It is common misconception that the rich get richer and the poor get poorer because you need money to make money.
This is simply not true. Otherwise where do rags to riches stories come about?
So here let me explain the power of equity.
3 types of equity
There are fundamentally 3 types of equity that is similar to money. There are:
- Sweat equity
- Information equity
- Money equity
What equity means basically, is an asset that holds value. You can use these to exchange for things, much like money.
Sweat equity is the asset of putting your energy to work. You have almost an infinite amount of sweat equity that replenishes itself as long as your alive.
Most people use this equity in their everyday life. They go to their 9-5 jobs and put in the work to make money.
In business, you use your sweat equity to build your business if you don't have money.
You work your ass off, but in a way, is the same as money. You're just trading your work instead of money to get things done.
Another thing that holds extreme value is information equity. It is the basis of knowledge that you can trade for money.
If you have information that others want, their is a value for this.
An example would be selling advice for buying stocks. Many books are created through information equity, where one trades their knowledge that is written in a book for money.
Information equity is best know for specialized occupations such as stock brokers, lawyers, and doctors.
Money equity is simply money. You use money to make money. You can invest in the stock market or create advertisements.
Using money to make money is the FASTEST and EASIEST way to make money. This is where the quote "you need money to make money" comes from.
It is the easiest way to make money is because, you don't really need to do much. The money solves problems for you. In almost every problem in running a business, if you have enough money, you can just throw money at it to solve the problem.
You can grow your business a lot faster by using money to hire a lot of people. You can use large scale advertisements. You can invest in upscale projects like apartments and hotels because of the lack of competition.
How to use all three equity when you start
Despite the fact that money equity is the dominant money maker, it doesn't mean it is the end all. What your goal is though, is to get there.
For most businesses, when you start, you would probably use 40% sweat equity, 40% information equity, and 20% money equity.
When you start a business you have to work hard to get cash flow. You also need to know what you are doing. If you don't have knowledge of your business, then you will probably not succeed.
When your business is stable and you have cash flow coming in, then you can adjust you equity.
At this point you will be using 20% sweat equity, 50 % information equity, and 30% money equity.
Because you have workers, you don't have to physically work as hard. Instead you use your knowledge to run a business to make more money.
Once you get towards the end where your business is self sufficient, then you would reach the late stages of your business.
In the late stage of your business, you will be using 10% sweat equity, 30% information equity, and 60% money equity.
At this point, you want to use the money that you made to create more money since it is the fastest way.
Even though you can use money to make money, it is not always the case. If you don't have money, you just have to compensate it with sweat equity and information equity. Being smart and hard working is hard, but if you utilize it correctly, you can perform at the same level as the rich people. Eventually you yourself, will then be able to use money to make money.