The EPFO department (Employees Provident Fund Organisation) reduced the EPF interest rate to 8.65% today. The old interest rate was 8.8%.
This interest will be applicable for the deposits made for financial year 2016-2017. Which means that all the deposits which were made after 1st Apr, 2016 by the employers will be earning the interest of 8.65% only, and not 8.8%.
While an interest rate of 8.62 per cent would allow the EPFO to keep a surplus of around Rs 22 crore, fixing the interest rate at the present rate of 8.8 per cent would have left it with a deficit of Rs 700 crore, EPFO’s income projections showed.
According to sources in EPFO, the lower interest rate is on account of poor rate of return on investments made by the EPFO on all fronts.
You will notice that the bank deposits interest rates were also reduced recently and this move might be in tune to that decision, as it’s tough to provide high interest as the money availability is high.
Can you name a billionaire who didn’t start a company?
Or a $ millionaire for that case?
In this article, we are going to talk about various ways people become RICH. No, it’s not a tutorial on how to become rich, but just a conversation on are various ways using which people have become rich. Maybe you will get some idea of which path you want to take or try for yourself.
#1 – Starting a successful business
One of the ways, most people become rich is owning a successful business. Yes, think of any rich person and chances are that they own a business. It can be a tech company, a big store or some kind of traditional business, but it’s BUSINESS.
A job gives you linear income and growth. The business gives you exponential growth and income over time, along with the huge risk of losing the money. That’s the primary reason why most of the people are into jobs and not business.
My point is simple. If your goal is to be in the middle class or higher middle class, you can continue doing your job. However if your dream is to own that exotic villa, or to drive the most amazing cars and never worry about money all your life, you need to own a business, otherwise, it’s going to be really tough to get rich (apart from other 9 points)
#2 – Let someone else run business and get a share
A lot of people have become extremely wealthy by investing money in other business and just holding the shares for long. No, this is not stock investing.
I am talking about funding others’ businesses and keeping a share of ownership to cash on in the future. This is definitely not very common or an easy thing to do. The failure rate is very high, but many people have become very rich through this method.
Paytm Founder sold 40% equity for 8 lacs many years back
For example, you have heard about PAYTM. Right?
You know it’s now a multibillion company and its owner is already a billionaire. But did you know that years ago, there was a guy who helped paytm founder with Rs 8 lacs and in exchange took 40% of the company and exited the company with a couple of 100 crores?
Watch the interview with Paytm founder Vijay Shekar Sharma, where he shares about his journey and this incident (Just click the video and watch the next 1 min)
It’s not always the case that you have to start the business, the main point is to be part of a business and contribute in the journey of the business since the start when it was not successful.
Most of the people who joined large companies as employees got equity in the company (ESOP’s and stocks) and years later when the company becomes big, they all became rich.
Take Infosys for example, It was a business owned by a few people, but those who stayed with Infosys and contributed for its growth over years were rewarded and now they are quite RICH.
At Infosys, drivers, electricians are millionaires
The Infosys management has over the years rewarded selected staff belonging to the C, D and E grades with shares for faithful service and excellence in work. By the time Infy began skyrocketing in value, 67 of these people including eight drivers, owned enough stock to make them very rich men indeed. Kannan’s portfolio of 2,000 shares when multiplied by the latest share value makes for a huge value statement
#3 – By Inheritance
Another way a lot of people become rich is when they inherit a lot of money from their parents or some relative. As per this report, around 31% of ultra-rich people in India have inherited their wealth, which is quite a good number. Every 1 out of 3 people in an ultra-rich category is rich through inheritance.
However, this option is not applicable to most people like us.
#4 – Become a highly paid top executive
If you are very clear that you do want to own a business and will keep continuing doing the job, then your salary is the most important factor which can make you rich. No, we are not talking about packaged of Rs 10 lacs or 20 lacs here.
We are talking about packages which some top executives earn at important positions in the company. They are people like
CEO
Managing Directors
Vice Presidents
Top Managerial Positions
Top-Level Professionals (Doctors, Lawyers)
It comes only when you are really out of the class in what you do. If you have skills to manage the company or help a company excel at something, you can reach these top positions, but it takes quite an amount of hard work, smart moves and a bit of luck too. Many professionals earn very high salaries like examples below.
