How to Get Rich and Stay Rich ?

To become rich, you ‘only’ need lots of assets (somethings you own that will generate income for you). However, to get wealthy and stay wealthy (and therefore have financial freedom) you need three parts to your finances, which are:

         1. Wealth Creating Assets

         2. Income

         3. Security Assets

Wealth Creating Assets - the things that will make you wealthy, the things that you put your money into with the intention of getting at least a 15 per cent p.a. return. They are aggressive assets: high performance and high risk. They are the opposite of the diversified portfolio—they cannot be diversified if they are to achieve a 15 per cent return (or more) for you. There are really only three things that will make you this sort of return:

• Business
• Property Investment
• Shares

These are the only three categories that are capable of giving a high enough return to grow your wealth to financial freedom. However, the ownership of these kinds of things is risky: your own business is inherently risky (many do not last more than five years); property is risky because it has high borrowings, and shares are volatile, going up and down— and sometimes only down.

Income -   the money generated from Wealth Creating Assets, which will be primarily used for consumption, with the hope of generating a surplus after consumption. The question that arises is that "What is to be done with the surplus?". If you consume some of the income and reinvest the remainder in risky Wealth-Creating Assets you are unlikely to remain wealthy for long, because these assets are categorized as risky assets. So some of your income needs to be invested in Security Assets.

Security Assets - they are also investments, but their primary function is to store wealth in a safe place. Security Assets will give you lower returns than Wealth-Creating Assets but they are much safer. This is where you may keep your house and a diversified portfolio of investments. This part of the structure should have no (or at least very little) borrowings.

It is tempting to keep putting everything into your Wealth- Creating Assets, especially when you are doing well there. Keep telling yourself that the biggest enemy of the entrepreneur is over-optimism. Early success leads many people to think that the game is easy and everything that they touch turns to gold. This is an illusion. You are not perfect, you are not a god—you will make mistakes. You may have been successful but that will not make you invulnerable forever. Get the Security Assets started immediately, even if you only put in a little at the beginning. Over time you can divert more into it, paying off your home loan first, and then developing that diversified portfolio.

Getting rich is only half of the story—staying rich is the other half. You need to find a balance from the beginning.