This is How the Rich Keep Getting Richer
The secret: Buy, borrow, Die.
Good morning everyone,
Have you ever heard the phrase:
Buy, Borrow, Die.
Well, unless you are a part of the top 1%. This concept was probably never taught to you; for a good reason, it takes a lot of capital to start this cycle.
However, once the process is initiated, making money is no longer an issue.
I mean, like, really not an issue.
Buying and borrowing being the essential steps, this process is called interest arbitrage, and it’s one of the rich’s favorite games to play.
Technically speaking, interest arbitrage can be defined as this:
The practice of buying a currency on the spot market, selling it on the forward market, and investing the difference in exchange rate. Interest arbitrage is done in order to profit from an inefficiency in an exchange rate. One can conduct interest arbitrage with a foreign currency, or one can use one's own currency.
What I’m talking about doesn’t have to do with buying and selling currencies on the spot market to profit from the difference in exchange rates.
But, it does entail a similar concept.
Here’s an example:
Imagine I had 10 million dollars.
I could keep it all in a bank account and spend it as I pleased. But that would eventually run out and probably faster than you would imagine.
Or, I could buy a cash-flowing asset with that money, like an apartment building. That way, I can build equity in the property and get an income from it.
This is a great strategy, and many of the wealthiest individuals use it.
But we are forgetting about the second step: Borrow
This is where things get interesting…
So now, let’s say I own this apartment building, and I can get a loan against the equity I have in the property. Mind you, this is a particular type of loan with a very low-interest rate. ( most likely around 2%)
Let’s also say I can make a 10% return annually on my ten-million dollar apartment building. (assuming ideal conditions). That nets me one million dollars in income compared to the $200,000 in interest I am responsible for paying back on loan.
This means that every year I can spend 800,000 dollars every year without the risk of running out of money.
You can use the profits to buy more cash-flowing assets, which will compound over time to bigger and bigger profits. Or you can simply just live your life carefreely.
Buy, Borrow, Die.
Notice how there isn’t a sell option in that saying?
That’s because that people who have amassed great wealth know a thing or two about creating and keeping it.
Generational wealth is created by buying and holding. Not selling.
Everyone seems to mess up on their journey to the 1%
Why?
We don’t have the right mindset. The rich know that their money will make them more money. So what they are most focused on controlling is time.
However, the middle class has only been taught that you're supposed to trade your time for money. That’s why people work 9-5, 5 days a week because it’s a consistent income stream as long as they are willing to trade in their time. (and people love to feel like they have security, even if they don’t.)
If there is one thing I want you to take away from this article, its this:
Time is your most valuable asset.
If you have the drive and discipline, nothing will stop you from reaching the 1% one day. This is a winner takes all economy anyways.
Once you get to the number in your head that satisfies your need for wealth.
(yes, you do have to stop moving the goal post eventually)
You are ready to start the cycle of interest arbitrage, creating wealth for generations to come.
Whether or not you should hand down money to your kids is a personal decision, and I’ll write more about my own philosophy on inheritance in a future article. However, it is one of those problems that nobody would mind having. (not everyone, but mostly I’ve found)
All in all, interest arbitrage is only one way that the rich get richer. There are endless strategies to make money if you already have the capital.
The common theme across all the strategies is they are opportunistic about their time.
Being more opportunistic about time will separate you from everybody else on your way to the 1%.
It’s counter-intuitive, but even the rich know that sometimes you have to suffer for less money now, for the prospect of a lot of money down the line.
For example:
Personally, I did something unlike myself this summer compared to previous ones.
I took a lesser paying job that allowed me more flexibility in my schedule.
It’s not groundbreaking or anything. However, It is about a 60% pay cut compared to last summer.
I did this because I knew that my time right now being able to work on my own buisness’s and projects is more valuable to me in the long run than focusing on the materialistic side of money.
Yes, money helps in life with everything for the most part. But, in this world, you get to pick your suffering; make sure you enjoy it.
To me, nothing is more important than being happy and taking care of my mental health.
Nobody can feel my pain, my happiness, sadness etc..
Take matters into your own hands; nobody else will do it for you forever.
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Awesome knowledge very helpful