The Decision to be Rich or Middle Class

by Ryan P. Allis

Now that we know the difference between a high potential and lifestyle company and product and service-based businesses, let’s take a minute to analyze the key decisions that one must make in his or her life in order to start on the path toward becoming wealthy.

There is a certain mindset that an entrepreneur must have and certain things a person must know in order to become wealthy by building a business. In order to succeed, an entrepreneur must know the difference between assets and liabilities, re-invest much of his or her profits and capital gains to further grow the business, and understand the difference between being frugal and being smart, the difference between good debt and bad debt, and the relative value of time and money.

The large majority of persons (at least in the industrialized world) work at a job, earn $30,000-$60,000 per year and spend the nearly all if not more of their incomes each year. They go into debt for items they do not need, spend an hour cutting coupons and in the supermarket to save two dollars, and at the end of forty five years of working must live the last years of their life dependent on Social Security and anything remaining in their 401(k). Many of these persons are content with such a life. However, many are not. If you are not, then please study the following principles.

The rich, on the other hand, build assets, invest in assets, and have their assets work for them. They gain control over their expenses. The rich understand the principal of the Asset Spiral. They put off present consumption and purchase of luxuries like vacations, boats, and big screen televisions so they can invest in building an asset that will provide enough passive cash flow to buy twenty vacations, a cruise line, and a big screen television company in the future. They never go into debt for something that is for pleasure and not investment. They buy things like businesses, securities, options, bonds, and real estate. They intelligently use their businesses to pay most of their expenses, thus receiving numerous tax advantages. They use their expenses to make them richer, and have no fear of debt, as long as they are using debt to build an asset and not purchase unnecessary items.

The poor often live frugally, not realizing that time is more important than money. The rich realize that time is more valuable than money as with time one can make money but with money one cannot make time. They understand the principal of opportunity cost and do not hesitate to spend $500 for someone to paint their house if during that time they can make $1000 working at what they do best.

The rich have their money work for them. They do their due diligence and research and invest it in public and private companies, and then sit back while their money makes them more money. They build companies that make them money while they are sleeping. Most mornings they will wake up $10,000 richer than when they went to bed. They realize the importance of developing multiple streams of income and creating passive cashflow—money that comes in whether or not they go to work. They stay out of the middle and poor classes by waiting until they have consistent passive cashflow from their businesses and investments before they become married and have children. While they may have to start off making money through earned income, they realize the advantages of and focus on building passive income from investments. The rich also know that they cannot become wealthy quickly, and they invest the time, gain the knowledge, make the contacts, and take the actions needed to become successful.

The rich keep close track of their cash flow. They have accountants and in the early stages use programs such as QuickBooks, Quicken, and Money to keep track of all of their income and expenses, both personally and in their companies. They believe that it is better to work for years to build and increase the value of their own companies and assets rather than spend a whole life sweating blood and tears, being paid a wholesale rate, to increase the value of someone else’s asset.

The validity of the above principles is made clear to me each and every day in my life. There is a terrible disparity between the rich and poor, even in the streets of Chapel Hill, North Carolina. But this disparity is there for many reasons beside difference in education and opportunity. Much of this disparity exists because those who are poor did not follow the above principles. They work for others and not themselves, will spend more money than they earn and go into debt for unnecessary items, will never delay present consumption to invest, never take the initiative to improve their financial literacy and business education, and are married and have children before they even have a well paying job, let alone a stream of passive and portfolio income. Don’t let your life go down this path, and if it has, learn and apply the above principles in everything you do and you will make it through.

Robert Kiyosaki states in Rich Dad’s Guide to Investing that the secret to becoming rich is to “build businesses and then have your businesses buy other cash producing assets such as other businesses or real estate.” This statement captures the essence of the process needed to become extraordinarily wealthy. I would modify this statement slightly, however. I believe the following:

The secret to becoming extraordinarily wealthy is to build businesses and then use the excess cash flow from your businesses and the capital gains from a liquidity event to invest in early stage private companies, ventures in emerging markets, and other cash producing assets such as real estate.

Please reread this statement a few times. This is the path I will follow throughout my life. I am currently in the process of building a successful business. Once this is accomplished, I will use the funds to make additional investments in early stage private companies, build additional companies, invest in real estate, and explore investments overseas. I intend to make my first million by building companies. I’ll make my next one hundred million by investing in early stage private companies and real estate.

Ryan Allis, is the CEO of Broadwick Corporation, a provider of permission-based email marketing and list management software IntelliContact Pro (www.intellicontact.com) and CEO of Virante, Inc. (www.virante.com) a Chapel Hill, North Carolina based web marketing consulting firm. Ryan, who is 19, is on leave for a year from the University of North Carolina at Chapel Hill, where he is an economics major and Blanchard Scholar. Additional information on the author can be found at www.ryanallis.com.