Tips on How to Become Wealthy

Who does not want to become wealthy? But how many succeed? Probably one in every thousand.

What is the reason for such a small conversion?

Everybody puts hard work to earn money in their own ways. But still success rate is so small, why?

The reason is hidden in the question itself.

The main reason why majority do not “become wealthy” is due to “hard work” they put in.

Surprised? I am sure you must be, because we only know this way to become rich.

Hard work in itself is not bad. But when hard work starts to cloud our mind, then it gets bad.

A combination of “intelligent thoughts” plus “hard hard” (planning and execution) is necessary for success.

Try to recall what has been taught to us in our childhood days to become “successful“:

  • Study hard, and get good grades.
  • Get a good job, and work hard.
  • Do everything to please your boss (in other words, work even harder).

In this whole scheme of things to become successful, there are several fallacies.

First, what it means to be successful?

Secondly, getting good grades are important, or ‘brain training’ is important.

Thirdly, what is a good job? Job that pays well or a job that one like doing?

Fourthly, who needs a boos? Why we can’t be our own boss?

I am sure these are such questions that we all ponder about, but refrain ourselves from finding their right answers. Why?

Because finding answers to these questions takes us out of our comfort zones.

Our comfort zone lies in “doing hard work and earning monthly paycheck“.

But the problem is, this is not the right way to become wealthy.

“Hard work” is required to achieve anything big in life.

But the procedure of becoming wealthy does not stop at hard work alone. More needs to be done.

What is more important is “what we do” as a part of hard-work.

In this article we will try to figure out just that.

What one must do to become wealthy?

So lets buckle up and be ready to do some “focused and intelligent work”, instead of only ‘hard work’.

Lets learn the ways to become wealthy…

#1. Think in terms of financial statements…

What it means by thinking in terms of financial statements?

There are three types of financial statements. Companies use them to keep their finances in order.

  1. Profit and Loss A/c.
  2. Cash Flow Statement.
  3. Balance Sheet

Individuals can take a clue from companies to build a unique thought process.

I call it thinking in terms of financial statements.

How to do it?

Start with Profit and loss account:

Here one must do the following:

  • Prepare a list of all expenses (give names).
  • Set a monthly budget for all expenses (give them a value).
  • Total budgeted value must be less than income.

Cash flow statement:

Start recording all cash transactions:

  1. Record all expenses.
  2. Keep a check if any expense line item is crossing the budget.

Finally, maintain a personal balance sheet. 

Here the idea is to keep a record of all assets and liabilities:

  1. Assets:
    1. Cash in bank account.
    2. Emergency Fund.
  2. Liability:
    1. Credit Card debt.
    2. Personal Loan.
    3. Other loans.

Initially it may look like too much work.

But in the process of becoming wealthy, this kind of record keeping is a must. Why?

It serves a bigger purpose.

What is the bigger purpose?

#1.1 Building a huge asset base…

What type of financial statements we have discussed?

Profit and Loss A/c, Cash Flow Statement and Balance Sheet.

What we are doing with these financial statements? We are using them for our personal record keeping.

But what this record keeping is helping us to achieve?

To visualise the process of asset building. How?

Take a look at this infographic.

How to Become wealthy - Small
Click to Enlarge

We started this article with a question, how to become wealthy?

One line answer is:

One can become wealthy by accumulating assets.

The asset gets accounted in balance Sheet.

Savings gets recorded in Profit and Loss accounts.

Recording of all expenses (transactions) are done in Cash flow statement.

This regular expense recording ensures that money is not overspent. Savings happen month after month.

These savings in turn is used to buy assets.

The bigger will be the asset base, wealthier will be the person.

#2. Achieve financial independence first

There are two vital steps to become wealthy:

  1. First become wealthy in mind.
  2. Then become financially wealthy.

What means by wealthy in mind?

It is essential to think-right to become wealthy.

Becoming wealthy is like running a 40K marathon.

People who have run this far will tell you that one cannot run 40K in one try. It will be too much of an effort.

Only an ignorant person will attempt to run 40K before achieving smaller milestones.

Becoming wealthy is a 40K marathon.

“Achieving financial independence” is a smaller milestone (30K).

A person who has achieved financial independence is almost poised to become wealthy.

In other words we can also say that:

Without becoming financially independent, one cannot become wealthy.

So one must first look for financial independence. to Become wealthy -1.jpg

#2.1 What is financial independence?

When a person does not need to do a job for living, he is said to be financially independent.

Why we have to do a job?

To earn money and maintain a decent standard of living.