Here is another example of a high salary –
It’s not always the case that you own a business to earn high income. To run a company or business many skills are required and if you have that in you, you can help someone else to build and manage the company in exchange for your skills.
As per this report, around 42,800 have reported an income of Rs 1 crore per annum in India. You now have to set yourself to be in that club
#5 – Speculation or Gambling
This is not a recommendation, but a lot of people become rich by speculation or gambling. This has more to do with Luck and smart thinking at times, but not with hard work.
I do not want to label speculation as BAD, because speculation takes guts and courage and those who take that route also get lucky at times and make a lot of money. There are two kinds of speculation
Blind Speculation – A speculation where you are just shooting in the dark. Things like buying lottery, horse race etc is pure speculation and unless you get lucky, you will lose your time and money. A lot of people are into these speculative and gambling activities
Calculation Speculation – Then there are many situations where you have to take a very calculated risk, where the risk is still high, but then the return potential is huge and clear at times. These are high risk, high return situations where if you take a chance, you can get really lucky.
One can get lucky, only when you take a risk and speculate. Speculation is seen as a bad word, but one can’t deny that it also has a brighter side to it. If you want to innovate something, you need to speculate on the fact that it will become successful.
#6 – By Investing money regularly – the boring & long route
In the end, if you feel you are not made for the above 5 points, then the only way to get rich is to invest your surplus money on regular basis and that too in high return instruments like equity mutual funds or stocks and wait for a long time to become rich.
The big problem is that there is too much-delayed gratification here. If you start your investments today, you can’t expect to get rich in just a few years which is possible in other ways mentioned above.
You need to have time on your side and extreme discipline. On top of that, you need to invest a good amount of money. You can’t expect to become rich by doing just Rs 4,000 SIP in an equity fund. You need to invest a good amount like Rs 20,000 or Rs 50,000 per month (at times Rs 1 lacs per month too) to accumulate a good amount of wealth.
So, the only option left for most of people to become rich (that too in future) is only by investing their money and that will happen only if you earn a good income because only then you will be able to invest a good chunk left out of it.
Let us know what do you think about the points mentioned above?
Today we will talk about the issue of duplicate UAN, which has confused a lot of employees. A lot of people have contacted us that 2 UAN were generated for them by their past employer and current employer and now they have no idea what is to be done in this case.
You can see following question which was posted by one of the reader of this blog.
Hello Manish,
I left my previous company on 1st April 2014 and joined new company on 7th April 2014. Now problem is I have been allotted UAN no. from both employer. I want to withdraw whole amount of EPF (Employees’ Provident Fund) of previous employer.
So kindly guide me what to do in this situation?
Why does multiple UAN get allotted?
UAN (Universal Account Number) as you all know, is a single unique number for each EPF member for all this EPF accounts under them. You can see the UAN as the folder (UAN) which has various files under it (EPF accounts)
Before we discuss how to solve the duplicate UAN problem, I want you to know how two UAN are generated and why does it happen?
Reason #1 – Not disclosing old UAN number
A lot of employees do not want to disclose about their past employment, hence they do not quote their old UAN number to new employer. In that case, the new employer will generate a fresh UAN for the employee. This is one of the reasons for having duplicate UAN number.
Reason #2 – Past employer did not furnish ‘the date of exit’ details in the ECR
ECR or Electronic Challan cum Return is an electronic return filed by employers to EPFO to submit your EPF payments and other things. In this, they mention “the date of exit” for those employees who have left the job. So incase due to some issue the employer does not mention this date of exit.
This is another reason why another UAN gets generated by new employer. I have no idea why that happens, but this is the reason which is mentioned by the EPFO in their recent circular which talks about the issue of multiple UAN allotment
How to solve the two UAN problem?
Note that each person should have only one UAN number (like PAN), hence if you have multiple UAN, it’s not allowed and creates problem in the EPF system, because is no proper track. Hence, as soon as you come to know that there are multiple UAN assigned to you, you should cancel one of the UAN (mostly the old UAN) or should try to deactivate one of them
Process to deactivate old UAN
Step #1 – The first step if that you should start the EPF transfer for all the EPF’s which are not under the latest UAN generated. This can be done using the OTCP portal of EPFO . I am not going in details here, but first you need to make sure all the old EPF’s are transferred and linked to the new UAN.
