Spending everything you’ve earned is at the heart of Amazon‘s ingenious investment strategy and it works wonders.
That new economic idea calls for money to be spent rather than saved
In order for our readers to properly understand the main point of this article, it is necessary first to clarify some things related to finances and their spending. In mid-summer, RichDad published an article titled Spend It If You Got It. Its basic idea is that traditional accumulation in the form of saving money is evil, as opposed to spending all the money earned.
At first glance, such advice may seem like complete nonsense, especially for rational thinkers with classical economic education who have had the traditionally correct practices of working, and saving money drilled into their heads for years. The very idea of trying to build wealth by spending everything seems wild and unacceptable for some. But is it really so?
How are money resources managed by the middle class?
The main reason because of which the conservative middle class described above consider the building up of wealth by spending money impossible, is the misunderstanding of the very notion of “spending money”.
The overwhelming majority understands spending as just purchasing liabilities such as houses, cars, appliances, clothes, package tours, etc.
By spending their money on paying for services, consumer goods, food, etc., working people nearly always have to live from paycheck to paycheck, and the more they earn the more they spend (buy a larger house, a newer car, go to expensive restaurants). Not surprisingly, they see the only way to overcome this vicious circle in saving as much of their income as possible.
How do the rich spend their money?
Someone once said:
Don’t let your money in your wallet grow rank.
Despite its simplicity, this statement perfectly characterizes the whole essence of the problem: not only does money withdrawn from circulation not generate income, but over time it is gradually devalued by inflation and devaluation.
The maximum that most middle-class people do is investing a small part of their free funds in securities or foreign currency deposits on a long-term basis, and withdrawing and spending a small amount from their investments, which differs radically from the strategy used by the rich.
Rich people do not hold most of their money in liabilities or cash, but they rather buy assets with good growth potential, ones that give a passive profit. Money should always be in circulation, that is the only way it can generate new money, and the need for work (often unloved) for the sake of obtaining funds to meet expenses will disappear altogether in the end.
An employee, even with a high salary, is still an employee who “tills and toils for an uncle”, and is completely dependent on the latter’s will. An investor is a rentier, he lives from a passive income, does not depend on anyone, and additional work for him (if any) is a highly paid hobby, which, if he wants to, he can ditch at any time and start something else.
As for the return on assets, instead of immediately withdrawing, the rich almost always reinvest, trying to use the compound interest to further accelerate the growth of their capital, and this is another significant difference between their investment approach and that of the working and middle class.
Amazon’s investment strategy
And now we’ve come to the main point of the article – Amazon’s investment strategy.
Since the opening of a small online bookstore in Jeff Bezos’ garage in 1994 to this day the company has come a very long way increasing its capital from 438 million US dollars during the 1997 IPO to 460 billion. However, where does all this profit go?
Since 1998, Amazon has bought 76 companies, the largest one is a chain of 400 Whole Foods supermarkets, specializing in the sale of organic products (according to experts’ estimates, the price of the deal was 13.7 billion US dollars.) There are also rumors that Amazon wants to buy a popular chat software named Slack, and the deal could reach up to around 9 billion US dollars.
It is often said that Amazon doesn’t have a huge income, but this isn’t true. As RANI MOLLA and JASON DEL REY said, Mr. Bezos thinks mainly about the movement of funds, and not about the net income.
Jeff Bezos knows that operating cash flow gives the company the money it needs to invest in everything that keeps it ahead of their competitors.
The right way to spend your money
You need to have willpower to not spend money and save it instead, but for you to be able to spend money you need requires not only some patience, but an objective understanding of expenses as well. The main point of advice is that spending all available funds on profitable assets with subsequent reinvestment of profits is not only possible and necessary, but preferable, and the example of Amazon clearly proves it. Strict discipline toward income received and competent investment of profits in promising assets made that company very large, and very rich.
When Robert and his wife Kim Kiyosaki first started performing as a couple, they decided to be as orderly as Bezos and Amazon. That meant that in the beginning they invested in the first and most important expense.
They didn’t have a lot of money at the time, and frankly, they didn’t even have enough to pay their bills or to invest either. However, they instructed their accountant to pay the investment costs first.
The accountant screamed and shouted, saying that Robert and Kim should pay their bills first. But they remained unyielding, always paying the investment costs first and foremost. After that they sat down and figured out how to pay the bills. Sometimes it meant getting some extra work, other times it meant negotiating with the people they owed to. It all worked out great in the end. Robert and Kim invested, paid their bills, even if sometimes they were a little behind.
This decision allowed them to act like Amazon does. And for many years the Kiyosakis’s cashflow has been rising, just like that of Amazon.
The good news is that anyone can do that – even you.