Do you ignore these basic principles to build wealth?
The difference between most wealthy individuals versus those who only ever manage to get by is not as big as you may think. Self acquired wealth in most cases is more of a byproduct of a set of habits and a certain mindset, rather than that one “million dollar idea,” and even less so through luck. We live in a period of history, in which almost any literate person with access to the internet has the possibility to acquire enough wealth to not have to worry about the future anymore - and maybe even become rich. In order to do so though, you need to be willing to make some sacrifices, to keep learning, and to act accordingly. The keywords here are gathering assets, self development, focus, discipline and specialising.
On my personal journey, there were three books that inspired me especially much: “Rich Dad Poor Dad” by Robert Kiyosaki, “Good to Great” by Jim Collins and “Blue Ocean Strategy” by W. Chan Kim and Renée Mauborgne. I started from nothing, really, but internalising the core principles of these classics helped me alter my approach tremendously, and this way build my own successful business. I recommend reading them yourself, but for the sake of backing my previous statements, let me use a couple of examples from them to clarify what I mean.
The first major difference between wealthy people and those who struggle to make ends meet as discussed by Kiyosaki in “Rich Dad Poor Dad” is that the rich don’t work for money. The greatest portion of the population focusses on their income statements, which is nothing but a trade of time for money to that effect. Rich people - and those on their way to becoming rich - spend their time acquiring assets that constantly make money for them on a sustainable level instead. It’s crucial to know the difference between a liability and an asset in this regard: Liabilities are acquisitions that take money from your pocket - like a new car or fancy clothes. Assets on the other hand make money for you - a website, real estate or a brand. Essentially, you need to build and maintain a strong group of assets to ensure a steady influx of income - diversifying to spread the risk.
Even education can be considered an asset if it serves improved decision making and/or it qualifies you for promotions to build your career. Self development through persistent learning is a key factor to become and stay successful though either way, without regard to degrees that you can hang on your wall to impress. The world is constantly changing, the economy always in motion, and so being up to date, increasing your expertise and redefining your approach over and over again is really a basic requirement to build wealth.
For the next critical quality to success I want to tell you an anecdote about two of the undoubtedly most successful entrepreneurs in history. When Bill Gates and Warren Buffett first met at a dinner party hosted by Bill Gates’ parents, they were asked to write down the one single trait that was the foundation of their success, and as a matter of fact they both wrote down the same word: Focus. It’s the commitment to a purpose, the pursuit of a defined goal. It means that you need to be willing to make sacrifices. Watching TV, getting wasted with friends in the weekend or spending your free time on social media (unless it serves your research or to build a brand) are all surefire ways to get distracted and lose focus. Accordingly, the first thing to do to build wealth through success is to get rid of all unnecessary distraction. This may feel like a big sacrifice at first, but it will not take long until the remarkable benefits become apparent.
In “Good to Great” Jim Collins deconstructs the next feature I want to discuss: Discipline. Collins breaks down the term into several subcategories: The “discipline of people” defines your leadership qualities and the ability to assemble a powerful team. It’s about showing willpower, diligence and humility as a leader (read more about humility in my article “A Habit for Success”), and finding the right people to join you in your cause. When hiring personell, focus on character traits and capabilities before specific knowledge or skill sets they may offer, as a coherent team will be the most important asset to your business.
The “discipline of thought” analyses the importance of confronting the brutal facts: Create a work environment where truth prevails. Lead with questions, not answers. Conduct your autopsies without the blame game, focussing only on why something fails, not whose fault it could be. Analyse what you are passionate about and find out what you can actually be best at, rather than what you desire to be best at. All in all, the “discipline of thought” is the art of being objective, reflective, rational and fair.
Finally, Jim Collins discusses the “discipline of action.” The discipline of action is the implementation of the two former disciplines into a defined business strategy with a clear set of goals. Determine which activities serve your goals, and determine which activities need to be eliminated in order to become more effective in your pursuit of success. And most important: Dismiss the idea that one great effort will make you successful. Discard the illusion of one miracle moment that will change your destiny. Success is not built on one single defining action, but on a cumulative process of step-by-step actions based on one decision after the next to eventually accumulate momentum and reach your breakthrough.
The last attribute I want to highlight is what business theorists W. Chan Kim and Renée Mauborgne describe as the “Blue Ocean Strategy” in the same titled book. The metaphor of the blue ocean versus a red ocean describes different markets opportunities.
Picture this: A red ocean is the known market space. The industry standard is clearly defined here, the general course of action is widely known and status quo. However, as competitors need to outperform each other in order to get the larger share, growth prospects reduce. A cutthroat mentality takes hold of this crowded market, and so the ocean becomes bloody.
A blue ocean on the other hand is an unknown market space, an unexplored industry in which competition does not exist yet. If you create a new “blue ocean” for yourself, you define the rules of the game yourself, and as demand can be created rather than fought over, the opportunity for growth and profit is proportionate to the demand only.
A prominent example of this strategy is Apple CEO Steve Job’s product management for the iPhone - the first noteworthy smartphone in the world. Another example is the show of the Cirque du Soleil - a blend of circus, ballet and opera without star performers and animals. For my team it is high end Berlin real estate to offer our clients the most exclusive properties fit for their very individual needs. In other words, if you start a business that specialises in an undiscovered niche, it’s much more likely to grow exponentially than it would if you embark in a long-established industry.
Once you manage to alter your mindset and to incorporate all these habits into your daily life, there is not much left that could keep you from becoming a super-achiever that eventually manages to amass great wealth. However, high income is not high net-worth. To reach true financial security, you will need to look into financial literacy too. This I will address in my next article “Broke On High Income.”