Want to become rich? Here's what you need to do

Don't be broke again, follow these simple practice to make your money work for you. 

Published: 11th January 2019 04:32 PM  |   Last Updated: 11th January 2019 06:08 PM   |  A+A-

Image of Rs 2000s and Rs 500s used for representational purposes only. (Photo | Sunish Surendran)

Online Desk

Did you know that you need not necessarily earn a lot to become rich? While earning higher than average incomes is an important factor, it is not the only way to become wealthy. Here are a few simple steps, which if meticulously followed, will definitely help you become rich.

Invest

The very first step to saving enough is to invest early, often and more. The sooner you start investing, the easier it becomes to become rich. You should not depend on only one source of income, even if it is your job. Make efforts to create other sources of income, it could either be through side jobs or through investments.

What is an investment? 

Investment is something that you buy or put your money into to get returns. There are various types of investments:

Cash investments - A short-term investment, it provides a return in the form of interest payments. The savings you put in your bank account is a good example of a cash investment.

Shares You buy a stake in a company for which you will receive dividends.

Bonds - You lend your money to a company as loan and it will be paid back with interest.

Property You invest in a building or land, whether commercial or residential. The belief is a few years down the lane, your property value will eventually increase and you can sell it at a much higher rate. 

It is advisable to avoid investing all your money in one place. Say for example you invest all the money you have in buying a land/building. If in a few years due to some reason, its value decreases, then you will be at risk of either making a loss or making very little profit. To avoid this, it is always better to divide your money between various asset classes.

When to invest? 

If you’ve got surplus money with you, which is enough to cover you for at least three months and you want to see your money grow over the long term, then you should consider investing some of it.

Save

It is incredibly important for you to save a portion of your salary every month. According to financial experts, you should save at least 20 per cent of your salary every month. As soon as you get your salary, the first thing you should do should be saving it. For example, if you earn Rs 20,000 monthly, set aside Rs 4000 (20%) as savings and try to fit in your other expenses within Rs 16,000. If you decide to first deal with your expenses and then save the remaining at the end of the month, it won't work. Warren Buffet once said - 'Do not save what is left after spending. Spend what is left after saving.' Coming from one of the richest people in the world, this is definitely advice worth following.

Avoid debts

While debt can be valuable and even profitable when managed correctly, too many people tend to get bogged down with it. Bad debt can pile up faster than you can imagine. Anytime you take a loan or swipe your credit card to buy things that you cannot afford to pay at one go, you need to remember that you could end up repaying way more. These monthly debt payments will limit the amount of money you have to spend on expenditures or savings.

Learn the art of cautious spending

To follow this, you need to understand the difference between what you 'Want' and what you 'Need'. 'Wants' are all the things you spend money on. They are not all absolutely essential. For example - Movies, restaurants, travel, shopping etc. Whereas 'Needs' are things that you must have for survival. For example - house, food, water. If you learn the art of cutting down your 'wants', you will automatically save money. 

Just in case you are confused about how to break down your salary, here's a quick tip

Harvard bankruptcy expert - Elizabeth Warren, U.S. Senator from Massachusetts, coined the "50/30/20 rule" in her book "All Your Worth." 

This is how you go about the rule:

1) Limit your needs to 50 per cent of your after-tax income

2) Allocate 30 per cent of your salary for your 'wants' 

3) Set aside 20 per cent as your savings. 

So, now you know all that you need to do to become rich. Go ahead and work towards it. Dreams don't work until you do!

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