Step #2 – In the next step, the EPFO system will automatically identify those UAN for which the EPF transfers have happened and completed. Once they find the idle UAN, they will automatically deactivate that UAN. You don’t have to do anything here. This deactivation process will take place from time to time as per decision taken by EPFO. Once the deactivation happens, your old member id (your old EPF accounts) will be linked to new UAN.
If you are already sure that your past UAN does not have the EPF linked to them, then you can mail your old UAN number along with recent UAN to your employer and to [email protected] . They will verify your UAN’s status and deactivate the old UAN.
Let us know if you have more clarity on this subject or if you have already completed the process for the benefit of other readers.
Today we will talk about various aspects of ESPP Plan? We will also see if it really makes sense to invest in your employers ESPP plan or not, and what are the pros and cons of that.
For those who have no idea about ESPP, its full form is Employee Stock Purchase Plans and It’s mainly an offer from your employer to buy the stocks of the company at some discounted price.
How does ESPP Plan look like?
Let me give you a rough idea of how an ESPP plan looks like. Under this plan, your employer might offer the discount of 15% of the stock price, and you can contribute some part of your salary for purchase of ESPP.
This might run for 3 or 6 months and then at the end of the period, all the money which you have paid, will be used to purchase the stocks at a discounted price (It might be the current market value or the lowest of the period, it all depends on your companies offer plan)
So you get the stock at a discounted value
You invest the money for X number of months
The stocks are purchased at the end of 3/6 months period
You get the stocks on your name
Is ESPP Plan worth?
Now let’s come to the main point. Is investing in ESPP plan worth? Should you do it? Is there any catch?
Below is an example of Salesforce ESPP plan, where they are offering 15% discount and the offering tenure is 12 months (employee will pay for 12 months), while the purchase will happen every 6 months.
Now the main question is – “IS IT WORTH?”
and the Answer is ALMOST ALL THE TIMES.
Yes, most of the times, it makes sense to invest in ESPP plan because you get the stocks at a good discount and if you sell it off after they are allotted to you, you will make a good enough profit (15-20%) in most of the cases, unless things go really bad.
In some cases, you might want to think hard before you invest in ESPP plan offered by your employer.
Point #1 – At the end of the day, you are buying a Stock
ESPP is nothing but a plan where you buy a STOCK. Hence the price of the stock will move up or down. So if the stock does not do well, you will not be able to make good profit and your hard earned money will not give you the desired returns.
Imagine a stock which is on decline or not doing well. Your ESPP plan will give you the stock at 15% discount of the lowest price (mostly the latest price) . Not every time, people sell it off immediately, and keep holding it. Now if the stock price does not come above your purchase price and you kept on holding it, you might suffer good amount of loss.
Look at Yahoo, as an example (I worked there for more than 3 yrs). Imagine people who bought ESPP of Yahoo and kept on holding it? Even if they got it for discount, does not mean that they will make profits.
So don’t get emotional and look at your company stock and see if as an outsider. Check out what are the future prospects, Is it promising? Does your company find its place in most of the mutual funds portfolio?
Point #2 – Your Income and Profits come from same company
You earn your income from your company, and now your portfolio is also linked to same company. If the company is doing very well, your income will rise and so will your portfolio value. But what happens if things go bad?
What happened to Satyam?
What happened to Enron?
What happened to Yahoo?
If someone worked in companies above, they lost their jobs. And at the same time, their stock prices were either worthless or reached the lowest value and they suffered huge losses. The snapshot below was taken from this website, which talks about Enron collapse.
The point is, when you invest in an ESPP plan, all your eggs are in same basket. If things work out and your company does well (Google, Facebook), you will enjoy the benefits of promotions, income rise and your stocks value rise, but in the other case, it will be the opposite and it’s not going to be the best situation.
Conclusion
At the end, you need to ask yourself about the prospects of your current company where you work? Do you think it’s going to be great in coming times? If Yes, then not just ESPP, you can even go for ESOP’s and other plans from your employer.
Last night, it was a historic moment when our Prime Minister informed the whole nation that Rs 500 and Rs 1000 notes will not be eligible currency notes from midnight at the end of 8th Nov, 2016. Here is the RBI notification
PM Modi had also explained all the points very well in his speech and shared how people should not worry about this if they have money with them and it can be exchanged with new notes in next 50 days, however seems like a lot of confusion is there around this topic and many myths are floating around.
