Can you sense the depth behind this one line – “how old are you and what is your net worth?” Would you mind if I ask you about your savings so far?
Google it guys and I am damn sure that you gonna find a hell lot philosophies about living in the present, savings, money making tips, how to become rich, and how I made one billion dollars in so and so time. Cut the crap. Stop the bullshit. Rich becomes richer and poor is becoming more poorer. No one out there is going to tell you the real logic behind this rich vs. poor thing. Interested? Read here.
We need basic financial understanding for this. In accounting – we have four main things – Income, Expenses, Assets, and Liabilities. Now a brief about these.
Income – whatever you are earning regardless of the source, is your income.
Expenses – things you have no control on when it is about spending money like utility bills, and other taxes.
Assets – things on which you invest your money and they add up a few more figures to your income section.
Liabilities – spending that you can easily control or avoid like home loans, car loans, lifestyle loans, and other useless expenses with no return at all.
How to deal with these four blocks (incomes, expenses, assets, and liabilities) can predict your financial future. Let us understand how?
Category 1 – Poor People
This is a group of people with fixed income and changeless expenses. For these group of people, meeting their expenses is the only motive behind their earning. There is no question of assets and liabilities in this case. No change in income means no chance of any financial improvement.
Category 2 –Medium People
I have a good income; at least I am earning more than a poor person. But, after meeting my unalterable expenses, I disburse rest of the portion of my income among liabilities.
In simpler terms – with every salary increment, I look for things with which I can tell the world about my salary increments. I buy a luxury car on loan, I buy a new house on loan, I buy family vacations on loan, and so on.I am earning for paying EMIs (easy month installments) and a major part of my income is going into the pocket of the pocket whom I owe money (loans).
Again, no question of assets. Finally, no chance of becoming rich.
Category 3 – Rich People
This is the group of smart people; maximum part of their income is going into their assets section. After meeting their fixed expenses, the prefer to put the remaining amount into the assets section. They know that investing in assets is going to bring them real time returns; hence a chance in income.
With every addition to the assets, they not only increase the number of assets, but also expanding the radius of their assets’ circle and reducing the diameter of liabilities’ circle.
Investing in assets will bring more income and more income invested in assets will bring more assets. This is how they become rich.
But, you cannot do this without an expert’s help. Not everyone can learn financial tactics and it is not advisable as well. Finance is a tough thing to master. For this, you need an expert financial planner’s advice. Are you looking for one? Subscribe now and get instant access to countless financial suggestions.