You want to become rich! Make your money work for you 24×7, 365 days a year. Do we know how people become rich? They invest money in creating assets and poor people create liabilities.
So before we proceed, let’s understand in simple language what is an asset and a liability
An asset is anything that puts money in your pocket and a liability takes out the money from your pocket.
If we draw the cash flow diagram of poor and rich people, it would look like this
Poor people keep buying liabilities (personal, car, credit card, home loans, etc) from their income whereas rich people keep creating assets (real estate, bonds, dividends, stocks, businesses, etc) from their income, and the time comes when their assets grow so big that not only they take care of the expenses but also start adding to income. So poor people keep working for money all their life whereas the rich make their money work for them.
George S. Clason in his book The Richest Man in Babylon, explains that each dollar is like a worker and this worker has the ability to produce many more workers if we know how to! Each dollar is like a seed that can grow and sprout many more dollars if we know how to do it.
Money lying in savings account at 2.5% annual return against the inflation of 5.85% is not going to contribute towards our richness. It needs to find its way towards better income-generating assets without compromising on liquidity and safety.
- Personal, credit card, car, home loans, etc. Cost of borrowing money is huge and prevent us from creating assets
- Buying items that are not needed, e.g expensive gadgets. Avoid buying these gadgets from hard-earned income; instead, buy them from the profits which your existing money has created
- Mindset, we can not make millions if we think about thousands
- Commercial real estate, Bonds, Dividend, Stocks
- Businesses, Capital gains, Rental income
- Intellectual Property, Royalties, etc
- Take out money from your income for investments before spending
- Make money work for you by selecting the correct asset class
- Plan for the long term, start investing early for the magic of compounding to work
- Work towards generating regular passive income
- Invest in yourself; read books, attend courses on the subject of your interest, eat healthily and stay fit
- Financial awareness gives more options to invest smartly
- There is a lot we don’t know but there is far more that we don’t even know we don’t know; that’s where the riches lie
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