5 important facts about the old notes bank
Below are some of the most important facts which you should know after this Rs 500 and Rs 1000 notes bank. There are lots of myths around and I wanted to clear them. These points which I have mentioned below are taken out of the RBI notification itself.
Fact #1 – You can deposit any amount of old notes in your bank/Post Office account
You can “deposit” your old currency in your bank account till 30st Dec, 2016. There is no limit on this amount and if you have Rs 50 lacs with you in Cash, you can just walk into your bank branch (expect a lot of rush) and just deposit the amount in your bank account. The limit which is there is on the “exchange” which is the next point. Please find below the exact wording from the RBI notification.
Also note that there is no limit of deposit for account whose KYC is complete. If KYC is not yet complete, the limit is Rs 50,000.
#2 – You can exchange up to Rs 4,000 notes in ANY bank branch in first 15 days
You can walk to ANY bank branch and exchange up to Rs 4,000 of old notes along with your identity proof (PAN, Aadhaar card, Passport etc). You don’t need a bank account in the same bank. After 15 days, this limit of Rs 4,000 will be reviewed and raised. I am sure this small limit is kept so that most of the middle class and poor people are handled before other privileged class 🙂 . Apart from the bank branches, you can also visit RBI centers for this exchange.
#3 – You can deposit the money in 3rd party account also
It is also possible to deposit the money to 3rd party account also if you follow the full procedure and produce a valid ID proof (your own)
#4 – Cash withdrawal Limit from ATM and Bank Branch
There is following withdrawal limit set by the govt.
ATM – Withdrawal from ATMs would be restricted to Rs.2,000 per day per card up
to November 18, 2016. The limit will be raised to Rs.4,000 per day per card
from November 19, 2016 onwards.
Bank Branch – Till 24th Nov, 2016, you can walk to your bank branch and withdraw up to Rs 10,000 in a go, but the overall limit is Rs 20,000 per week.
You can walk to ANY bank branch and exchange up to Rs 4,000 of old notes along with your identity proof (PAN, Aadhaar card, Passport etc). You don’t need a bank account in the same bank. After 15 days, this limit of Rs 4,000 will be reviewed and raised. I am sure this small limit is kept so that most of the middle class and poor people are handled before other privileged class 🙂 . Apart from the bank branches, you can also visit RBI centers for this exchange.
#5 – You can deposit the old notes till 31st Mar, 2017 in worst case
In worst case, if you are not able to deposit the cash in your bank account or exchange those till 30st Dec, 2016, Still you will get another change to deposit the amount at RBI designated branched till 31st Mar, 2017 with proper documentation. One of my close friend parents are coming back to India from US after Jan, and they were worried after this news. I told them about this 31st Mar, 2017 deadline which calmed them!
Below is the speech by our Prime minister in case you want to hear it.
The big confusion and the Panic
This whole news which came out last night has created a big confusion among people and I can see many of them in panic situation. A lot of people who know clearly that their money is still safe and can be deposited back in bank account are also acting like the world has come to the end.
On the lighter note, social media went crazy and there were some really hilarious tweets which started circulating across various platforms.
There was news of people rushing to buying gold, doing shopping last night (till midnight) and what not. Understand that if your money is legally earned and you are paying the taxes, you need not panic and just keep calm, you can deposit it with bank and your money is 100% safe.
Only those who have black money will be facing problem as now all the money they have is worthless.
Discomfort because of the BAN
While there is surely some level of discomfort, but that’s very obvious and it’s bound to happen when things change at this level. This bank of old bank notes is for good and our countries future. This will really help curb black money and corruption in a big way.
Will update more on this topic in coming days. New notes of Rs 500, and Rs 2,000 will get started from Nov 11th .
Let us know your views around this topic in comments section below
Good news, the inactive EPF accounts will now start getting interest. Also the interest will be paid since Mar month of this year. This will start once the govt issues the notification regarding this. Since 2011, the EPF accounts which were not active for 3 yrs before inoperative EPF accounts and they stopped getting the interest.
Now Inoperative EPF accounts will earn interest
However now the rules are changed and if someone wants to keep the money in EPF account, they can do so. The EPF account will keep earning the interest decided by EPFO from time to time. This year itself the news was out that the inoperative accounts will get interest. However the notification news has come just now yesterday.
