What The Rich Know About Money That Most People Don't

Financial intelligence is mostly counter intuitive. Take everything you feel about the economy and turn it on its head.

You’ve heard “buy low, sell high,” right? Sounds easy enough, but how do you do it? Most people buy high and sell low.

This is why the rich are rich and most of us aren’t.

The rich…

Sell when everyone else is buying. Buy when everyone else is selling. Save when everyone else is spending. Spend when everyone else is saving.

I just met an entrepreneur who positioned himself perfectly for this economy. He said,

“This is great, I just bought a 2.5 million dollar building for 800K. I
hired a dozen unemployed construction workers off craigslist to gut it
and remodel it. I just hired 5 .NET developers for half the price I
would have paid last year.”

What will you do next time? Mark my words, this will all happen again.

That’s how you build wealth. It’s simple, but most people won’t do it. The social pressure to spend when the Jones’ are spending is too great. Most people can’t bear to show up at hockey practice in an old mini-van, when everyone else has a shiny new Denali.

Then when the bust happens, they are broke and paralyzed by fear of unemployment and they miss out on the cheapest prices in a decade.

My neighbors are doing a major remodeling project right now. As I write this, I am looking out the window, and there are four pickups parked outside and even more men inside working. So in this economy, how can they afford it? I don’t know, but I can guess they saved during the boom and they are now paying half the price they would have paid two years ago.

Booms and busts are as certain as night and day. They are the natural cycle of economic life. Trying to rid the economy of booms and busts is like trying to rid the world of night and day.

This is simple if you build self-discipline and refuse to be herded into the latest stampede.

2006 was the top of the last boom. Most people I knew were buying new cars, buying new homes, remodeling, and spending like the good times would never end. About that time I had a conversation with a real estate agent about investment properties that went like this…

“Sooner or later the price of homes will drop.”

“It isn’t going to happen. It hasn’t happened since the 1930s.”

“Doesn’t mean it can’t happen again.”

“It’s happened in a few localized markets, but not one like ours.”

“What goes up, must come down. The higher it goes the farther it has to fall.”

“Unemployment would have to skyrocket and I can’t see that happening, not now. They are projecting a million more people in the metro area in the next 10 years.”

“Hmm, so buy now, it’s only going up?”

“If you buy this house (600K), it’ll be worth 30K more by the time you close. You can’t lose. You don’t want to get left out. Don’t leave money on the table.”

“I’ll pass.”

The words “you can’t lose” were the trigger.

You see, if I had done what I knew was right, I would have sold him my home and rented an apartment.  I didn’t sell because it would have been too disruptive to my family and Christine’s business. In retrospect I
should have, I would have made a pile of dough, and right now I’d be buying the 600K house for 300K.

But no matter what you do, you can lose, and you should be willing to accept responsibility for your loss. Take calculated risks, not blind gambles. Responsibility for the results of your actions, good or bad, is the foundation of freedom.

9 thoughts on “What The Rich Know About Money That Most People Don't”

  1. This is a great post, and so true. Some of the most successful people I know do exactly this. They are the ones who weren’t throwing money around in the late 90s and in 2005-2007. They were doing just the opposite of everyone else, and people would think they were being miserly or fools for not partaking in the perceived good economy.

    Well, these are the same successful people today who still have jobs, have built even more wealth while everyone else is losing wealth, and aren’t trying to make ends meet because they bought into the hype and are now stuck with outrageous monthly payments. And at the same time, a lot of people who were living it up in the “good times” are the ones hurting the worst now.

    While every economic cycle is a little different, the same rules generally apply. If you follow the herd, you’ll just end up in the same situation as everyone else. If you go against the grain, you’ll probably be in a position to take advantage of the situation instead of becoming a victim.

  2. Jeremy,

    Thanks for the comment. Your opinions mean a lot to me.

    This strategy is tough on people socially. You also have to get over the fear that you’re going to miss out on the greatest opportunity ever. None of us wants to look stupid. And when you go against the grain you may look like a fool to some people.

  3. Thank you for this post, Steve. I’ve been reading you for a while and frequently share your posts on my Google reader.

    I appreciate your outlook on life, as well as your upbeat, optimistic problem solving methods and helpful tips so that we can all succeed at becoming who we want to be.

    Keep up the excellent writing and many blessings to you and your family!

  4. Beside buying when everyone is selling and selling when everyone is buying – there is another “secret” that help rich people get richer.
    You make a profit when you buy not when you sell. It might seem counter intuitive, but it means that you shouldn’t try to make a profit by buying something and then hoping that the value will go up – instead, you should buy something only when you know that you can sell it for a profit immediately after selling.
    A bit more difficult to do – but possible if you keep your eyes open!

  5. @Roman,

    Good tip. I know entrepreneurs who do exactly that. They look for buys under current market value. We do the same with our book business Christine’s Books. We want to buy only stuff we know we can resell for a profit. We can’t wait for it to appreciate. We provide value at the same time we look to maximize profit margins.

    @Elizabeth,

    I appreciate having you as a reader and that you are sharing this content on Google reader. Many blessings to you too!

  6. Good post Steve.

    Nice reminder that now is a good time to be buying.

    I don’t agree with selling your home to make more money. Life isn’t entirely about money. I don’t think I could disrupt my family just to make a buck. Not worth it. Maybe some people could. I simply don’t think I could.

    -Nate

  7. So, in a phrase: the rich know how to take advantage of other’s misfortune…

    I guess that’s the American Way…

  8. Time to buy!!!
    Sorry, that is qualified with a time horizon of at least 3-4 years.
    And only if you have your short term financial situation in hand; ie. manageable debt levels, and a SECURE job or the ability to generate income when needed.

    Generally speaking…doing anything “against the grain” is a good idea. I’m willing to bet that if “you guys” resonate with postings on this site, being a “normal” citizen is not what you’re about. Mediocrity is the arch enemy of the successful person. Listen to the media/news, see what everybody around you is doing/saying/thinking…and do the opposite.
    But then again…C stands for ‘Cynic’.

  9. Jeremy,

    In your opinion, how does one create wealth when you can’t get the nessasary capital to grow a business? The bank’s ain’t given it and everyone else just make claims. Stuck.

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