How To Get Rich According To Ray Dalio

There are a million ways to make a million dollars, and in this video, we're looking at one of them. Ray Dalio, the founder of Bridgewater Associates, the largest hedge fund in the world, is a role model for the world of finance. With a net worth of over 19 billion dollars, Ray Dalio credits his tremendous success to a series of principles that he religiously followed throughout his life. We've collected the most important lessons from his journey, and after watching this video, you'll have no trouble walking in his footsteps. So let's grab a drink and dive in.

Welcome to alux.com: how to get rich according to Ray Dalio, a series by alux.com.

So first up, you need to understand the economic machine. When Ray Dalio talks about understanding the economic machine, he's basically asking you to wrap your head around how the economy works in its simplest form. Understanding the economy can prove to be a little bit complex, but it's entirely doable and seriously important. After all, the economy influences just about every aspect of our lives, from the job market to prices at the supermarket.

Now you might be wondering, how does one actually understand the economy? Well, good question! For starters, you could begin with the basics of supply and demand and how they affect prices. Get your hands dirty, as they say, with some good old-fashioned macroeconomics. Learning about GDP, unemployment rates, inflation, and monetary policy can help you to make sense of economic trends and cycles. This way, you make sure that you're not just blindly throwing your money at the stock market, real estate, or a business venture; you'll know what's going on and be able to make more informed decisions about your money.

Next up, use the five-step process to get what you want out of life. Ray Dalio's got this five-step process he believes can help most people get what they want out of life. So, here are the five steps: set clear goals, identify problems and don't tolerate them, diagnose your problems to find the root causes, design solutions to get around your problems, and do the tasks required to complete.

This process isn't just for financial goals; it's a blueprint for everything you want to achieve. The first step is about setting clear goals: so decide what you want in life and don't be vague about it. Saying you want to be rich isn't really a clear goal; stating you want to save a million dollars by the time you're 50—well, now that's something specific! The next steps are about identifying problems that can stop you from reaching your goals, diagnosing the root cause of the problems, and designing a plan to overcome them.

For instance, if your goal is to save a million dollars and you're barely scraping by each month, there is clearly a problem. The root cause might be your low-paying job or your lack of budgeting skills. Whatever the causes are, you need to design a plan to solve them, like acquiring new skills for a better job or cutting down on unnecessary expenses. And lastly, you have to push through the obstacles to execute your plan because planning without execution is like reading without remembering anything; it just doesn't make any sense.

Don't confuse what you wish were true with what is really true. This principle is about separating facts from fiction and reality from fantasy because, let's be honest, okay? It's all too easy to believe in what we want to be true. Maybe you want to believe that buying that lottery ticket every week is going to make you a millionaire, or investing all of your savings into that trendy new cryptocurrency is the fastest way to wealth. Wishful thinking like this can be dangerous because it's often not based on reality.

Instead of getting carried away by what you wish were true, focus on what is really true. What do the facts say? What does the data show? If you're considering an investment, do your research; look at the numbers, the market conditions, and the risks involved. If you're planning to start a business, don't just dream about the profits you could make—consider the costs, the competition, and the demand for your product or service. When focusing on reality, you'll be able to make sound decisions and avoid costly mistakes because, at the end of the day, no matter how much we wish for things, it's our actions based on reality that will shape our lives.

Understand the power of compound interest. Who wouldn't want to have their money work for them while they sleep, right? Well, that's exactly what the magic of compound interest can do for you. Here's a hot tip: start as early as possible. The more time you give your investments, the more you let compound interest do its magic. So don't just wait until you're earning the big bucks to start investing; even if you're pinching pennies right now, try to put some aside for investment. Your future self will thank you.

And remember, consistency is key. Keep contributing regularly to your investment pot and you'll be amazed at how it grows over time. It's not about getting rich quick; it's about getting wealthy slowly but surely.

