Table Of ContentWhat the Rich Know That You Don’t
How The Rich Think Differently From The Middle Class
and Poor When It Comes To Time, Money, Investing and
Wealth Accumulation (The Secrets Of Getting Rich!)
By Omar Johnson
Copyright 2014 Published by Make Profits Easy LLC
[email protected]
Table of Contents
Introduction
Chapter 1: The Rich Don’t Believe in Trading Hours for Dollars
The middle class and poor are trained to be employees
Tax consequences of being an employee
Chapter 2: The Rich Know The Importance of Being Financially Literate and
Financially Intelligent
Assets and Liabilities
The Three Major Financial Statements
The dangers of being financially illiterate
Chapter 3: The Rich Understand The True Nature Of Money
Money Equals Debt
Chapter 4: The Rich Understand The Time Value Of Money and Opportunity
Costs
Time Value of Money Components
Opportunity Costs
Chapter 5: The Rich Know How To Properly Analyze Investment Opportunities
Financial Ratios
Liquidity Ratios
Profitability Ratios
Financial Leverage Ratios
Efficiency Ratios
Chapter 6: What The Rich Know About Compound Interest That Middle Class
and Poor Don’t
Warren Buffett the activist?
Chapter 7: “The Rich Own Nothing But Control Everything”
Sole Proprietorship
Corporation
Corporate Tax Havens For The Rich
Limited Liability Company (LLC)
Limited Partnership (LP)
Why the Rich and Wealthy Use Trusts
Grantor Retained Annuity Trust
Land Trusts
Conclusion
Introduction
Most of us are familiar with the distinct social and economic classes we are
grouped in, in terms wealth and income. There are the rich, the middle class and
the poor. Of course these distinctions can be broken down even further to that of
the super rich and wealthy, the rich, the upper middle class, the lower middle
class and the poor.
But no matter how we break it down, the truth still remains that there is an ever
widening gap between the rich and everyone else. The fact is that the rich are
getting richer and the middle class and the poor are getting poorer.
According to the statistics almost half the world’s wealth is owned by just 1% of
the population. In the United States the incomes of the top 1 % are growing at an
extremely faster rate compared to the slow rate growth or even stagnation of
incomes of the bottom 99%. Historically, this has been the trend for quite some
time now.
If you are part of the so-called middle class or the poor you can look at these
statistics and easily get dejected and take on the negative and depressing attitude
that “the rich are just greedy” and “life is not fair”. However, if you unwisely
adopt these particular attitudes and position you are only doing yourself a
disservice and it will not change your present financial situation.
If your goal is to change your present financial situation and generate and
accumulate wealth like the rich do, then it behooves you to learn the way they
think and act in terms of wealth accumulation and study their wealth building
habits and activities so that you can apply them to yourself to change your
current financial situation. That is a more beneficial and inspiring approach and
attitude to have. Don’t you think?
Having said that, it is the goal of this book to show you exactly how radically
Having said that, it is the goal of this book to show you exactly how radically
different the rich think and act from the middle class and the poor in terms of
money, time, investing and financial literacy, which basically are the essential
components to generating and accumulating wealth. This book will be quite
different from the ones that you are used to reading from the so-called financial
gurus who preach that in order to gain wealth you have to do the following:
Live a Spartan like existence
Cut up all of your credit cards
Get rid of your premium cable channels and Netflix
Stop drinking $10 coffee at Starbucks
Get a great paying job
Live below your means
Doing these things will not make you rich, but in most cases will only cause you
frustration and misery. The danger of thinking this particular way is that you
adopt a scarcity mentality which limits your financial potential and puts you in a
psychological prison. You will always believe that there is a short supply of
money out there rather than an abundance of it, therefore your planning and
actions will only consist of defense.
When you solely take on a defensive posture you will never be able to grow your
income or gain wealth exponentially because to do so requires you to also have
an offense. It’s like in basketball or football or in any other sport that requires
you to score more points than your opponent to win the game. You can’t win the
game just by playing defense you have to score. Scoring represents offense.
Now back to those financial gurus who advocate living below your means. The
main premise of this philosophy is that if you put yourself on a strict I’m going
to deny myself type of budget you will be able to save up enough money to let it
grow and compound and at some arbitrary point in the future you will have
enough money to finally do what you want to do. Yeah really? At what age is
that? When you’re 80 years old and have 1 foot in the coffin already?
that? When you’re 80 years old and have 1 foot in the coffin already?
Subscribing to this notion is preposterous and what’s the point of it all if you
can’t enjoy it while you’re young, vibrant, healthy and of sound mind? Does that
sound like a feasible plan to you?
