Ray Dalio is rich AF. He’s the founder of Bridgewater Associates, the largest hedge fund in the world.
We’ve collected the most important lessons from Ray Dailo on how to get rich, so after reading this article, you will have no trouble walking in his footsteps.
This is the 4th entry in the series “How to get rich according to …”. If you want to learn from different POVs, you can find the previous entries here, here, and here.
So grab a drink, get comfortable, and let’s discover how to get rich according to Ray Dalio.
Don’t worry if you don’t feel like reading, you can enjoy the video below or watch it on YouTube:
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Lesson #1 – Understand the Economic Machine
Getting rich like Ray Dalio means understanding the ins and outs of the “Economic Machine”.
Understanding the economy can prove to be a little 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 the prices at the supermarket.
Now, you might be wondering: “How does one actually understand the economy?”
For starters, you could begin with the basics of supply and demand and how they affect prices.
Get your ”hands dirty” with some good old-fashioned macroeconomics, learning about GDP, unemployment rates, inflation, and monetary policy.
Understanding these economic indicators can help you 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.
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Lesson #2 – Use the 5-step process to get what you want out of life
So, Ray Dalio has this five-step process he believes can help most people get rich:
- Set clear goals.
- Identify problems and don’t tolerate them.
- Diagnose your problems to find their root causes.
- Design solutions to get around problems.
- Do the tasks required to complete them.
This process isn’t just for your financial goals; it’s a blueprint for everything you want to achieve.
The first step is setting clear goals.
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—now that’s something specific.
The next steps are about identifying problems that can stop you from reaching your goals. Diagnose the root cause of these problems, and design a plan to overcome them.
If your goal is to save a million bucks and you’re barely scraping by each month, there’s clearly a problem.
The root cause might be your low-paying job or your lack of budgeting skills.
Whatever the root causes are, you need to design a plan to solve them. Something like acquiring new skills for a better job or cutting down on unnecessary expenses.
Lastly, you have to push through the obstacles to execute your plan.
Because planning without execution is like reading without memorizing anything.
It just doesn’t make sense.
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Lesson #3 – 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.
Let’s be honest, it’s all too easy to believe 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 that investing all your savings in 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 true. This is basic knowledge for anyone that wants to get rich like Ray Dalio.
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 you focus 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 shape our lives.
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Lesson #4 – Understand the power of compound interest
Who wouldn’t want to have their money work for them while they sleep?
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 wait till you’re earning big bucks to start investing.
Even if you’re pinching pennies 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 quickly, it’s about getting wealthy slowly, but surely.
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Lesson #5 – Diversify your investments
Investing can be a bit of a rollercoaster.
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 – diversification.
Imagine putting all your money in one stock. If that stock tanks, you’re left holding an empty bag. Not fun, right?
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, diversification isn’t just about picking out investments ”willy-nilly”.
Diversification is about finding the right mix that aligns with your goals, risk tolerance, and investment timeframe.
So, don’t just throw your money into different pots and hope for the best.
Again, do your research and make sure you understand what you’re investing in.
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Lesson #6 – 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 Ray Dalio has this straight when it comes to getting rich.
And this is where converting your earnings into wealth comes into play.
Picture this: you’ve just received your paycheck. You’re feeling pretty good. But then, you start paying bills, buying groceries, and maybe splurging a bit on that new gadget you’ve been eyeing.
Before you know it, your account is looking a little bare. So, how do you break this cycle? Well, the trick is to pay yourself first.
No, we are not suggesting you run out and buy that designer handbag you’ve been drooling over.
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, you’ll eventually cross that finish line.
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Lesson #7 – Stress test your ideas
Got a killer idea you’re totally jazzed about? That’s awesome! But take a step back for a bit.
Before you go all-in, it’s smart to stress-test it first. That’s a fancy way of saying “Poke holes in your idea to see if it holds up”.
In fact, try to think of every possible scenario where it could go wrong. According to Ray Dalio, you’ll get rich once you’re prepared for any outcome.
Talk to others about it, especially those who might see things differently than you.
Yeah, it might be a bit of a downer hearing 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.
Stress testing isn’t just about finding flaws. It’s also a chance to improve and refine your idea.
Each critique is an opportunity to make your idea stronger, 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.
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Lesson # 8 – Know when to cut losses
Look, no one likes to admit they’ve goofed up.
But guess what? It happens to everyone! The crucial thing is knowing 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.
According to Ray Dalio, the trick to getting rich is to try to separate your emotions from the decision.
Yeah, 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.
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Don’t let fear of mistakes stop you from taking risks
Here’s the deal: risk is scary, no doubt about it.
The idea of losing money or failing is enough to make anyone break out in a cold sweat.
But here’s another truth: you’re not going to 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 mistakes are not the end of the world, they’re 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? Same deal.
Plus, the thing about taking risks is that when they pay off, they can pay off big time. So embrace the possibility of messing up. It’s just part of the journey to success.
In fact, go ahead and take that leap. Just make sure you’re not jumping off a cliff without a parachute!
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Embrace reality and deal with it
Look, this one is straightforward yet tricky.
Embrace reality and deal with it! Ok, but what does it even 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 debts? Acknowledge them. Not saving enough? Admit it. It’s all about being brutally honest with yourself about 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.
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Adapt to the cyclical nature of the economies
We all know that economies have this roller-coaster thing going on.
In the same way, one minute they’re up, and the next they’re down.
And just like you’d prepare for a roller-coaster ride, you’ve got to prepare for these economic swings too.
It’s like surfing. You should ride the waves, not 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 the moment to tighten your belt and save for the future.
Keep in mind that the trick is not just to survive these economic cycles, but to adapt and make them work in your favor.
Finally. stay informed, stay flexible, and remember, the only constant is change.
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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. Ray Dalio often underlines the importance of long-term vision when he talks about getting rich.
Think of it as a marathon, not a sprint. Sure, you might make some quick cash 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, and planning for retirement, all with the understanding that these actions will pay off down the line.
So, even when things seem tough, hold onto your long-term view. It’s like keeping your eyes on the horizon during a storm, knowing clear skies are ahead.
Lastly, remember that Rome wasn’t built in a day, and neither is wealth.
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Be Flexible. Be 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.
A thing that Ray Dalio does even in his old age. No excuses.
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Understand the principles of successful negotiation
Negotiation is an art, a fine dance between knowing your worth and appreciating others.
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, and both parties have to bring something to the table.
Furthermore, keep in mind that patience and perseverance 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.
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Ensure that those who work with you understand your expectations
Alright, let’s get this straight.
You’ve got a dream team, but if 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 clean and transparent.
Moreover, no one’s a fan of surprises, at least not in the workplace.
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.
Finally, don’t forget to listen.
Their insights might just open your eyes to possibilities you never saw.
Remember, getting rich on your own is close to impossible. You need a great and committed team to make it happen.
Now that you know how to get rich according to Ray Dalio, all that’s left is to start taking action based on what you just learned. Apply, adapt, and win. See you next time!