As per the EPF officials, Around 42,000 crore has been lying in inoperative EPF accounts and they will get interest @8.8% now.
“The inoperative EPF accounts are not being paid interest since 2011. As per the instructions given by Prime Minister Narendra Modi and Finance Minister Arun Jaitley, we decided to start paying interest on those accounts to make them operative,” Mr. Dattatreya said on Monday.
You can now leave your EPF accounts active even after leaving the job
As per this latest development, now after you leave your job, and do not join somewhere else, you can leave the EPF account to keep earning the interest. Given that the EPF interest is upwards of 8%, it’s a good place to park the money.
I had written my first book “16 Personal Finance Principles Every Investor Should Know“ a few years back and it got very popular among investors. It has close to 130 reviews on Flipkart + Amazon. Now the same book is translated in Hindi Language and is available for sale.
In Hindi it’s called – Ache Niveshak Ke 16 Sutra
The Hindi version is targeted towards those who can read Hindi books and not only for those who cannot read English, because it used enough English words (in Hindi script) at various points.
There are enough number of people in our country who need financial literacy, but they are not able to read English and hence don’t read on internet as most of the content is in English
So if you know anyone who can benefit with my first book in Hindi format. Feel free to share about the book with them
Around 6.5 million Indian Debit Cards have been compromised recently which is one of the biggest security breaches our country has seen to date.
Around 641 customers of 19 different banks have reported frauds worth Rs 1.3 crores in total as of now and after that, all banks started investigating the matter. Some of the banks that are worst affected are SBI bank, ICICI bank, HDFC bank, and Axis bank.
Here is a real incident reported by Vishal Sharma on this article below in the comments section
My card got cloned and my account was wiped out on 5th Sept 2016 by cash withdrawals from china . I immediately informed my bank Standard chartered who then blocked my card. It took 10 days and a lot of following up before they gave me a temporary credit.
SBI alone has reported that it has blocked around 6 lacs debit cards and going to issue new cards soon. This is done as a precautionary measure so that no frauds are done on these 6 lacs cards.
As per the following video, these compromised debit cards were used in the US and China while the debit card owners were in India.
How did this all start?
Around Sept start, various customers started complaining to banks about the fraudulent transactions, and that when banks started reaching out to National Payments Corporation of India (NPCI), which found out that it was a malware-related security breach in various ATM’s and Points of sale systems which were managed by Hitachi Payment Services.
That’s when the banks asked its customers to change their PIN. Banks also blocked cards and started providing the new cards to its users.
The banks are saying that this security breach has happened outside the bank’s network, but still, the investigation is going on right now and more details will come up in coming times.
How did the security breach happen & What got Hacked?
As per the above video from NDTV, almost every detail of the card was hacked like
Name on the card
Expiry Number
Card Number
CVV number
When you use your card at an ATM or a point of sale (in some shop), the data first goes to a central server (central server switch) and that further sends the data to your bank to check if you have balance in your account or not. This central server had the malware sitting and the data was compromised at that point.
Can you take some precautions?
The only thing you can do right now is either change your PIN. Most of the security measures are already taken by the banks, so you can’t do much from your side now other than getting your card blocked (not recommended). You can read more details about this news here
Do you know anyone who faced the card fraud? Can you share that?
What do you think about this issue? What are your views?
A few months back, I read an article that talked about the biggest financial goals of Indians. As per their survey, the biggest financial goal for 34% of the respondents was “Securing Child Future”. The only issue was that their survey size was just 150.
“Retirement” was the biggest goal for only 2% of the respondents, which means just 3 out of 150 people marked “Retirement Planning” was their biggest goal.
I was somehow not very convinced with their survey size of 150 because it’s not a big enough sample size to decide what most of the people feel. So I thought of conducting my own survey with a big enough sample size, and I was able to get 11,324 survey responses.
The first thing I asked was “Which is your biggest financial goal in life?”
Think about it?
What if I posed this question to you directly and asked – “Which is your biggest financial goal in life?”, what would you say?
I gave 6 options to people to choose from, and below were the results.
Goal #1 – Accumulating enough wealth in life to enjoy
“Accumulating enough wealth to enjoy life” was the topmost goal picked by the maximum people. This was very surprising for me because it was not a small sample size.
