- March 14, 2021
- Category: Financial Planning
People hear inspiring rags to riches stories many times. But there are also stories where people have gone broke, really broke. Yes, it is true. Take the case of Bollywood film stars. They earn crores, own big houses, drive swanky cars, travel in private jets, wear branded clothes and accessories. They enjoy all the luxuries in the world. It is difficult to imagine that they can ever get into any financial trouble. Heavy debt and financial mismanagement have landed many celebs in financial soup like Bhagwan Dada, AK Hangal, Bharat Bhushan, Amitabh Bacchan, etc. We nowadays hear stories of even television celebs who in their old years do not have enough money, especially to handle medical emergencies.
Rich people with more money have more options to spend, that doesn’t necessarily mean they make the right financial decisions in their lives. Having all the luxuries in life sure makes one rich but not wealthy. While these two terms are used interchangeably, there is a difference between the two. The difference is in how sustainable the money is. Will it be gone when the earning power is gone? Will the money get exhausted in case an adverse event strikes like job loss, hospitalisation, prolonged illness, physical disability?
The key to being wealthy means not just having the skills sets to earn money but also the wisdom of how to manage it and the patience to build wealth over a period of time. The following financial traits do possibly empower one to be on the right side of the rich-wealthy divide. These include:
- Turning debt free: Stories where people go broke mostly have one common cause – Overleverage. Borrowing beyond the actual capacity which one cannot repay later. Consider a businessman having a giant villa, multiple cars and homes but is deep neck in debt which he is unprepared for and unable to pay off easily. Such a person even though leading a luxurious life is not wealthy. Borrowing beyond means, rolling over credit card bills, paying exorbitant interest, these are all sure shot signs of financial trouble. Having a debt repayment plan in place and closing loans in the shortest time possible to free up the cash flow puts one on the path to becoming wealthy.
- Leading a frugal life: In today’s digital times, where mobile apps are just a swipe away to spend money and to keep up with the Joneses in a social world, frugal is a very dirty word. Many even confuse frugality with stinginess. Frugality does not mean save all the hard-earned money and stash it in a mysterious locker. One should definitely eat out, go for movies, take short vacation breaks. But it is imperative to commit to a saving plan first – for the essential goals like child education, buying house, retirement, etc. One should focus on the needs and resist the temptation to spend on things which are not required. It is prudent to stop the excesses in life and avoid living beyond means. This is a wealthy mindset.
- Invest regularly: The secret to wealth-building is just one thing – investing every month. It should be like a compulsory thing – just like one has to pay EMIs and bills every month. This is irrespective of the amount saved. In some of the months, even if savings are less, it does not matter but the investment instalment should not be missed. It is also imperative to start early and the power of compounding will multiply wealth over time. Investing regularly is the key to becoming wealthy. Doesn’t matter whether one is rich or poor, doesn’t matter how much one invests, Rs.500 or a lakh – but investing regularly is crucial to building great wealth.
- Create alternate income streams: Creating an alternate source of passive income can do wonders to wealth building. Why rely only on a single source of income – salary, business, etc. One of the factors to becoming wealthy is stepping out of the comfort zone and taking calculated risks. A little extra income can do wonders to the long- term wealth-building exercise. For e.g., it could be earning side income from pursuing a hobby or investing in a property, start-up, etc.
Aiming to become wealthy has more to do with the mindset, the attitude towards money and the ability to be in control of own money rather than money controlling one’s financial decisions.