One distinguishing factor that sets the wealthy and the super-wealthy apart isn’t just the volume of money they have stored up; the major thing is how they manage their money. Successful billionaires like Bill Gates and Warren Buffet have a lot of attributes- creativity, determination, success drive, and a desire to grow from challenges, but one attribute that is very pivotal to their success is how they manage their finances in a bid to ensure it is safe, secured and most especially, invested to increase and grow. So in the true sense, being financially successful is not defined by how fast they earn and spend money, but about respecting the principles that protect it, and allow it to multiply and grow on a long term basis. For billionaires, money management holds more importance than actually spending money. They understand that it is quite impossible to attain financial stability without first being able to manage the money you already have. Some people think they have problems as regards generating income/wealth, when as a matter of fact, what they have is a money management problem, and this is what keeps holding them back from attaining financial success. And if they work more at managing, investing, and leveraging their income instead of squandering it as it comes on insignificant things, they improve their chance of attaining the billionaire status with time.
Here are some ways Billionaires manage their money:
- THEY PRESERVE CAPITAL
A lot of people get their hands on good capital-salary, dividends, or just drawing from their business-only to erode it so quickly on liabilities like cars and some consumer goods. Billionaires understand the fact that though you do not need money to make money, however, money attracts more money to itself. They carefully consider investments that can earn them good interests and go for it.
- THEY INVEST IN ASSETS, NOT LIABILITIES
Billionaires are particular about investing only in assets, instead of acquiring liabilities which constantly depreciates in value and results in a waste of money. They know that capital produces income if and when it is invested in assets, so they buy assets which will appreciate in value in the long run, thereby generating income. Taking the case of Dmitry Rybolovlev as example, the Russian Billionaire practically turned Monaco into a financially successful club after he purchased a 66% stake in the club in 2011, and the club, under his administration, was said to have been transformed in the interim years, majorly because they adopted a transfer policy of buying low, selling high.
- THEY UNDERSTAND THEIR BURN RATE
Burn rate is the amount of time over which your capital reserves erode or gets finished, that is if they were the only means of funding fixed costs. It can be measured in days, months, and then in years. Billionaires have a very clear understanding of what their burn rate is as individuals, and for their business.
- THEY ARE NOT UNREALISTIC ABOUT RETURN ON CASH
Billionaires understand that they can receive infinite returns on some investments and they take good advantage of this. They invest in a property, for instance, knowing that it may go up in value, and then they remove their original capital out of it, and retain the investment property in a new asset. They are not greedy when it comes to capital invested in cash savings, thereby losing sight of the reality. They see returns on cash as another chance at more investments.
- THEY UNDERSTAND THE CASH-FLOW CYCLE
Billionaires understand the cash-flow of their business and they strive continually and constantly to improve it. Their aim is always to reduce their business or personal cash-flow cycle to as few or negative numbers of days as possible, knowing that a long cash-flow cycle can really burn their business.