How to become rich? [A beginner guide]

Can we consider a person as rich, if he/she for one single day, holds a billion dollars and the very next day loses all the it? The Answer is No.

A person is rich only if he is able to sustain his wealth for a longer period of time.

We have seen many folks, from different walks of life, who have started ordinary and became rich within a reasonable span of time. If you observe them closely, the very foundation of becoming rich is undoubtedly their effort and earnings via different professions (or) activities.

The definition of being rich according to me is to have zero liabilities, create/hold quality assets which must increase in value over time.

On top of it, the assets need to generate cash flow i.e., put money into your pocket regularly, which can be used for expenses and the excess can be re-invested back in the assets. But before all this, we need to have money first. So how do we earn money?

Earning

If you already are privileged, holding assets in the form of earned/inherited money, deposits, securities, etc. then you are a step ahead.

For a beginner to earn money, one need to work on their skills and then can wear different hats accordingly. Be an Entrepreneur, Tutor, Freelancer, Event Manager, Writer, Programmer, Blogger, Painter, Dancer, Stock Broker, Artist, Entertainer, etc.

Building your skillset is an equally important factor in generating money. People will pay you for your skill and the value that you deliver using the skill at the end of the day.

Some jobs are independent and self-driven like being an entrepreneur and rest are employment-oriented. Some can be a mix of both. At times profession can be combined with a side hustle, to use your time effectively in aiding your finance portfolio. Whatever getting money into your pocket is the priority.

So now, earning is necessary to become rich, is an acceptable statement. But is earning only sufficient to become rich? For the moment it could be a yes but over the long term, the answer is definitely No.

For this, the concept of saving and investing, which protects the wealth, needs to be considered along with earning. (Read How to protect the value of money?)

Saving – Wealthsheds

Next comes savings from whatever you earn. With the expenses shooting up, lack of discipline towards saving, people find it difficult to save. But with reading about wealth, proper budgeting, journaling, it is definitely possible. Using budget planner apps like Money View, Walnut, Money Manager, Mint, etc, would help in tracking, analyzing wasteful expenses, redirecting it to saving and investing. 

Establishing multiple streams of income and creating cash flows is like creating channels of water from multiple streams into a pond and then using it carefully as per our need so that it can be put to maximum use. They are generally called Watersheds in environmental sciences. Within personal finance, I call them Wealthsheds, wherein money is collected or saved.

While creating multiple streams of income, one activity need not undermine the quality of time (or) effort being put in the other activity. Just being passionate about financial knowledge is required, so that one wouldn’t feel burned or stressed out.

Now it is time to decide how to put the savings for maximum returns. Here comes the investing part.

Investing – both Art and a Science

Few say investing is an art, some say it is a science. But to me investing is both art and science. The fundamental reason why we are investing is to get maximum returns, whatever our investment, be it time or money or effort.

So, choosing the right venture to invest is important. At the same time investing everything in one basket is not suggested, which is putting our entire finances at risk. So, reasonable diversification must be maintained while investing. It can be a combination of any or all among real estate, debt entities, equity, gold, mutual funds, commodities, Forex, etc.

Creating a properly diversified portfolio of investments will fetch good returns based on the individual’s risk appetite.

Again knowledge while investing plays a significant role. So Reading books, networking/conversing with like-minded (or) those who are already successful in such ventures, would help in understanding the pitfalls, experimenting, analyzing and finally creating wealth over a period. 

Being rich need not be equated with being greedy (or) owning the wealth of the entire planet. It can be as simple as owning sufficient wealth, so as to avoid financial troubles, while leading a meaningful life. As Robert Kiyosaki says, in his book Rich Dad Poor Dad, being rich is a choice.

It is for us to decide if we are making a conscious choice and are putting enough effort in that direction.