Who doesn’t want to become rich? Well, a stupid question it seems. Everyone wants to grow rich. Getting rich is not easy. It takes time, effort and a lot of knowledge. So if you aren’t making millions, there’s no need to worry. Just follow the strategies and financial habits of the rich and you will surely get there.
Managing money is very important. There are plenty of famous Riches to Rags stories which show that no matter how much you earn, you must invest, save and spend wisely. Take a look at Mike Tyson, Boris Becker and many more famous celebrities to understand what can happen if you don’t manage money smartly.
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If you find managing spends difficult, take a look at Billionaire Warren Buffett. He has net worth in excess of $82 Billion, but still lives in a house at Omaha, Nebraska, USA, which he bought in 1958 for $31,500. He never spends more than $3.17 on breakfast and still uses coupons.
Take a look at Jeff Bezos the founder of Amazon who stills drives a modest Honda Accord, in spite of his several billions.
This is what Kevin O’ Leary, the multimillionaire says, “If I don’t buy something I don’t need, the money is going to be invested and make money every year while I’m sleeping. Kevin O’ Leary doesn’t even spend $2.5 on a cup of coffee. He prefers making coffee at home.
What happens if you buy things you don’t need? Mike Tyson the famous boxer landed in debt by overspending on Bengal Tigers, 110 cars and a $2 Million bathtub. Nicolas Cage blew $2,76,000 on a dinosaur skull which he was forced to return after it was found to be an illegal import.
How to curb unnecessary spends? If you are spending money faster than you are earning it, be careful. Track spending with a budgeting app. Make a budget which tracks every rupee earned and spent. This helps keep a tab on finances. Set up a fund for all those splurges. This removes unnecessary restrictions and eventually you get control on your finances.
Your money is never truly yours as long as there’s debt around. Get out of the debt trap. Now all debt is not bad. Home Loan to buy that dream house, car loan to buy a car you badly need or an education loan to enjoy a great career are all good loans. Still, the rich say it’s best to avoid debt and they are right. There’s a fine line between good debt and bad debt. Bad debt like excessive spending through credit cards or availing personal loans with high interest rates, lands you in the debt trap.
Let’s say you have an education loan where you pay interest rate of 8% or a home loan where you pay interest rate of 10%. Whatever the loan, the moment you repay, there’s an automatic saving which is an immediate return. So if you want to enjoy financial freedom, get rid of all debt including the home loan and any loan against property.
Credit cards are a convenient way of spending, but you end up spending a lot. Carry some cash around to get to know how much is spent. Credit cards charge high interest of 2-3% a month. This is the quickest way of landing in the debt trap.
Saving your money is definitely a good habit. But, the rich do more. They invest money to grow rich and stay there. Investing helps you earn compounding returns or return on return. The longer you invest, the more the money accumulates.
Let’s say you have invested Rs 10,000 at an interest rate of 7%, to be compounded annually. You earn Rs 700 in the first year. This gets added to the principal amount in the next year. So, without earning any money, your investment amount in the following year is Rs 10,700. You earn 5% on this new amount (Rs 10,700) and so on after this.
Tarun and Shyam both joined a firm at the same time. They both earned Rs 50,000 a month. Tarun used to spend everything he earned, while Shyam used to put Rs 5,000 in a mutual fund scheme each month through SIPs. While Tarun had nothing after 3 years, Shyam had nearly Rs 2.2 Lakhs. (Assume return of 10%). This is the power of compounding.
If you can’t handle finances, there’s no harm seeking professional help. A financial adviser helps invest, spend, borrow and save smartly.
He helps invest so that you get compounding returns, get the good loans and stay away from the debt trap, save a sizeable portion of income and spend carefully.
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