Diversify your investments. Investing can be a little bit of a roller coaster. You'll have days where you feel like you've hit the jackpot, and others where you wish you'd never heard the word "stocks." But hey, there's a strategy to help soften those falls and potentially boost your returns, and it's diversification. So imagine putting all of your money in one stock, and if that stock tanks, you're left holding an empty bag—not very fun, is it?

Now, if you spread your investments across a variety of stocks, bonds, and maybe even some real estate, the impact of one performing poorly can be cushioned by the others doing well. But remember, okay? Diversification isn't about picking investments all willy-nilly; it's about finding the right mix that aligns with your goals, risk tolerance, and investment time frame. So don't just throw your money into different pots and hope for the best; no, you need to do your research and make sure you understand what you're investing in.

Learn how to convert your earnings into wealth. A lot of people think that becoming wealthy is about making a lot of money. Sure, that helps, but it's not the whole story. It's what you do with that money that really counts, and this is where converting your earnings into wealth comes into play.

So picture this: you've just received your paycheck. You're feeling pretty good, but then you start paying your bills, buying groceries, maybe splurge a little bit on that new gadget you've been eyeing, and before you know it, your account is looking a little bit bare. So how do you break this cycle? Well, the trick is to pay yourself first, and we're not suggesting you run out and buy that designer handbag you've been drooling over. No, paying yourself first means setting aside a portion of your earnings for savings and investments before you start spending. This way, you're gradually building wealth rather than just living paycheck to paycheck.

Turning earnings into wealth isn't a sprint; it's a marathon. But with discipline and patience, eventually, you'll cross that finish line.

Stress test your ideas. Got a killer idea you're totally jazzed about? Well, that's awesome! But take a step back for a minute before you go all in. It's smart to stress test it first, and this is just a fancy way of saying poke holes in your idea and see if it still holds up. Try to think of every possible scenario that could go wrong. Talk about it with others, especially those who might see things differently from you.

And yes, okay, it's a bit of a downer to hear about all the ways your idea could potentially crash and burn, but it's better to figure out the weak spots now than when you're knee-deep in execution. Doing this isn't just about finding the flaws; it's also a chance to improve and refine your idea. Each critique is an opportunity to make your ideas stronger, to cover your bases, and be prepared for anything. So don't see it as a negative thing; it's just a crucial step in the process of transforming your idea from okay to outstanding. And remember, the goal isn't to make your idea perfect; it's to make it better and more resilient.

Know when to cut losses. Look, okay? Nobody likes to admit that they've goofed up, but guess what? It happens to everyone. The crucial thing is to know when to call it quits and cut your losses. Whether it's an investment that's tanked or a business venture that's not panning out, there comes a point when it's smarter to walk away than to keep throwing good money after bad.

It's like if you're playing poker and you've got a bum hand: you're better off folding than going all in and losing even more. The trick here is to try and separate the emotions from the decision. And yes, okay, it's tough. We all get attached to our ideas and projects, but sometimes you've got to take a step back and take a hard, cold look at the facts. Are you still in this because it makes sense or because you're being stubborn? Remember, there's no shame in admitting something isn't working. In fact, it takes a lot of courage. And when you do, you free up your resources—both time and money—to pursue the next big thing.

Don't let the fear of mistakes stop you from taking risks. Okay, here is the deal: risk is scary; there's no doubt about that. The idea of losing money or failing is enough to make almost anyone break out in a cold sweat. But here's another truth: you're not gonna get anywhere exciting without taking a few risks. So don't let the fear of making mistakes stop you from taking calculated risks. Sure, you might mess up; in fact, you probably will at some point. But remember, mistakes are not the end of the world; they're just how we learn and grow.

Think about it: you wouldn't know how to walk if you hadn't fallen over a few hundred times first, right? Well, this is pretty much the same deal. Plus, the thing about taking risks is that when they pay off, they can really pay off big time. So embrace the possibility of messing up; it's just a part of the journey to success.

