You can follow all the rules of traditional money – save consistently, invest capital, effort … and still feel like you are running on a treadmill. The scoreboard does not seem to move.
Sharran Srivatsaa experienced this firsthand. He quit his job as supervisor to start a two-billion-dollar company and manage billions of dollars at Goldman Sachs. Along the way, he learned a difficult truth: Money does not follow the law. It follows the rules. If you want to create a system that really generates a lot of wealth, then you need to own three pillars:
- Momentum: How to combine money effectively.
- Structure: Who manages the money and determines the outcome.
- Asymmetry: How to maximize ups and downs while minimizing downsides.
If you’re tired of playing slow games, here are seven rules of money that separate the middle class from the richest.
Rule 1: Money loves speed, but wealth loves time
Fast action does not equal fast results.
When Srivatsaa first entered the real estate industry, he became a whistleblower. For five years he acted swiftly: he found an out-of-market deal, deposited money, rehabilitated the property, and returned it. He did it 100 times. During the same five years, his friends took a different approach. Friends bought the same house. A few years later he bought a fourplex. Years later, he incorporated the stock into 20 buildings.
At the end of five years, Srivatsaa demolished 100 houses and made some money. His friend only had 20 units, but his fortune was five times higher.
Speed Is the shortest distance between seeing an opportunity and acting on it. Time Is making a brilliant decision and letting it combine. Warren Buffett bought high-quality companies and held them for decades, generating 5,000,000% of total revenue in Berkshire Hathaway. Take advantage of opportunities, but set aside time to get rich.
Rule 2: Those who give money have power
If you look at the Forbes 400 list, you will notice a bright statistic: zero real people make a list out of their W-2 salaries.
Some people make a list by selling a big business. But most of the richest are “buyers and builders”. Elon Musk bought Twitter. Google bought YouTube. Facebook bought Instagram. Even in local real estate, without buyers there is no market.
Buyers are in power because they provide capital and set conditions. You do not need billions of dollars to operate this. You just have to be more discriminating with the help you render toward other people.
Rule 3: Power multiplied by everything.
Leverage is the most confusing tool in finance.
If you buy a house for $ 1,000,000 in cash and it is worth 10%, you get 10% back. But if you put down $ 200,000 and let the bank financing the remaining $ 800,000, the same 10% represents a huge return of 50% on your actual cash invested.
Billionaires use their power to evade taxes altogether. Instead of selling shares (which causes huge capital gains tax), they use their shares as collateral to get a bank loan. They get cash without paying taxes and their original assets continue to grow.
Leverage is a game of collateral. When used carelessly, it can destroy you. When used strategically to acquire cash flow assets, it is the ultimate growth engine.
Rule 4: Cash flow keeps you alive Equity frees you
Cash flow is the oxygen that fuels your current lifestyle. It pays your mortgage, buys your groceries, and funds your vacation.
But equity is what buys your freedom tomorrow.
McDonald’s makes incredible cash flow to sell burgers and fries. But their real estate wealth is tied to the $ 45 billion real estate they own under those restaurants. High-income earners are often trapped in the search for a higher salary (cash flow) and confuse it for wealth.
To be independent, you must own your own business or buy a piece of your own business (real estate, private equity).
Rule 5: Risks and rewards are non-linear
The middle class is taught that risk and reward are linear: you risk $ 100 to earn $ 100. Billionaires run on Portfolio Theory.
An venture capital firm can invest $ 100,000 into five different start-ups. Their maximum loss is $ 500,000. One and two startups went bankrupt. Start 3 Rest even. But starting four to 10x and starting five to 100x.
They do not risk $ 500,000 to earn $ 500,000. They risked it to make their money 10 to 100 times. Your goal in business and investment is to find asymmetric opportunities where your downside is strictly masked, but your upside is almost limitless.
Rule 6: Do not bet on empires for gold potential
Asymmetric risk does not mean getting into all the gaming.
Srivatsaa tells the tragic story of a friend who saved $ 700,000 in 15 years by simply throwing every penny into an attractive oil and gas deal. The deal collapsed, canceling 15-year savings immediately.
The lesson is not about choosing a better deal. It talks about the size of your bet. You never risk your entire empire for gold potential. Billionaire Ray Dalio teaches that the ultimate investment skill is not to make a high profit, but to find a way to achieve the same profit while minimizing your risk. Protect the machines that create your chances.
Rule 7: Diversification is protection from ignorance
Wall Street preaches the good news of constant diversification. However, the richest people on earth do the opposite.
If you take away Elon Musk’s Tesla stock or Microsoft’s historic acquisition of Bill Gates, they fall off the Forbes 400 list. Why? Because when you have a deep understanding of risk and have control over an asset transaction, you put all your eggs in that basket and look like a hawk.
You diversify only when you do not understand the risks and have no control over the outcome.
5- Litmus Test Questions
Knowing these rules is useless unless you have a system to execute them. Before you deploy your capital or your time into any new investment, run it through these five brutal question filters:
- Is this component possible? (Is this a long play?)
- Who has control? (Do you pity others?)
- What happens if it fails? (Are your disadvantages closed?)
- Does a fluctuation mean and greater than a descent? (Does it make sense?)
- Do you clearly understand the risks? (Can you explain what could go wrong with a five-year-old?)
Stop playing by the rules designed to keep you in the middle class. Start by the rules that determine the flow of money.
Posts The 7 Unchangeable Rules of Money (Why Everything You Teach is Wrong) First appeared Addiction 2 Success.