We had more than 11,000 people taking this survey and 3553 people out of that (around 31%) chose this option, which shows that somewhere priorities of people are changing these days. Now people want to accumulate wealth not just for retirement, but even to enjoy life before retirement.
They want to travel, experience new things in life, explore new hobbies and spend on themselves. In short, they want to enjoy life before retirement itself and not keep all the money only for retirement.
Goal #2 – Giving the best education to children
The next goal which was voted by maximum people was “Give the best education to their children”. Around 21% marked it as the biggest goal of their life, which confirms that still “children education” is an important and most sought after goal for investors.
It’s a given fact that giving the best education to your children is the best way to care for them and their future. Their life foundation is set by the quality of education you provide for them. It’s surely one of the most satisfying goals for a person.
Goal #3 – Planning for my retirement
I was happy to note that a big percentage (around 19%) said that planning for their retirement was their biggest financial goals. I want to reinforce the point that this survey was taken by people who are net savvy and mostly belong to big cities and earning decent money each month.
If I talk about you – Are you retirement ready? Do you feel you are doing enough for your retirement goal? If you are not sure, You can explore our pro membership program
We all have 30 yrs of working life to save money for 30 yrs of retirement on an average. So look at each year of working life-saving as a fuel which will help you each year of retirement. So what you invest in the year 2016 will help you in the year 2046 (2016 + 30 yrs). This concept comes from my book – “How to be your own financial planner in 10 steps”
Goal #4 – Buying a House
15% of people said that buying a house was their biggest financial goal. Given the unaffordable housing prices and the social stigma attached to “owning a house”, I am sure a lot of people feel the “pressure” of owning a house. Only the people who still don’t own home can feel the pressure and the worry associated with it.
No matter how many articles claiming “Renting is better than buying a house in India” comes, still its an emotional decision for people. They feel pressure from family, spouse, and society to buy a house and that’s the reality.
Goal #5 – Becoming Debt-free in life
A big number of investors are getting into a debt trap and a big portion of their income goes into serving the loan or paying off some family debt. It’s surely not a very great feeling to know that a part of your income will just go away somewhere and never return back or form any capital.
A lot of people want to get rid of debt as soon as possible and the high expenses these days make it very tough for someone to close their loan by paying off the debt soon.
Goal #6 – Saving enough money for kids marriage
I am sure we all have this goal in life.
We all want to save some money (or a little) for our kid’s marriage, but 2% of people marked it as their biggest goal in life. I am not sure if they have achieved rest other goals already or not. I do not have much comment on this point, because I don’t want to say if this is wrong or right. Maybe you can share what you feel about it?
So what is your biggest financial goal?
We saw all these 6 goals and how people responded to them. Would like to know what is your biggest financial goal in life and what do you think about this?
70% of people feel that they are “Asset Poor” as per my recent survey.
Are you one of them?
No matter how much you earn or how much wealth you have created until now, you will fall into one of the following 4 categories.
Asset Rich, Income Rich
Asset Rich, Income Poor
Asset Poor, Income Rich
Asset Poor, Income Poor
Suddenly one day, I thought how many people will consider them “Asset Rich” and “Income Rich”? So I thought of creating a survey which asked people just this simple question.
Survey with 1068 people
There is no good information available on this topic, hence I ran a survey for the last few weeks and I got 1,068 responses from various people who visit this blog.
Note that this survey does not represent the general population of the country, but those who work in big cities, have a decent income/wealth (probably) and are net-savvy. Basically our blog readers. So you can safely say that these 1,068 people are like you and me, hence these results are very relevant for you (our readers)
Before I discuss about each category and look more into it. I want to share with you the survey results highlights
Around 70% people see themselves as “Asset Poor”
Around 65% people see themselves as “Income Poor”
Only 10% of people felt they were “Asset Rich and Cash Rich” both
Asset Poor, Income Poor
At the bottom of the pyramid are the maximum people who feel them to be both “Asset Poor” and “Income poor” at the same time. As per our survey, it amounts to 45.97% people, or 45 people out of every 100.
Think about this, a big chunk of people feel they are not earning enough to lead a great life, nor they have built enough wealth to call themselves RICH. This is alarming!
Also note that these people “feel” themselves as Asset Poor, Income Poor. So it’s all about their own perception about themselves. So even a person earning Rs 50,000 per month might feel he/she is “Asset Poor, Income Poor”. It has a lot to do about your relationship with money.
