year mortgage period each payment will pay off a portion of the interest and a percentage of the loan amount. Over the 25 year period you will eventually pay off 100% of the loan and own the property outright and the rental income will pay for the mortgage as you go. Therefore the asset pays for itself and if you are made redundant the mortgage is still paid for and of course you could always sell the property if needs be. Once the 25 year period is over you will not own 100% of a £100,000 property you will in actually fact own 100% of a property worth approximately £250,000 or more because of the general increase in the price of property over the 25 year period.

Small business ideas - http://ben-smallbusinessideas.blogspot.com/

Don’t rely on 1 source of income

Most rich people have many forms of income. They will have 1 main source of income and many other supporting forms of income. Their main source of income will be their full time job. (Which could be anything!) Supporting forms of income are not having second jobs etc…They are usually dividends from investments in stocks and shares or excess rental income from buy-to-let properties. There will be more on alternate sources of income later in this blog. Relying on only one source of income means that if you lose your job then you have no means of paying your monthly expenses and could lead to you building up debt and therefore increasing your liabilities. By having an alternate source of income (a passive income) that you don’t need to spend much time looking after to generate an income you are reducing the risk of becoming financially insecure. A buy-to-let property takes very little input from you once the initial money has been invested because letting agents will take care of everything from finding tenants to collecting the rent. Property is a relatively safe investment compared to investing in stocks and shares because in general prices of property rise. If you look at a graph showing the change in property prices over a period of time you will see that apart from some anomalies year on year prices will rise. On the other hand investing in stocks and shares is more risky. There are many ways in which you can invest in stocks and shares, you could day trade, invest in shares for long term rises in share price or spread bet. Investing in shares for the long term % increases in share price is possibly the most stress free method of trading. You don’t need to be watching the price of the shares all of the time because you aren’t selling your shares in the term. You still need to watch the price of the shares, if the price of the shares that you have invested in is falling rapidly you will need to sell and buy different shares that you expect to rise over a period of time.

Only take calculated risks

If you want to start making money, I would highly reccomend Peter Lynch , Learn To Earn. It takes you right back to the basics of money and investing. It really teaches you the fundemendtals that you must have if you want to start increasing your earnings. On the left hand side of the page there is a link to buy the book.

When investing in anything don’t just assume that a bigger risk means a bigger potential return. Only take calculated risks that you are confident of the outcome and if the investment doesn’t go to plan you don’t want to leave yourself in financial problems. However don’t only invest in guaranteed investments because these usually don’t bring such a large return. When investing you will have to take risks to get a good return on your initial investment, however you must do the calculations to ensure you know the exact amount of money you could potentially lose and if you can afford to lose it. Don’t be put off by the thought of losing money but only risk what you can afford to risk! If you invest sensibly you can potentially earn a lot of money and even retire to live off your investments.

You don’t have to have your own business to be rich

To become rich you don’t have to be business minded. As long as you are smart with your money, you can do very little physical work and earn high returns. Relying on investments only as a source of income can be done but you will have to make what money you already have work hard for you. Owning your own business is a full time job itself and can be very stressful however if you are willing to sacrifice extra stress to be your own boss and have a better chance of financial freedom then perhaps starting a business of your own is for you. One thing you must remember when starting your own business is that only 1 in 4 new start-ups succeed. If your business does not succeed then you must also remember that you could be in further debt and a worsened financial position. Make sure you research into your business idea and make sure you research into how to start up and run a successful business before you do anything!

Ways to make money

Other than your job here are some of the many ways of making money and a brief description of each. I strongly suggest that you research further into each of these that interest you. Some of these are big earners and some are just small earners but remember that it all adds up! Trying a few of the smaller earners together could work out a better use of your time and a better earner than trying only one of the bigger earners that you need to spend hours a day on.

