Things About Investment You Have To Experience It Yourself.
Updated: Jul 15, 2020
We all struggle in managing our cash, expenses and investments. Usually poor and middle-class people struggle the most. Let me share what I learn from Rich Dad Poor Dad Books about managing our cash, expenses and investments.
Lets me explain you with an example
Example 1
Mr Tom earns Rs. 25,000 per month and his monthly expenses include following
Household expense Rs. 9,500
Travelling expense Rs. 3,500
EMI payment Rs. 7,000 (Includes purchase car and other household appliances)
Now he left with 5,000 which he spends for other personal expenses.
We see above that Mr Tom spends his entire salary by the end of the month. There is no saving or increase in wealth of Mr Tom.
Example 2
Mr Bill earns Rs. 25000 per month and his monthly expenses include following
Household expense Rs. 10,000
Travelling expense Rs. 4,000
Rent expense Rs. 2,500
Mr Bill has no EMI because he believes that purchasing things on EMI is creating liability. Hence, Mr Bill invests all his available cash at the end of the month in Mutual Fund, Bonds, Fixed Deposits, Gold and other securities with a particular goal to save and then buy from it. He also keeps some cash for an emergency.
Let understand now who is better in managing cash Mr Tom or Mr Bill, before that let's make some assumptions for understanding in an easy way.
Both Mr Tom and Mr Bill works in the same company.
Both Mr Tom and Mr Bill leaves next to each other.
Mr Tom has its own house got from his father, where Mr Bill stays in a rented house.
Mr Tom is spending more money by taking the thing on EMI in the form of interest, where Mr Bill earns extra income by investing his unused cash. With that Mr, Bill saves first interest cost and also earn extra money with that cash with that Mr Bill's Wealth is also increases and he didn't have any liability and on another end, Mr Tom pays more then what actually it cost in form of interest and losing benefits of earning which leads to more expenses.
Conclusion
Make 3 parts of income you earn and spend it as follows.
Recurring Monthly expenses
Saving for emergency
Investment for creating wealth