Poor people are like slaves to their money. The money virtually decides every aspect of their life. But this situation is no different for even affluent people.
People who earn more spends even more. This makes them even bigger slaves of their money.
In this article we will see how to make your money work for you. Instead of we working for money, how to make our money work for us. Is it possible?
Yes this is not day-dreaming. Financially independent people live a life where money works for them. How?
Stop Loving Debt
It is a fact, people actually love debt. They use debt as if it their way to afford anything.
Suppose our affordability is to buy a car worth Rs.350,000. But simply because car loan is so easily available in the market, we end up buying a car worth Rs.600,000.
Imagine a case where you have to buy a car without taking car loan. How must you can spend? Generally the purchasing power will depend on the amount of savings one has in bank.
As a rule of thumb, a person who has Rs.20,00,000 in bank account can afford to buy a car worth Rs.600,000 (30%).
But how many people has savings of Rs.20,00,000 in bank account? I suppose only a handful.
My guess is, on an average, a person in age group of 35-40 years, has close of Rs.150,000 as savings (including fixed deposits). Apply the 30% rule here. The person can afford a vehicle of just Rs. 45,000.
This is the reality. But how many of us want to face this reality? None.
As an alternative what we do? We keep our mind and eyes closed. We opt for car loan and increase our affordability.
This is how we become slaves of money.
A slave earns to pay back mortgage (EMI’s). A financially independent person earns money to build savings & assets.
Increase ones affordability by accumulating savings. Use these saving to purchase goods and services (like a car) in future.
People who are financially independent know how to delay their gratification. They will never buy a car TODAY, using loan, if they do not have sufficient savings.
By delaying gratification you can actually make your money work for you. How?
Delay immediate gratifications and let money sits idle in bank. This money will actually earn interest on itself.
This is what is called as ‘money making money’.
When money starts making money, it starts to work for you. The bigger will be the deposit, higher will be the interest earned. Higher earnings means money is working harder for you.
Stop relying on only one income source
People become slave to their money because they like to spend more than they earn. As a result, financial guru’s advice people to save more money.
Developing savings is not a simple task. Psychologically it is one of the toughest thing to execute. Preventing oneself to spend today for future benefits is tough.
So, how to manage this psychological bottle neck?
To answer this question, we will have to look deeper into the cash-flow requirements of rich.
Rich people are rich not only because they earn more, they are rich because of the way they manage their cash-flow requirements.
We can broadly categorize all cash-flows of a rich person as follows:
Typically, people like you and me try to manage these 3 cash flow requirements from just one source of income. This is why savings & investment becomes an uphill task for us. Why?
This is because of the conflict of interest. Spending money is immediate need. While savings and investment is done for future goals.
People are more inclined to manage their immediate needs. Hence savings and investment gets compromised.
Rich people do not reply only on one income source. They build multiple source of income. One source of income is used to fund all expenses.
Other income sources are diverted solely towards savings and investment. This way the conflict of interest limitation gets managed very well.
Hence, in year 2017, in order to make your money work for you, stop replying on only one income source.
Try developing a parallel source of incomes. Preferable is passive income sources which is also a very legal way of earning money in addition to ones paycheck.
The best way make your money work for you in 2017 will be to first unlearn what you knew till 2016. Yes, most of the time, we learn not-perfect things and stay with it.
In 2017, take a pledge that you will learn new things about money management and unlearn old rules.
Take a pledge that you will become debt free in 2017. If becoming debt free is not possible in one year, give yourself a target. The target can be like this, you will reduce the loan outstanding by at at least 40% in 2017.
You can also take a pledge that you will generate a second source of income.
Following these two objective will certainly make your money work for you.
Try it and see the benefits yourself.
Disclaimer: All blog posts of getmoneyrich.com are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyse all securities before investing in one.