There is a huge misconception that most people have about ultra-rich people and money. It’s not that these billionaires sit on mountains of money and don’t do anything but invent new ways of spending it. Nothing could be further from the truth. Keeping $1 billion ( > ₹ 7300 Crore) in cash would cause up to a $135,000 opportunity cost each and every day. It just doesn’t make sense. Almost all of the wealth billionaires own is in the companies they own, in the stock of other companies, in real estate, and other assets. Billionaires don’t see money as something to spend on themselves. Money is there to invest and create. It is a form of universal energy in a business that allows them to make things happen, to turn their visions into reality.
Learn to Handle Money
Tim Draper learned to invest and understand money as early as age nine.
“My dad got me investing when I was nine years old. I was able to buy one share of a stock with my pocket money. It was Mutual of Omaha.
The stock didn’t move much. Then I also put $10 in the bank and watched that, and not much happened to that either. I got 5% a year or something. I think it was 10% a year for a little while. So I thought, “Wow, that’s pretty good. It was a dollar, and now it’s $1.10.”
He got me going early as an investor, and that turned out to have a big impact on me, because when I got started in the venture business, I borrowed money from the SBA, a small business investment company. And when I was trying to borrow the money, I was 26 years old or something, and one of the conditions was you’ve got to have 10 years of investment experience. I said, “I’ve been investing since I was 9.” The guy goes, “Okay!”
So it helped that I got started early. I think it was great that I had an allowance. Allowance was really important so we understood the value of money. And the job in the garden. I didn’t always love working, but I loved getting my penny a minute. I’d always think “a minute went by, I got another penny.”
(Tim Draper (born 1958) is an American venture capital investor, and founder of Draper Fisher Jurvetson (DFJ), Draper University, Draper Venture Network, Draper Associates, and Draper Goren Holm. His most prominent investments include Baidu, Hotmail, Skype, Tesla, SpaceX, AngelList, SolarCity, Ring, Twitter, DocuSign, Coinbase, Robinhood, Ancestry.com, Twitch, Cruise Automation, and Focus Media.)
Cash Flow is King
Chip Wilson was earning substantial money as an employee starting at 18, but he didn’t learn how to handle it properly until he was 20.
“I got a job working on the Alaska oil pipeline, and I was the highest-paid laborer in the world. I was 18 when I went there, maybe even 17, and I made, I think in today’s dollars, about $700,000 in about a year and a half. Unbelievable money.
But I worked 18, 19 hours a day, and there was nowhere else to go. I took no time off. I had to leave because I was grinding my teeth. No way to spend the money. But I sent my money back and I bought a house with three suites in it. I lived in one after I came back, and then I rented the other two out, which got me into thinking about cash flow and property.
The big mistake there were I put a down payment on my house, but at that time, interest rates were 19%. So I had all this money in my bank account making me 2% interest, and I’m paying 19% on my mortgage. I didn’t understand to shift my money from the bank into my mortgage so I wouldn’t have to pay the interest rates. Cash flow is king.”
As soon as he solved the problem, the money started to accumulate. This made him wealthy before the age of 25.
(Chip Wilson (born 1955) is a Canadian billionaire, businessman, and philanthropist, who has founded several retail apparel companies, most notably yoga-inspired athletic apparel company Lululemon Athletica Inc. Wilson is widely considered to be the creator of the athleisure trend. )
Control Your Spending
Realize that whatever amount you cut your cost, it goes 100% toward your profit, and you would need a multiple of it in revenue in order to earn it otherwise.
Frank Hasenfratz (born 1935) is a Hungarian-born Canadian billionaire businessman, the founder, and owner of the car parts maker Linamar. He started a one-man machine shop in his basement in 1964 and then incorporated it in 1966 under the name Linamar after his two daughters Linda, Nancy, and his wife Margaret.
Frank Hasenfratz is the world champion in cutting costs in the business. After his daughter stepped in as CEO, he focused on his Cost Attack Team (CAT), which he created to do nothing other than finding opportunities to save money within the organization.
You’ve got to keep in mind, you make let’s say 10% profit—if I can save $160,000 here, that took me 1 hour. I’ve got to make $1.6 million worth of work on the floor to make a $160,000 profit.
Practice cost control and don’t spend more than necessary. Frank gets millions in savings for his Linamar company each and every year.
The writer asked Frank to give me an example of a cost-cutting measure.
A silly thing, yesterday. Each machine has a conveyor to take the chips out. We look at the first operation, the conveyor goes, but there’s no chips. Very little chips. My assistant Alex said, “Wow, all the conveyors are running, but they’re taking small cuts. A conveyor has 5 horsepower. That’s roughly 4-kilowatt hour electricity use. A kilowatt-hour is 11 cents, so that’s 44 cents, times 24 hours, it’s roughly $10 a day. Why not program it? You can program a computer to run the conveyor every 30 minutes for 5 minutes.” I said, “You notice anything else? Okay, that’s a good one.” We have 400 machines there, and $10 a day times 400, you’ve got $4,000 a day. (Content inspired from ‘The Billion Dollar Secret’ by Rafael Badziag)
“An investment in knowledge pays the best interest.” – Benjamin Franklin