Follow 1 Simple Rule to become Rich

Everyone wishes to be rich in their lives, looking for different ways to become successful before leaving this world. 

Daily we go to bed with a dream in our eyes, a dream where we have all that we wished for in our lives, living like a king, powerful, rich and successful.

We wake up the next day hoping to find a path that could lead us to our dreamland. 

Each one of us wants to know what billionaires like Warren Buffett followed. We look forward to his bits of advice, his methods to become a billionaire. According to Wikipedia, the net worth of Warren Buffet is around  US$88.9 billion.

Sometimes, we humans tend to make simple things over complicated. We overlook the most obvious answers in our lives. We miss what lies in front of us and start to look elsewhere which leads away from our destination, from our goal. 

It is like a foggy winter, fog making us hard to see what lies in front of us.

We often go to schools and colleges, collect our degrees and become a better, sophisticated and more intelligent version of ourselves. Some of us pursue higher education in the hope of earning more and becoming wealthy yet most of them ask "how to become rich and successful?"

Certainly, it means there is something missing in our understanding of life, about how to make money, how money works and how to use it to make us rich fast and successful in the long term. Few people earn money fast but also lose money quickly because of their illiteracy in numbers. 

Most of us found literacy in our education but the absence of financial literacy forced us to look for the solution of a simple formula to become rich elsewhere. 

The Knowledge

Rich knows more about money and how it works. He makes money work for him rather than chasing dollars. He has an advantage over others because he is familiar with financial lessons. One lesson that rich knows that others don't is the difference between an asset and a liability.

Most people struggle financially because they don't know the difference between assets and liabilities. Moreover, some of us never even bother to learn one of the most important lessons of our lives.

Assets

If we look at the formal definition of an Asset by Wikipedia, it says that 

An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. It is the result of a past event or transaction.

Liability

Wikipedia defines liability  as follow

In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events,

If we follow KISS(keep it a simple stupid) principle, an asset is something which puts money in your pocket while a liability takes money out of your pocket. 

The Rule

Rich acquire assets while others pile up liabilities which they think is an asset. People fail to understand the key differences between them and end up even spending more on liabilities than they can afford. 

The key rule to follow is to acquire more assets and fewer liabilities. 

To give you a quick example, suppose you want to buy a new car. If you lack understanding of an asset, you may consider it as an asset as it may save you time and effort and even cost less than public transport in some cases. You went to a nearby showroom and end up picking a model which forces you to make more down payment and ties higher EMI amount in your monthly budget. 

Moreover, after somedays, you realize that it is taking more money out of your pocket in the form of fuel and maintenance. You may show it off as an asset but at the end of each month, when Emi goes off first from your paycheck, you understand that it was an underlying liability that was sold or showcased to you as an asset.

Quite often, we think that an increase in our income will solve all our money problems but that may not be the case all the time. More money makes us greedy and our desire for liabilities goes up and we end up spending more. With an increase in your income, you will find instances of your expenses going up too. 

Hence, financial discipline plays a key role in paving your path towards your dreams.

If you have a habit of spending whatever you have or acquiring liabilities, you will again end up asking others their secrets of becoming rich.

I can't emphasize enough that If we learn the key difference between asset and liability, it will make your ride of becoming rich and successful easy.

The intention of this article was not to demean any profession or hurt the feeling of a person, but to enhance your understanding of money and way of getting rich.

Please feel free to share your comments and thoughts.