Monday, June 6, 2011

The Secret To Getting Rich

The secret to getting rich materially is to use other people’s money. This is often called the OPM solution.

You might ask how can you use Other People’s Money and benefit from it.

First of all, this is the way the banks work. People put money into their bank accounts and the banks use that money to lend it to other people.

A simple scenario follows: You put your money in the bank because you want to make sure it is safe from thieves and robbers. The bank could charge you a fee for this. Only if the bank charged you a fee, you would probably keep the money under your mattress. However the bank offers you interest on your money, so you put the money in the bank. The bank then lends your money out to borrowers at a higher interest rate than what it charges you. The bank makes a profit on the difference on the interest rates between the money it borrows and the money it lends. The owner of the bank is using other people’s money (your money) to make money.

You need to learn from the banks if you want to make money. If you want to get rich, learn the secret of OPM.

Really, it is not much of a secret. Yet most people seem to be at the bottom of the pyramid rather than benefitting at the top.

What people do not know is that banks compound their profits by lending out money that has to be paid back monthly rather than annually.

This is how the system works. You put $1000 in the bank. The bank pays you 8% interest per annum. It then lends that money out at 10% interest per annum. You get paid annually. The bank gets paid monthly. People who borrow your money from the bank pay the bank back monthly. The money they pay the bank is then able to be lent to someone else.

Effectively, the bank has now created a monthly cash flow of money that they can lend to more people at 10% without having any to pay interest to you. By doing this the bank is able to compound the interest they receive on a monthly basis, whereas you are only receiving an annual rate if you leave your money in the bank for one year.

In fact, it gets better for the banks because the people to whom they lend the money put their money in the bank, so that $1000 you are getting 10% interest on can be lent to more than one person. Effectively, banks can turn your $1000 into $10,000 in one year and only have to pay you $100 in interest.

While you cannot be a bank, you can learn the secret of using OPM and leverage your own income and wealth.

You may wonder how a person can go from living in poverty to living in a palace within five to ten years. The reason is the person who does this has used OPM.

The easiest way to do is to get a line of credit. A line of credit in its simplest form is available in the form of a credit card.

A credit card when used for making money is a valuable asset. When a credit card is used for consumer purchases it can become a trap and a never ending downward spiral into greater debt. When used for business purposes, a credit card enables you to make the most of opportunities if you do not have the ready cash.

When you identify an opportunity to buy a bargain that you know you can sell for a profit, then a credit card provides you with the cash to do the deal.

John Fitzgerald runs a private company and is worth hundreds of millions of dollars. Because he has a private company, he does not figure in the annual review of the wealthiest people. Forbes magazine and the like who evaluate people’s wealth annually to publish their annual list are unable to estimate the worth of private companies, so the owners are excluded from the list. Anyhow, John Fitzgerald began his road to wealth by using his credit card as a down payment on a property.

Cash may be king, but credit is the queen of wealth. The two go hand in hand. Together they rule the economy. Put another way, one person might be able to slay a thousand, but two people will be able to slay ten thousand, to quote an ancient proverb. A little cash and little credit and you are on your way.

Making money is all about leverage. To use leverage you need OPM.

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