Monday, November 17, 2008

The Truth about Wealth

Why is it that 90% of the population find it so difficult to become rich? It is because all of us have been told the greatest lie of all, the lie that has been keeping us from becoming rich. Before you can ever become wealthy, you must first discover the truth about wealth.

Let me start off by asking you to do a simple exercise. I would like you to close your eyes and picture a millionaire in your mind. Picture the clothes the person is wearing, the car he drives, how he spends his money, how he spends his day and how he dines.

If you are like most people, you would have pictured a millionaire as someone who wears the latest, branded clothes, how drives the newest luxury car model, who spends lavishly, who dines in fine restaurants and spend on the priciest, choicest dishes and most superb wines.

You may have imagined someone who is relaxing in cushy leather armchair in his mansion or in a yacht. Why is this so? It’s because of the way we have been brainwashed by television and movies to think this is the way millionaire live and spend their money. It is precisely these beliefs and habits that actually keep us from becoming wealthy!

The truth is very few millionaires live this way. In fact, the only ones who do live this indolent, self-indulgent lifestyle are the minority of millionaires who either inherited all their wealth of who made their money through sports or entertainment. And all of them usually have one thing in common. They inevitably end up losing everything within ten years. Their wealth is only temporary. Look at Mike Tyson, Michael Jackson, Bobby Brown and a whole list of other celebrities who made hundreds of millions within their careers. They are either all broke or heavily in debt today.
In the New York Times Best-Selling book ‘The Millionaire Next Door’, Thomas J. Stanley interviewed 300 self-made American millionaires to find out how they think, how they earn their money and how they spend their wealth. What he discovered was shocking revelation that made his book an instant best-seller.

It was discovered that many people who had high paying jobs, drove the latest luxury cars and wore the latest designer clothes and who appeared to be have millions to spend, were usually broke with a low personal net worth. Most of these professionals and senior executives of multi-national companies were what he termed ‘Under Accumulators of Wealth (UAW)’.

In contrast, those who were actual millionaires (that is those with a net worth of over US$1 million) lived very frugally and well below their means. Eight-percent of them were born poor or from middle class families. They wore inexpensive suits and never secondhand cars, never bough the latest models of vehicles and they usually invested a minimum of 20% of their income in the stock market or private businesses. He termed these people ‘Prodigious Accumulators of Wealth (PAW)’.

I must admit that when I was much younger, I too had the same distorted beliefs about how real millionaires lived. When I was a kid, I used to admire and envy people who drove the luxury Porsche car, owning a cool high-tech handphone/gadget, wearing gold or diamond accessories, travelling to the beautiful countries, who lived in Penthouses and live lavish lifestyles without worry about spending limits.

Again, many people think that a person’s wealth is defined by how much he earns, by the clothes he wears, by the house he lives in and by the way he lives. And now, you know that this is not at all true.
A person’s wealth is actually defined by how long a period of time he/she can sustain their lifestyle if they stop working. The longer you can go on living your life without working another day, the richer you actually are. Your wealth is therefore defined by three things; (1) your monthly expenses, (2) your liquid assets and (3) your passive income.

Wealth is not determined by how much you earn, it is determined by how much you save, wisely invest for the growth. Even with just a middle class income, you can become a millionaire if you have enough financial intelligence, discipline and patience.

So now, how wealthy are you?

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