Product testing. There are loads of companies that need products testing before they put them into full production and sell them on the open market. Companies will send you a product to test or review and pay you to do so. Some will even let you keep the product you are testing.
Starting your own business. You can find ideas for small business start-ups that that very little cash outlay to start up and become profitable in my blog on small business ideas
Invest in precious metals. Rather like investing in stocks and shares you can invest your money in precious metals e.g. gold, silver and platinum. Gold is quite similar to property in the fact that it has it ups and downs but in the long run prices generally rise. Precious metals can be bought in many forms, you can get coins, bullion and even buy used jewelry that you could either sell as it is to a merchant or melt it down yourself and cash it into bars etc…
If you have a reasonable amount of money to invest you can invest in businesses that someone else has already started and cannot get their own finance to expand. By investing your money for a share of their business. An example could be a manufacturing business that needs money to expand to buy new machinery so you invest the £20,000 needed to buy the new machinery for a share of their business e.g. 10%. From the example we can assume that this would mean the business at present is worth £200.000. The business may already pay dividends but if it doesn’t you could always make a deal with the other shareholders to start paying dividends which would be another source of income. If they don’t and won’t pay dividends then you will have to rely on the business increasing in its value over time. When the value of the business has increased in value enough for you to take your money out you could either sell your percentage of the business back to the shareholders for what it is now worth or you could sell your shares to an outsider, this would need the approval of all of the other shareholders. Let’s return to our previous example. If the business at the start of your investment was worth £200,000 and you owned 10% of that with your £20,000 investment. Assuming that the business used that investment wisely to expand and increased in value to lets say £500,000 over a period of 2 years. Then your 10% share would now be worth £50,000 which is a 150% increase in value from your initial investment over a 2 year period. This example would be an extremely good return and would rely on the main shareholders having sound business knowledge to using your investment well. You must remember when investing in businesses that they are very high risk and many of them don’t actually succeed. If you are contemplating investing in a business then it may be bet for you to get as much information as possible about a few businesses asking for money and watch what happens to them when someone else invests in that business. By tracking what businesses tend to do well and what factors lead to successful businesses you can get a feel for what to look for in an opportunity before you put any of your hard earned money into a high risk business. Remember the business you invest in is under no obligation to pay you your initial investment back because your shares are only worth what someone will pay for them which could be less than you paid for them!
Investing in stocks and shares. As mentioned earlier in the blog investing in stocks and shares can be a highly lucrative if you are smart with your investments. There are many ways of inventing in stocks and shares which I would advise you research which best suits your wants before running in head first and wasting your money. If you aren’t sure about whether to invest in stocks and shares because you don’t want to lose your money then either start with only small investments or use a fund manager. Fund managers will invest your money for you and they will take a cut of the increase in value. Once again there is no guarantee that your investment will appreciate in value and there is no guarantee that you will get your initial investment back. For the ones of you that won’t take risks for the best return possible some fund management companies will guarantee to at least pay back your initial investment. They will however want a larger percentage of the increase in value and therefore you won’t get the most out of your money.
Investing in buy-to-let properties. As mentioned previously in this blog investing in property is quite a safe option for investment. However it takes quite large investments of money and not everyone can do this at the start of their investing. Many very rich individuals invest large amount of money in property and create very large portfolios over time that roughly doubles every 10 or so years.
Selling unwanted items lying around the house. You could choose to advertise these in local magazines, online auctions and in shop windows etc…personally I would recommend putting advertisements in as many places as possible to increase your chances of selling and to help you get the best price for your items.
Buy a business franchise. You can buy a business franchise which is a branch of an already established business that you would own yourself and employ the staff yourself. You can rely on the business to do all of the advertising for you and promotions. You won’t be as free as you would if you started your own business and had no one to answer to but it is a more secure investment because the business model has already been tried and has been proven to work.
If you’re good with computers you can earn money for doing free-lance work for businesses e.g. designing web pages or logos. Companies will pay good money for individuals to do free-lance work because it will probably be cheaper for them to use an individual rather than another company.
Even if you’re not that good on computers you can make money for free lance work. You could offer to do typing for a business; you can work from home and send the files between emails. Ideas for this type of work could be doing engineering drawings for manufacturing companies, architectural work, creating power point presentations and even just plain word document typing. As mentioned previously this can work out much cheaper for businesses because they may not be big enough to be able to pay for a full time employee or it may just work out cheaper for them to use individuals.

In various places in this webpage there are links to books I would reccomend you read before you decide to spend your hard earned money.

For a range of small business ideas see:

http://ben-smallbusinessideas.blogspot.com/

If you are looking to quit your day job or even just earn a little extra money then trying these ideas may just change your life. I will not be held responsible if it does not go to plan as this is only a guide on making money. Feel free to only use snippets of information from this blog and add these bits of information to what you already know. Lastly, good luck with whatever you do with the information from this blog and I hope you suceed in making a new life for yourself or just changing your existing life for the better!