I think people falling in this category must be highly stressed as they might be surrounded by various people who either own some properties or if not, at least earn decent enough to enjoy various materialistic things in life.
One of our old surveys shows that every 1 out of 2 people in India is stressed because of money related matters.
Asset Rich, Income Poor
This is an interesting category of people. A lot of people are asset rich, but Cash poor. You must be wondering how?
The best example of this category are some senior citizens who do not have any source of income, but they have good assets. However, they are either living in that property or it’s used by their kids now.
Another example for this category is families, which own ancestral homes in cities that were bought by their parents, and now those properties are worth crores, however, they still don’t have a decent income source. They might be into a small business or some kind of job, but they still earn enough to run the house.
Also in various smaller cities, there are many people who have a great amount of wealth, but their lifestyle if base minimum and they don’t spend enough on themselves. My own best friend who lives in Varanasi has wealth upwards of Rs 10 crore (total property worth), but they still run around all day each month trying to earn enough to meet the ends meet, because they can’t sell their lands just to enjoy life.
“What will people say”- is what holds them!
Asset Poor, Income Rich
Now comes the third category where 24.44% of people fall. These are mostly those people who have recently upgraded from the middle class to the higher middle class when it comes to income.
They are earning good salaries like 1/2/3 lacs per month (mostly in the IT industry), but they are still struggling to own a house of their own or to create any sizable wealth. Even if they own a house, it’s on a huge bank loan which ultimately makes them just rich on the left side of the balance sheet, but not in totality!
This category finds it very hard to build assets because their expenses are very high because of their lifestyle. As per this article which says “America is full of high-earning poor people”, most people earn a decent income, but they fail to save enough money to build wealth. I think many people in big Indian cities are going on the same path.
Asset Rich, Income Rich
This is simply the people who are at the higher end of the pyramid. With their several years of experience and discipline, they have created good wealth and also earn decent money each month. They are free from debt now (mostly)
A very high-level description for these people would be those who have
A house of their own without any loan
A good car without a loan
A stable and secure income stream of upwards of 1-2 lacs per month
Enough money lying in bank accounts or mutual funds/stocks
So what makes you Poor or Rich?
It’s all about how you structure your financial life and what shape you give it over the years. There is a big difference in the cash flow of Poor people and Rich people and the below diagram shows it in a very simple way.
Poor people – Earn and simple Spend that money on expenses, they keep doing this all their life and never build any assets
Middle Class – While middle class earns better income compared to poor people, still, they create enough liabilities which eat up all their income, if anything left after expenses
Rich People – Rich people do something different, they focus on creating assets that generate income for them over the years. It can be dividends from stocks, mutual funds or building real estate which gives income. I recently came across a very example of how rich mindset works and here is an example from Quora, where a guy “Varghese Thomas” is sharing his personal life example.
I know he is an NRI and some people might say that because he is an NRI, it’s easy for him to think like that, but still it’s all about the mindset and how far your thinking goes.
How to become “Asset Rich”?
While this is a topic which calls for a separate book, I will want to give an attempt to talk about it briefly.
To become Asset Rich, you need to first become Income Rich. There is no other option here, unless you have a rich relative who might leave his fortune to you 🙂
So you need to first move to the “Income Rich” category from “Income Poor” . When I say Income Rich, I mean you earn enough money each month, which helps you to save good amount of money after all your expenses and EMI’s. Because unless you keep investing good amount of money each month, becoming rich will be tough.
Even if you are generating very good returns like (12% or 15%), you will not build enough wealth if you do a SIP of Rs 3,000 per month. I hope you get my point.
The amount or quantum of money you put in each month is highly important.
So you need to upgrade your skills, work on increasing your income, save a good amount of it with discipline and take decisions which at least doesn’t lose you money, if not make wealth for you. I don’t want to go into details here, because this is a big topic.
What are Assets and Liability?
I really feel you should once watch this 2 min video from Robert Kiosaki where he explains about Assets and Liabilities. This will give you some really good background to start thinking how you want your financial life to shape up.
I hope you got some good insights into how people think about themselves and their financial situation. We would like to know what is your plan for moving to the upper category in the future? Please share more insights on this topic in the comments section.
