In order to become financially rich we much think in terms of financial statements. When I first read this statement I was around 25 years of age. Neither I knew about financial statements nor I was worried about becoming financially rich. Those were the years to enjoy and I did just that. But it did not took me long to realize that money is a important factor of life. Since that day I have started my endeavour to become financially rich. It was important for me to first define what it means to become financially rich. For me, in order to become financially rich, first important milestone is achievement of financial independence. Instead of focusing my attention on becoming rich, I decided to target my energy to a more quantifiable milestone which is financial independence.
In order to become financially rich one must have definite goals. If goals are strong and motivating, it helps realization of financial independence faster. This goal is like a search-light in the dark ocean. It give a sense of direction and focus in times of delusion. For me financial independence works like a magic. I hate to work for someone else and make him rich. Instead I would like to work for self in such a way that everyday I reach one step closer to financial independence. Unfortunately, we salaried people do not have enough time to also work for self. Most of the productive hours are spent working in office. This is what we can call as Financial Dependence. We are dependent on our employer for the monthly pay cheque. In order to manage our expenses and liabilities of life we need that monthly pay cheque. Many feel very satisfied when they get a fat pay cheque form their employer. These are same people who drive expensive cars, live in posh homes and enjoy other luxuries of life. But in order to afford these amenities what price they are paying? The biggest compromise is made with their independence. The higher you earn from your employer, more dependent you are becoming. Time spent by people at work is immense, each day they spend 9/10 hours in office. If one can invested same time working for self, becoming financially rich will be a close reality.
Work for self and Become Financially Rich
No body else can make you financially rich. We have to take the control in our own hands. Work for self and become financially rich. To begin with, give yourself at least one hour each day. Take steps so that each day you inch one step closer to financial independence. This journey is slow, but the main problem is there are big chance that you take one step forward and two backwards.
Majority of population started opting for jobs after industrial revolution. Before that, people were mostly self employed and they used to work for self. But Industrial revolution made earning simple. Getting a job and earning a mediocre wage became so easy that people avoided the painstaking process of working for self. Students soon-after passing out of college were absorbed by Industries. Within few days the same boys in college became professionals and started earning for themselves. It creates a atmosphere of euphoria for everyone, the boy is happy because he became less dependent on his parents. Parents are happy that child’s future is secures. The company is happy that they got one more who can work as a slave for them. It was a perfect atmosphere of win-win condition for all. But what people missed within this sequence of events that, industrialization is creating a huge dis-balance in prosperity and wealth creation. Few industrialists were making huge profits and balance working class continued to work for 10% annual increment. Today people have got so used to doing a job that concepts of financial independence needs to be re-taught. People have un-learnt and forgotten the ways to build wealth by themselves. In the process of doing jobs, the creativity and innovation has stopped functioning. Study hard, get good grades and joins a big firm; this is all what is taught in schools and colleges. Our job has made easy money too accessible for us that we have stopped thinking creatively. We have stopped any attempts of innovation. These days we we are not trained to exercise innovation by our mind. We are more comfortable reading and learning. How many of us can see a falling apply and will question why it falling and now flying? We may be excellent in solving complex calculus mathematics but when it comes to innovating and producing “new” we fail miserably. According to me, more than industrial revolution, our education system is more responsible for producing this financial dependency. If these candidates do not get a job they will fall into peril. Students are not trained to lead but only to follow. Industrial revolution has created a biggest casualty in human beings by making them financially illiterate and hugely financially dependent. Get out of this dependency trap and start working for self. Innovation will automatically come when your persistently work for yourself. When I say work for self, it means work to become financially independent.
In order to Become Financially Rich one much Develop Financial Intelligence
One reason why we are not financially rich is because we do have necessary financial know-hows. It is not important to be only self-employed to become rich. Working for self does not necessarily mean self employed. If we are taking steps to make self financially independent then we are working for self. In order to do this effectively, we shall change our status form financially illiterate to financially intelligent. Lets first define what it means to become financially rich. The word RICH is a comparative term. Compared to Africa, Asia is rich. Compared to Asia, South America is rich. Compared to South America, USA & Australia is rich. So we can call a person or thing rich or poor depending on with what we are comparing them.
There is no absolute value of wealth which will prove that a person is rich or poor. A person with a fat pay-cheque need not necessarily be rich. A person is said to be rich only when he is financially independent, he affords to spend on luxuries and still make handsome savings.
Importance of ASSET accumulation in becoming Financially Rich
In order to become financially rich we must develop a portfolio full of income generating assets. A salaried person may be earning handsomely, but in order to become rich he/she must accumulate asset. The definition of asset is very simple, any things generates net income (without working for it) is an asset. By this definition our job is not an asset. Salaried people (or even a business men) shall channel their salary income towards accumulating assets. Income generating assets assures future cash in-flow without having to work for it. The higher is the income from an asset the richer we become. At a particular point of time a stage will come when income from asset will be higher enough to support financial independence. This will be a big milestone in becoming financially rich.
Since the age of industrial revolution people have started considering financial richness and financial independence as two separate phenomenon. If we have to become financially rich we cannot think about them in isolation. In reality financial richness and financial independence are interrelated such that one feeds the other. The richer one is, the more financially independent he/she must get. At one stage the person becomes so financially independent that they start affording luxury from their portfolio income. The final stage of becoming rich is when one begins to save from their portfolio income.
In order to become financially rich one must control needless spending
Financially illiterate people earns money without ensuring their financial independence. Who does not want to become rich, but we fail to realize the important milestones of achieving this goal. Without first achieving financial independence we cannot become rich. Instead of taking steps to achieve financial independence we keep dreaming about getting rich. We continue to spend money on everything except assets. The more we earn the more we spend needlessly. Instead of accumulating we continue spending money like trash or else we accumulate only liabilities. If we sit back and think what we gathered we will find a list of only liabilities. Some common liabilities are like home, cars, tv, frigde, air conditioner, mobile phones etc. These are those items which increase our spending.
It is not that rich people do not buy liabilities. But in their priority list spending on liability comes after financial independence. Rich people spend on luxury items after they have ensured financial independence for themselves. The difference between a financially illiterate and financially intelligent person can be understood form this example. There were two friends Jack & Sam. Both friends need $1000/month to manage their livelihood. Sam being financially illiterate, decided to search for a job to generate $1000. But Jack being financially intelligent thought of doing job to develop a portfolio full of assets. Jack’s target was to build a portfolio big enough that it can generate income of $1000/month. Whether Jack works or not his assets will earn him sufficient income to manage his liabilities. But as Sam was not focusing on building asset, his dependency on his job will be maximum.
People must develop their financial intelligence to realize the importance of asset. In the process of getting financially intelligent we start thinking about money in terms of financial statements. Financial statements are Profit and Loss accounts, Balance Sheet & Cash Flow Statements. I know it may look intimidating to think money in terms of financial statements, but this habit is worth developing. I learnt this concept from Kiyosaki, and I am complete in debt for this man. In terms of financial statements, a poor man, a middle class man and a rich man will look like this:
Achievement of financial independence is the way to become financially rich. After one achieves financial independence only then they can think about getting rich. Financial independence can be achieved by building assets. The degree of richness will be decided by the value of extra cash getting generated from the assets (income from assets). This extra cash will enable individual to spend on luxuries of life. A stage will come when, even after spending on luxuries as per satisfaction, individual will be able to save money. This is the moment when a person really start becoming rich.