Suppose a person named “Raj” needs a minimum of Rs.30K per month to maintain a decent lifestyle.

He does a job in a company and earns a salary.

This salary is sufficient to support a decent standard of living, and also give some extra as a spare.

Another person named “Ravi” also needs a minimum of Rs.30K per month to maintain a decent lifestyle.

He also does a job and earns a decent salary.

But in addition to job, he also owns a rental property. This property, yields a rent of Rs.35K per month.

What do you think, who is financially independent, Raj or Ravi?

Ravi is financially independent. How?

Even if Ravi leaves his job, the income from rental property will support his livelyhood.

Majority of us are completely dependent on our paycheck.

For us, it is important to first set a target of becoming financially independent.

Once this target is reached, becoming wealthy will also happen eventually.

#3. Who can make us wealthy?

Are you waiting for someone or something to come and make you wealthy?

Yes, we all play this waiting game.

Do you know we are waiting for whom?

We are waiting for the “right time”.

But when it will be that “right time”?

The right time is only “Today”.

This understanding is very important, others cannot make us wealthy.

To become wealthy we must take the control in our own hands.

This is how the concept of “work for self” has developed.

But how can a salaried man, who spends 10 hours in office, work for self?

Surely it is not easy, but waiting for the right time will also take us nowhere.

So what one must do?

Start woking for self…

#3.1 How to work for self

Do not worry, I am not going to suggest you to leave your job and do a Start Up.

If this is possible, nothing like it.

But for the moment, I would like to focus my attention on “salaried people” only.

Let me ask a question?

Do you work for self? Many will answer, “No I work for the company”.

So let rephrase my question?

Do you earn for self/family? Here, I am sure majority will answer in Yes.

And this is a right answer.

But essential is to know, how one use their income.

People mainly earn money to manage following expenses:

  1. Pay EMIs/Rents.
  2. Pay Bills/Fees.
  3. Buy Food & Clothing.
  4. Pay Premiums.
  5. Entertainment.
  6. Vacations
  7. Saving & Investment etc.

The expenses are listed in their order of priority.

After seeing this, do you still think that you are earning for self?

People earn money to pay EMIs and support their other humongous expenses.

Where is self here?

Do you know what can be called as earning/working for self?

See this infographic…

When 100% of ones paycheck is used to buy “income generating assets”, it can be referred as working for self. How?

Try to visualise what a financially independent person does…

  • Every penny earned is used to buy assets.
  • All assets purchased like this form a “pool of assets”.
  • This “pool of assets” generates income.
  • The income generated from assets is used to manage a living.

So what is the flow of money?

Paycheck > 100% used to buy assets > Assets generate income > This money is spent.

This must be the cash flow of a person who wants to become wealthy.

What is the cash flow of people in general?

Paycheck > 90% is spent > 10% is saved > 5% used to buy assets.

This way, one buys too less assets. This way one cannot achieve financial independence.

#4. Becoming wealthy: The sure sort way

Financial creativity and innovation has stopped functioning in common men.

Study hard, get good grades and join a big company. This is all what is taught in schools.

Job market has made “easy-money” too accessible.

People have stopped thinking innovative.

We only know to do a job, to become wealthy.

One can be excellent in solving complex calculus, but when it comes to financial innovation they fail miserably.

Our society only trains people to “follow”, and not to “lead”.

Industrial revolution & education system generated more of financially illiterate and dependent people.

To become wealthy one must first get out of the dependency trap.

Path to become wealthy is not so difficult.

To begin with, one should give one hour each day to self.

Increase ones financial database. This is all that one has to do initially.

One must start reading as much as possible about financial independence & money management.

This journey is slow, but it will produce sure-sort results.

The main problem with wealth building is that, people take one step forward and two backwards.

But increasing financial know-how will ensure that there are no backward steps.

$4.1 Invest more money

To become wealthy, one must have portfolio full of income generating assets.

What is an asset?

Definition of asset is very simple. Any thing that generates passive income is an asset.

Salaried people must channel their salary to buy assets.

Several small-small assets will generate bigger passive income.

The higher is the passive income, the wealthier one becomes.

A stage come when passive income will be higher than ones salary.

If passive income is enough to support ones life style, person is financially independent. to Become wealthy -3.jpg

Final words…

People must develop their financial intelligence to realise the importance of assets.

Become financially intelligent. Start thinking about money in terms of financial statements.

Developing this habit is worth a millions.

You can also learnt this concept from the book of Robert Kiyosaki called Rich Dad Poor Dad.

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 truly wealthy.

Remember: first become financially independent. The next step is to become wealthy.

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