Financial Freedom Secrets Only Rich Know | The Millionaire Next Door | Lab Of Rich

Financial Freedom Secrets Only Rich Know

In this blog, you will learn about Financial Freedom Secrets Only Rich Know. This information is taken from the book “The Millionaire Next Door” written by Thomas J. Stanley.

We are all chasing the same goal that is taking us further into the dark. Who doesn't want to become rich but the definition of rich among people is very wrong. We think being rich means having a big house, a sports car, and living a luxurious lifestyle.

But this is a trap in itself because the lifestyle we see on social media is lived by ultra-rich people. If you want to live that lifestyle which we see on social media then you have to enter the top 1% of people and for that, you have to do a lot of hard work and a lot of luck will also be needed which the majority of us don’t have.

But you can live a comfortable and stress-free life without worrying about money but for that, you have to correct the definition of being rich because it is possible for a person who is poor to look rich on social media and a rich person may not show his wealth on social media and look poor on social media.

When the author was researching how rich people look and how they live their lifestyle, for that the author went to a Porsche area.

After interviewing all the people living in the Porsche area author came to a conclusion that all the people living in the Porsche area were the people who were having monthly income of crores but 95% of them have their expenses equal to their income and they have nothing in terms of wealth, they all have to face the same issue which the middle-class people face about money, they look rich but actually, they are not.

Continuing his research the author interviewed normal middle-class people living near the Porsche area and came to the result that the maximum of people the author interviewed were not looking rich at all, they don't have a high income, they wear normal clothes, and live a simple life but they have wealth in millions and they don't need to worry about money and were living a peaceful and happy life.

When the author describes rich people, one quality is common in all and that quality is Frugality. Frugal means to use all the resources carefully. Many people will think being frugal means being stingy because if we are earning more then why can't we spend more. But according to the author, this is not the right path because, in the end, we all want to become financially free.

When we are in our 20s we don’t have enough earnings but we have a lot of time and we can use our time to compound our wealth. And when we are in our 40s we have a high income but don’t have enough time. Therefore in every period of our life, we have to become frugal until we are financially free.

90% of people don’t achieve financial freedom because of their bad habits.

For example - You have a bad habit of eating pizza daily. Now imagine that you continue this process for 10 years. Now add compounding in this process and you will realise that you have very bad health + the money you spent on buying pizza.

Now let's discuss those Financial Freedom Secrets.

Manage Money Carefully

The first secret of rich people is that they manage their money carefully. They keep tracking their income and expenses and also have a track of long term expenses. Small expenses are most dangerous in the long term.

Therefore when you earn your first salary, you have to manage a good savings rate. Savings rate means that if you earn 25000 per month and spend 50% of your salary and the rest 50% is saved and invested, then you have to just maintain a savings rate of 50%.

If you are young then these saved amounts will be very helpful in future because in future there will be many expenses like your marriage expenses, your child expenses, parents medical fees etc. So be prepared from the start only. 

The True Cost Of Consumption

Whenever we buy something we look at the price tag to know its cost, but sometimes some things are very expensive which we find out later.

For Example - If you buy a Netflix subscription for Rs 499 per month, then you are not just paying Rs 499, you are also giving your precious time because if you invested that time in learning high-income skills then you would earn far more than what you are earning today. If you are spending 2 hours daily on Netflix then it will be 730 hours in one year which is equal to 1 month. You can invest these 730 hours in learning new skills and can achieve financial freedom faster.

This is the only reason why maximum people are not wealthy. They do a lot of hard work for 5 days, earn money, and spend all their money on weekends. It’s just like you are building a house for the first 5 days and on weekends you are destroying that house and again repeating this process.

Opportunity Cost Of Money

Opportunity Cost means that if you are buying something then you are rejecting something that you can buy for the same amount.

For example - You have a phone which is in good condition and you can use that phone for 3-4 years more but by looking at your friends you want to buy the latest version of the iPhone which is of 80000. Now if you buy this iPhone then it will have an opportunity cost because you can invest the same amount in some company and if you got an average rate of 15% then the amount invested will be 3 lakhs in 10 years and 16 lakhs in 20 years.

Now next time if you wish to spend money unnecessarily, then just think about what you will be going to lose by calculating the opportunity cost.

The Secret

Everyone wants a surety and a magic formula where somebody tells them that they have to do this work and they will be rich.

But according to the author's research 95% of the millionaires are stock owners and their maximum amount is invested in publicly traded companies and very few millionaires are active traders which means that rich people don't follow the ups and downs of the stock market. Maximum rich people hold their stocks for a long time.

Set Your Priorities

Last and the most important lesson is that if I ask you 

• Who is your favourite cricketer?
• What is his batting average?
• How much did he score in his last match?

OR

• Who is your favourite hero?
• What was his last movie?
• Was his last movie a hit or flop?
• How much did he earn from the movie?

Then a maximum of you must know these answers.

But if I ask you 

• Which is the largest company in FMGC Sector?
• How much profit did India's biggest company earn the previous year?

Then most of you don’t know these answers.

This is because the preferences of the maximum middle-class people are not correct. You will not get much benefit from becoming a fan of superstars and cricketers. It's okay to have a little bit of entertainment but it's not okay to get into it completely.

Therefore you have to set priorities in life that you want to spend a stressful and regretful life in the future or happy and satisfying life.