Anyway, the truth of the matter and what these financial gurus don’t tell you is
you cannot become rich and wealthy on a fixed income. You have to unfix,
unlimit and untie your income from time and your labor in order to be rich and
wealthy. When you subscribe to this idea of living below your means you will
begin to exude a lack of confidence. You will start saying things like “I can’t
afford it”, “there isn’t enough money” which are basically disempowering
thoughts. The bottom line is you have to radically change your thinking. You
have to create a new you if you want to take control of your financial destiny.
Albert Einstein once said, "We cannot solve our problems with the same
thinking we used when we created them.” Therefore, the information contained
in this book will introduce a new way of thinking. It will show you how the rich
think and what they know that you don’t, about time, money, investing, wealth
accumulation and financially literacy that enables them to get rich and stay rich.
So without further ado, let’s get right into it.
Chapter 1: The Rich Don’t Believe in Trading Hours
for Dollars
The rich understand that you don’t get rich and wealthy by working at a 9-5 job
trading hours for dollars. The problem with trading hours for dollars is that your
income is limited by the number of working hours you have at your disposal and
the bottom line is if you don’t work you don’t get paid. Also your salary or pay
at your job is capped at a certain dollar amount. Your salary doesn’t escalate into
infinity even if you manage to get multiple promotions and move up the
corporate ladder.
This is why the rich don’t trade hours for dollars, simply because they did the
math and the math says it doesn’t make sense. First of all, it is linear income and
with linear income you only get paid for the specific time that you have
expended and you can’t leverage your time and efforts. Leverage is important
because if you use it effectively it will make you rich many times over and
enable you to live a financially abundant life. Leverage is simply having the
ability to use other people’s time, money, talent and education to achieve your
financial goals.
This is why the rich choose to own businesses instead of working for someone
else, because owning businesses allows them to use leverage. They create
automated business systems and then employ people to fill the functions of those
systems. This automation allows the rich to make money even while they are
sleeping. They make money regardless if it snows, rains, they get sick or don’t
feel like getting out of bed. The absence of leverage is one of the main reasons
why the middle class and poor struggle and find it hard to escape their present
economic and financial condition.
The middle class and poor are trained to be employees
Another reason why the majority of the people fail to use the principles of
leverage and start their own business is because they have been conditioned,
socialized, and trained by the various educational institutions, society and
strongly encouraged by their parents to be employees and servants of the
corporations. This socialization process started at a very early age.
Remember, when you were asked the question what you wanted to be when you
grew up? You more than likely responded along the lines of “I want to be a
fireman”, “I want to be a nurse”, “I want to be a policeman”. Why did you make
those particular choices? If you don’t know the answer let me tell you why. You
made those particular choices because you were conditioned and socialize to
make those choices.
When you watched television you were fed countless images that depicted
people working for someone else. You were shown that the fireman works for
the fire department, the policeman works for the police station and the nurse
works for the hospital. With the exception of maybe one or two shows you rarely
saw a person being depicted and celebrated as a business owner. So consciously
and subconsciously it was embedded in you that you were expected to be an
employee. When you went to school this notion was reinforced by the
educational system. When you came home from school your parents further
reinforced this idea to you.
As you got older your parents indicated what was expected of you. Get good
grades so that you can get a good paying job. Of course, they only said this out
of love and concern because like most parents they wanted the best for you. But
what this actually did was shape and mold you into being a subservient
employee, a cog in somebody else’s system. You weren’t taught or encouraged
to be a business owner that builds his own systems and controls his own
financial destiny. So how could you possibly know about the power of using
financial destiny. So how could you possibly know about the power of using
leverage?
The schools that you attended certainly didn’t teach you about being a business
owner and the power of leverage because that is not their aim. Their aim is to
prepare you to be an employee and work for the corporations for most of your
life. The fact is that the current education system in the United States was
modeled after the Prussian educational system which was designed by the
Prussian aristocracy (the rich) to make the people into better soldiers and
workers. Specifically, they wanted to produce obedient soldiers for the army,
obedient workers for the mines and other industries, and subordinated civil
workers for the government.
Hopefully, you are now fully aware of why you made the choice to be and
remain an employee up to this point. You were socialized and conditioned to
make this particular choice without ever taking into account any other options,
alternatives and possibilities. You didn’t realize that when you made this choice
and decided to stick with it, it determined your economic destiny and your socio-
economic class.
For example, if you happened to get a so-called good education and were a
college graduate you more than likely landed a job that paid you a salary that put
you in the middle class or upper middle class income bracket. However, if you
only completed high school or didn’t finish high school at all you are more than
likely working at a job where the salary or the pay is low and as a result you are
considered to be poor and you probably live below the poverty line.
Now of course this is not always the case. For example, there are people with
advanced college degrees (masters, doctorate) who are currently working at call
centers making $10 an hour or who are pumping gas simply because they can’t
find a well paying job that is commensurate with their education and work
experience. This is primarily because of the economic recession that we continue
to experience and the elimination of certain types of jobs as a result of this
