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Why Most People Never Become Wealthy

“You can be conventional or you can be wealthy. Pick one.” — Dave Zook

There is a reason why most people never become wealthy.

The number one reason is people’s beliefs around money.

They think money is evil or we start to believe the habits we’ve developed over the years.

A lot of times these things are actually inherited.

That means you didn’t actually make a choice to believe this.

It’s the family or the culture saying how you should invest or how you should spend.

As a registered investment advisor in the past, I have spoken with many investors.

I saw some really wacky beliefs around money.

Today, we will talk about how you can think differently about money and impact your financial future in a positive way.

We’ll go over three common beliefs people have that keep them from being wealth.

1. Bad Debt is Good and Good Debt is Bad

The first false belief that bad debt is good and good debt is bad.

People love bad debt.

Credit card debt is typically between 15 and 24% annually.

That’s absolutely terrible!

If you have credit card debt and don’t pay the full balance off every month, you shouldn’t have a credit card.

I have lots of credit cards and use the points, but I have auto pay.

At the end of every month, everything is paid off.

If I don’t have the money, I don’t spend the money.

If you want a great investment or you’re looking for higher returns, pay off your credit card debt.

You will get a great return versus looking for other types of investments.

You might get a 24% return just by paying off your credit card. Wow!

As a culture, we love credit cards.

We can benefit today without having to pay until tomorrow.

A lot of times people will use the cards to buy liabilities.

A liability, as Robert Kiyosaki says, is something that takes money out of your pocket each month.

An asset is something that puts money in your pocket every month.

Something to think about is what you’re buying.

Does it take money out of your pocket or put it in your pocket?

Trips and cars typically take money out of your pocket every month.

The public will love spending money on these things because of easy finance and easy terms.

But these things are actually liabilities.

The other example we’re going to talk about is disliking good debt.

There are a lot of gurus out there that say you should pay off all debts.

They also say you should pay cash for your homes.

You should do everything in cash, according to them.

That’s absolutely untrue.

I got an unsecured, personal line of credit.

That means a bank loaned me $100,000 at a 2.75% fixed rate.

I’m able to use this money to invest in other deals.

I can get about a 15% annualized return.

That’s a pretty good return!

I consider that to be very good debt because I’m borrowing at a low rate.

I’m getting a much higher rate of return.

Obviously, you have to consider the risks and other factors.

Another example of this is interest rates for 30-year mortgages are exploding.

In December of 2021, they were averaging 2.9% interest.

At the time we’re writing this blog, they’re around 5.5%.

By the time this comes out, it’ll be even higher!

Rates continue to go up.

If you have a long-term interest rate and inflation is anywhere from 8.5% to 20….

The asset is not just the house.

It’s the loan.

You will pay off that debt in future dollars which are worth less due to inflation.

You also get to use this asset for that period of time.

There is such a thing as good debt.

You can get good debt if you can use it to grow wealth and own assets versus using the debt for liabilities.

The second thing here is what Warren Buffet talks about: Diversification.

2. You Have to Diversify

The second belief that keeps people poor is the belief that you have to diversify.

You have to diversify in mutual funds and index funds and many different deals.

I know a guy who has invested in over 70 different deals.

That’s too much, right?!

Warren Buffet says that three to six investments can offer diversification.

He says that all you need is three wonderful businesses to get rich.

Those six businesses can be all the diversification you need.

That’s very different from the common Wall Street idea.

He also asks why diversification is only required when investors don’t understand what they’re doing.

If you want to actually learn and do work, you don’t have to be that diversified.

Some people get very wealthy because they put all their eggs in one basket and watch it closely.

There’s a belief that you have to diversify everywhere and anywhere.

If you don’t know what you’re doing, diversification is great because it will balance things for you.

But if you really want to be wealthy, you have to be willing to concentrate on fewer things.

Instead of diversification, get educated.

Learn what you need to do to help you on your path.

3. Trusting “Traditional Investments”

The third and final belief that keeps people poor is that they can trust traditional investments.

I was an investment advisor for several years.

Wall Street has done an excellent job of spending billions of dollars to convince us stocks and bonds are traditional when they’re actually paper assets.

They’re not real assets.

Real estate is an example of something that’s physically real.

When you own a stock, what do you really own?

You own a percentage, but it’s a paper thing.

There are other risks involved.

Stocks and bonds can crash substantially.

Look at the stock market.

Over the last 100 years, we’ve had multiple crashes of 30% to 50%.

That’s very risky.

The stock market makes other asset classes seem much safer.

As interest rates rise, the bonds people currently hold are destroyed and devalued.

Newer bonds have to come out with higher interest rates because rates go up.

This is something to be concerned about as you watch your stocks, bonds, and portfolio.

Educating yourself is the best thing you can do.

I encourage you to read more of our posts and watch more of our videos on this subject.

Pick up good books on finance.

Now I want to hear from you!

What’s one belief you had about money that kept you poor?

How have you changed?

Stick your answers in the comments below.

Before you leave, make sure to check out our special report about investing. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future.

If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.

Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.

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