How to build wealth with low income ?
Money does not equal “wealth”. Wealth is a state of being, sufficiency and mind,”Money” is just money inherently neutral in its own rights. – Richard B. Wagner.
Wealth and health plays a major role in our life. When will our health be affected?
- Constantly eating junk food ,
- Not doing proper exercise ,
- Not drinking adequate water ,
- Smoking and drinking etc..
Similarly the following things are considered as junks for wealth..
- Having a lot of loans ,
- Credit card outstanding ,
- Over spending etc..
Earning more is not going to help to become wealthy either spending less also is not going to make you wealthy. Only way to accumulate wealth is by understanding the relationship of money with us. The better way of understanding something is via experimenting it or by learning it. All other living beings do not have the ability to make notes and pass information to other fellow mates, but we humans can document something and pass to others.
Saving and Investment
Save your time and invest in yourself. First understand what is asset and liability, finance planning, how most of the salary goes on tax, living, personal tax and corporate tax.
So how healthy habits are required to be healthy the same way we need wealthy habits. If we have health problems then we will go to the doctor ,the same way for wealth issues need to meet the financial advisor , but most of us won’t go for it because when it comes to our money we need keep in more protected zone without sharing the information to any one. But you need to share your truth not only to doctors and advocates ,you have to share financial truth with your advisor, he can do magic in your wealth creation.
But to be an advocate and doctor you need to get a degree in it, but for personal finance we don’t want any profession degree as such because our education system is not having any course on personal finance(Finology). Another advantage of personal finance is you can start learning by yourself too, but if you feel you are extremely busy then go to a financial advisor.
Wealth building strategies
Change your mindset towards money
Whatever changes you need to bring in your life , that should start from your mind. Don’t think that rich people are always bad people as explained in Indian movies , it is the reverse of it. If you don’t like rich people then the meaning is that you don’t like their mindset too. Money and wealth are not negative things and if we don’t know the art of it we should learn instead of blaming it. You will become a wealthy person when you are going to appreciate the wealthy persons.
If we collect all the money in the world and divide it equally and distribute it to all. You know What happens? In a year or two again wealthy people become wealthy and poor people become poor. The reason behind this is wealthy people know How to attract money. Money will flow towards them. So end of the day it is about mindset and not money.
Save more instead of earn more
We are very much attracted towards earning more that will give us immediate pleasure , but saving is a delayed gratification process so most of us ignore this or not as attracted as earning more. I am not insisting that you should earn less income. My view here is the person who is getting 30K used to have 10K EMI and the person who is getting 60K will have at least 20K EMI. Meaning we will increase the commitment as our earnings increase , the same mindset won’t come if it is saving.Bring saving habits in place then earn more so that you can save more. Save at least 10 % of income but be consistent.
Change the saving mindset as follows.
Saving = Income – expense → End of the month nothing remains in your pocket.
Expense = Income – saving → Brings saving discipline.
Wealth creation starts with saving habits only.
Have a Goal on your saving.
Goal can be very simple as “I will save my first 50K” by this year or “I will save money for my mobile phone purchase in another six months instead of buying it in EMI”. Without a goal ,you start saving then that money disappears. If you want to give a gift to your parents or loved ones then save for it or you can save for retirement , dream home ,car etc..
Building wealth also can be a valid goal , but how much net worth you are going to build is important. Start working towards the goal if your goal is to save money buy a smartphone then keep 3K for next six months to attain the goal. If your goal is to attain wealth of 50L that will invest in stocks to bring returns , then start exploring stock investment and learn about it ,immediately you can save money to start investing.
Goal can be modified once you think it needs to be changed , coz day by day you will get better insights about your goal once you will start working on it.
Separate the Saving.
Have a wealth account means creating a separate account for saving and investment . In Fact you should have 3 accounts in place: salary account , spend it account and save it account. So whatever amount we decide to save each month for our goal should be transferred from the salary account to “save it account” once after the salary credited each month. In this case our brain thinks twice before touching the amount to spend in a separate account for some purpose. This brings financial discipline in our life , plan your budget, keep that money in “spend it account”. These processes help us tracking our expenses and saving without any tool, if you want to budget the amount you are going to spend can do it via some mobile apps.
Enemies of Wealth creations
There are few things this will affect your wealth building journey altogether. Considering you lost your job or any of your family members will be in serious health issues , What will you do in this situation? Surely you will think about saving and investments that lead to immature liquidation.
Of Course we should support our family, that is our duty , I am not denying it but there is some way that all wealthy people follow to overcome this ,Why can’t you also follow them and change our mindset towards wealth creation.
All the wealthy people have below 3 things in place
- Term Insurance – Coverage should be at least 10x of total monthly salary, do not go for Money back , endowment plan they will take more premium coverage will be less. This insurance is going to help during our absence. Explore more about term insurance and benefits.
- Health Insurance – Have a family floater of at least 5L , paying just 20K per year will cover your family and during difficult situations also you don’t want to touch your savings and investments .
- Emergency Fund – Keep 6 months salary aside to support during unprecedented situations like job loss or major home repair etc..
But all the above things should be considered as expense and not saving. Don’t ever mix insurance and savings/investments. That’s the reason I said we can start saving with 10% – 20% of income remaining 80%-90% you need to spend on needs, wants ,insurance etc.. In this way your wealth is also protected.
Wealth is an Asset not liability
Donot consider liability as your asset and spend money on that.Home with EMI is a liability and not an asset. EMI will put money in the bank’s pocket , so for them it is an asset but for us is a liability. Once your EMI completes that time your home is considered an asset.
Liability → Expenses and other stuffs taking money from us.
Asset → Generating income stream for us.
- EMI, children’s education, credit card bills and other expenses are considered as liability.
- Car is considered a depreciating asset when it is owned by yourself but if you are paying EMI then it is also a liability.
- Rented Home that gives rent ,Stock investments generating dividend is considered as income generating assets.
- Own home ,mutual funds , saved money etc.. is considered as assets.
So before accumulating wealth, have the knowledge of assets and liabilities. This will avoid debt traps in your life, stay away from credit cards and EMI as much as possible , this will take time to bring the discipline in your life but in long run you can see your wealth will accumulate exponentially.
Start investment and start early
Wealth creation is a continual process so learning is a must in wealth creation. If you are saving the money in a bank account ,inflation will beat the savings and it will shrink your savings. Inflation ranges between 4-6% where saving account returns will be around 3-4%. To avoid this situation invest your money in stocks ,mutual funds or somewhere else where returns should beat inflation. Before investing money invest on your knowledge ,invest your time on the internet to get knowledge about investments or else spend a little bit of money to acquire knowledge from a financial advisor. In the long run your learning will help you to understand your wealth properly.
Start early to enjoy the compounding benefits , understand compounding from the below scenario.
Please comment, What do you think about wealth? In the comment section below.