Leverage for Investment: Wealthy individuals often use debt strategically to leverage their investments. By borrowing money at a lower interest rate than the return on their investments, they can amplify their potential gains.
Kiyosaki: Debt Isn't Always Bad
The difference between the rich and poor, according to Kiyosaki, is how they think about debt. The wealthy understand the difference between good and bad debt — and then use good debt to increase their fortunes faster.
Others will object to taxing the wealthy unless they actually use their gains, but many of the wealthiest actually do use their gains through the borrowing loophole: They get rich, borrow against those gains, consume the borrowing, and do not pay any tax.
Their wealth allows them to borrow and banks are willing to lend due to their collateral and good credit history or belief that they will repay. The debt in such cases allows them to acquire greater assets then the true net equity alone would allow. So, debt amplifies their wealth.
You can enhance your financial position and create long-term wealth by leveraging debt to invest in appreciating assets such as real estate, consolidate high-interest debts to improve cash flow, use high-yield savings accounts or borrow to acquire profitable businesses.
They stay away from debt.
Car payments, student loans, same-as-cash financing plans—these just aren't part of their vocabulary. That's why they win with money. They don't owe anything to the bank, so every dollar they earn stays with them to spend, save and give! Debt is the biggest obstacle to building wealth.
Wealthy individuals create passive income through arbitrage by finding assets that generate income (such as businesses, real estate, or bonds) and then borrowing money against those assets to get leverage to purchase even more assets.
They focus on income generation
The richest people don't only invest for growth, but they also invest to generate more income. They diversify their investments and find new streams of income. They know how to turn their assets into income-generating machines, therefore achieving wealth, even if the economy takes a dip.
If a millionaire doesn't budget properly and starts spending on personal chefs, expensive cars, and other luxury amenities, they may quickly run out of money. Sometimes millionaires, especially new millionaires, feel they have so much money that they lose perspective on what they can afford.
Hot Commodities
In a volatile economic landscape, Kiyosaki underscores the importance of investing in commodities as a hedge against currency devaluation and inflation. Unlike fiat currency, commodities such as gold, silver and oil retain intrinsic value and serve as a safeguard for intergenerational wealth transfer.
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By utilizing debt, money can be borrowed and put towards assets such as property or shares with the potential for creating wealth. This is what's known as 'gearing'. The value of these investments should increase over time, providing greater income and capital growth than would have been spent servicing the loan.
Families like the Waltons, Kochs, and Mars can avoid capital gains taxes forever by holding onto assets without selling, borrowing against their assets for income, and using the stepped-up basis loophole at inheritance. That loophole allows the increased value of assets to be passed to their heirs tax-free.
Whilst they can often afford to, most wealthy people don't pay cash for properties because they can make a better investment with their money elsewhere.
By making consistent investments when you are young, it enables you to become wealthy by benefiting from compound interest. This means that the earnings on your investments create future earnings, without having to work for it. This snowball effect amplifies your wealth significantly.
More rich people are using 'secret' trusts and LLCs to hide money from their spouses. Secret trusts and LLCs are increasingly common ways wealthy people are shielding assets in divorce. Trusts and offshore accounts controlled by a shadowy company.
Invest wisely
The wealthy understand the power of investing. They diversify their investments across different asset classes, such as stocks, bonds, real estate and businesses, to reduce risk and maximize returns. Tip: educate yourself about different investment options and start investing early.
Wealthy people love credit card perks
Different cards offer cash back, rewards, low interest, or no interest. Having a couple of cards is a good way to maximize the perks and avoid high interest costs. Credit cards are typically quite secure, with strong fraud protections in place to safeguard cardholders.
And even for people who may not be able to leverage a Dali painting hanging in their foyers, debt can be a useful tool to keep their wealth engines running if it comes cheaply enough relative to other opportunities, keeps their assets working for them and, above all, if the risks are understood and tolerable.
The people who have all the money often go by unnoticed, dressing well, but without flash, driving used cars and living in the first house they bought in a modest neighbourhood. The authors called them the quiet millionaires. They often work in, or own, unglamourous businesses that spin off steady streams of cash.
Ninety-three percent of millionaires said they got their wealth because they worked hard, not because they had big salaries. Only 31% averaged $100,000 a year over the course of their career, and one-third never made six figures in any single working year of their career.