Go ahead, take that leap, Galax, or just make sure you're not jumping off a cliff without a parachute.

Embrace reality and deal with it. Look, this one is straightforward yet kind of tricky. Embrace reality and deal with it. Okay, so what does that mean? It's like getting up in the morning, looking in the mirror, and saying, “Yup, this is me, warts and all.” No sugar-coating or rose-tinted glasses here.

The same goes for your financial life. Got debt? Acknowledge them. Not saving enough? Admit it. It's all about being brutally honest with yourself and where you stand. Then, once you've got a clear-eyed view of your situation, it's time to deal with it. And by "deal with it," we mean take the bull by the horns and start making those tough decisions: budgeting, saving, investing—whatever needs to be done to get your finances on the right track. Remember, it's not about being perfect; it's about being real.

Adapt to the cyclical nature of the economies. We all know that economies have this roller coaster thing going on. One minute they're up; the next minute they're down. And just like you would prep for a roller coaster ride, you've got to prepare for those economic swings too. It's like surfing: you ride the waves; you don't fight them. So when the economy is booming, maybe it's a good time to invest or expand your business. But when it's in a slump, it could be a good moment to tighten your belt and save for the future.

But keep in mind, though: the trick is to not just survive these economic cycles, but to adapt and make them work in your favor. Stay informed, stay flexible, and remember that the only constant in life is change.

Maintain a long-term perspective. In a world obsessed with now, it's easy to forget the value of later. When it comes to wealth, it's crucial to maintain a long-term perspective. Think of it as a marathon and not a sprint. Sure, you might make some quick cash here and there with short-term investments or business deals, but sustainable wealth—that takes time. It's about making decisions now that your future self will thank you for: investing wisely, saving regularly, planning for retirement, all with the understanding that these actions will pay off down the line.

So even when things seem tough, hold on to your long-term view. It's like keeping your eyes on the horizon during a storm, knowing that clear skies are ahead. Remember, Rome wasn't built in a day, and neither is wealth.

Be flexible and adaptable. In the financial world, being flexible and adaptable is key. Markets are dynamic, changing every day based on a variety of factors, and sticking to a rigid plan might mean missing out on opportunities or riding out losses when a change of course would be wise.

It's crucial to monitor your investments and adjust your strategies as necessary, depending on the economic environment and personal financial circumstances. It's also important to remain adaptable in your financial learning. Stay up to date with new strategies, investment vehicles, and financial tools. This is a thing that Ray Dalio does even in his old age—no excuses!

Understand the principles of successful negotiation. Negotiation is an art, a fine dance between knowing your worth and appreciating the others. You want to master this art? Start by doing your homework. Understand the stakes, know your limits, and step into the other person's shoes.

See, negotiation isn't a boxing match—it's more like a potluck dinner. Both parties got to bring something to the table. And remember: patience and perspective are your best allies. Keep your cool, don't rush, and with time, you'll develop a sixth sense for sniffing out the sweet spots in any deal.

Ensure that those who work with you understand your expectations. All right, let's get this straight: you've got a dream team, but they're clueless about what you expect? You're all in a fancy car going nowhere. Don't leave your team second-guessing or decoding hidden messages. Keep it clear, keep it transparent. No one's a fan of surprises—least of all in the workplace!

So regularly check in with them, not just to see if tasks are getting done, but also to ensure they're still on the same page as you. And don't forget to listen; their insights might just open your eyes to possibilities that you never saw. Remember, getting rich on your own is close to impossible. You need a great and committed team to make it happen.

And there you have it, Alux. This is just one of the millions of ways to get rich, as we'll explore in the future entries of this series. Ray Dalio also wrote a number of books that we suggest you read to take your knowledge to the next level. You can start with "Principles for Dealing with a Changing World Order" and his old-time classic, "Principles."

And with that being said, we hope you found this video valuable. Alux, give us a thumbs up and a share if you did, and we're curious: who should we do next? Let us know in the comments, and we'll see you back here next time.