The 5 Rules Of Money | Basic Money Rules | Lab Of Rich

The 5 Rules Of Money

In this blog, you will learn about The 5 Rules Of Money.

When we talk about money, then many times as it is seen it is not so and as it is there it is not seen.

Well just imagine there is a person named Rahul. He is earning 1 lakh rupees per month and now if we will see it according to the whole of India, then it is quite good income. You can say if we see it in legal terms, then he will come in India's top 10%.

So suppose when such a person survives on 50% income Or saves even more money than that.

But how?

Instead of purchasing fancy cars, he drives a 3-year-old car. He uses the same mobile for 3-4 years without purchasing a new phone every year and he lives a very simple life. In a normal house, In a normal society.

Now after seeing this anyone will feel that this person is a typical middle-class person who may be struggling in his life. Whereas they cannot see that Rahul is using his more than 50% income in asset building. Means he is purchasing stocks, bonds, and real estate with that money or is investing in a new company. Which will give a lot of return in the coming time.

Whereas on the other side, there is a person named Varun, who also earns 1 lakh rupees per year but this person does not save any money. Whatever money he gets he goes to the club and spends, he purchases new clothes, and new fancy cars (whose maintenance cost is also quite high). He stays in a big and luxurious society, he goes and eats in fancy restaurants and keeps on purchasing many new gadgets. Many times on EMI.

Now such a person will look very rich. Most people will think that he is such a rich person. He always keeps on purchasing new mobiles? And keeps on doing such things. Whereas people don't know that this person does not have anything as saving and he does not have any assets. 

Due to which down the line after 10 years Rahul will be a millionaire and will keep on earning just by sitting whereas on the other side Varun as he is working today In the same way or even more he will have to work afterwards.

And many times this thing creates misconceptions, from childhood somewhere we feel that a rich person means to purchase costly cars, costly things, liabilities. Whereas the reality is the exact opposite of it and this is the difference in mindset which turns the game many times.

In the journey of becoming rich, Rahul understands that asset building is so important. At the same time people like Varun, are not at all scared to purchase liabilities.

In Fact, if you tell them that you should invest in the stock market then they will say that the stock market is a gambling market and there are a lot of chances of losing money. Now, this is a thing to laugh at because this is the same person who keeps on purchasing the latest mobile and latest thing which is a depreciating asset whose cost always keeps on decreasing and after some time it will stop at 0 only.

At the same time if we see the stock market, then if you purchase stocks with some understanding through mutual funds or SIP then there are very less chances that you will lose money. In fact, they will increase in the coming time.

The person spending more tells the stock market as dangerous and risky. So this is stupidity. There are many types of wrong mindsets. There are many mistakes that normal people make due to which they can never become rich.

So today I will share some principles by taking references from such amazing books.

• Rich Dad Poor Dad
• Principles
• The Science Of Getting Rich
• Think And Grow Rich
• The Millionaire Fastlane

I am going to tell you 5 lessons that will help you a lot in getting rich by changing your mindset and by telling you the right way which will help you in getting rich.

In this blog, you will come to know that

• How you should start.
• Which are the things that will help you in becoming rich.
• What mistakes you don't have to make to become rich.
• On what things you have to work hard and focus on.

And many other important lessons I am going to give you through these 5 lessons.

Lesson Number 1: Know Where You Stand

Where do you want to reach in life? To know that many times it is important to know where you are right now. Like if I am in Delhi, then I can take a flight from Delhi to Mumbai and reach Mumbai properly. But if I don't know where I am, then many times it will be difficult for me to reach my destination.

So the first lesson is that you should know where you are right now and where are your goals going? And for that Cashflow Quadrant will help you which Robert Kiyosaki is teaching in his many books.

From here you can come to know that right now you come in which Quadrant and going to which Quadrant should be your aim.

See if we define these four quadrants in alphabetical order

1. E stands for Employees where maximum people are right now.
2. S stands for Self-employed which is basically commission and fees-based income
3. B represents Business, In this Quadrant comes big Entrepreneurs Like Steve Jobs, Henry Ford, and Elon Musk who hire thousands of people
4. I stand for Investors, In which many financial gurus and investors come like Warren Buffett, Charlie Munger, and Rakesh Jhunjhunwala.

So usually there are these 4 Quadrants and we all come in either of these 4 Quadrants. Now the problem is that from Childhood in school and college we are always focused to be in E or S Quadrant. Where we are taught that if you will have good marks if you are an 'A' grade student then you should go in either E or S quadrant. You will get a good job, where you will earn a good income or you become an engineer and charge fees and earn from that.

Now people become rich from this both ways, It is not that they don't become. If we see Sundar Pichai, Tim Cook and the CEO of many big companies, they are employees only. But they earn a very good income whereas, on the other hand, you might have seen the Doctors or those who work on a fee basis also. Many times they also earn good money.

But still, See the thing is that people cannot earn that much money how much a businessman or investor earns

Remember this thing the people who come in the E and S quadrants usually pay the maximum tax sometimes those who come in the B and I quadrant even after earning a lot of money pay very less tax or pay negligible tax.

Lesson Number 2: Understanding The Importance Of Stocks

See Elon musk is the owner of his company Tesla and owns 172.6 million shares which means he owns 17%. Whereas there is one more company whose name is Hertz global holdings inc. This company had placed an order for 1000 shares of Tesla. Due to such a big order, Tesla's stock price had increased by 13%.

Tesla's market value was more than 1 trillion dollars and with this only Elon Musk's shares gave a return of 36 billion in a day. History has proved this many times that stock is one of the best assets in today's time to create wealth and this thing rich people understand very well.

The good thing about shares is that their value keeps on increasing from time to time which helps in creating big wealth.

So in today's time If you want to create a huge amount of wealth, then without taking stocks, without holding any company shares it is quite difficult to do. It is almost impossible you can say.

But right now many people are seeing that the stock market is falling, it is quite bad. But again this thinking is wrong. It is told in the intelligent investor book that whenever prices of stock are less then it is one of the best times to purchase stocks.

Lesson Number 3: Build Assets

Whatever money you have that goes into assets then that money becomes our employee which makes more money for you and rich people know this thing very well. So they make assets and don't purchase liabilities.

Then why don't people build assets?

Well, the main reason for that is they don't understand the value of assets.

If they purchase any property then in future they will benefit a lot from them because many times our brain cannot judge properly for the future. It cannot see a clear picture and there is a quote related to it.

"We usually overestimate what we can achieve in a year, and underestimate what we achieve in 10 years"

This quote also shows how we make wrong judgments related to the future and this is the reason you can say which people do not build assets.

Lesson Number 4: Building Multiple Source Of Income

Warren Buffett owns 400 million shares of his favourite company Coca-cola where he is the owner of the whole company 9.3% part. On the other hand, the company's CEO, James Quincey he manages the company completely, and works for the whole day. Due to this, he got a 10 million dollars salary in 2017. But at the same time,  in 2017 Warren Buffett without doing any work got 592 million dollars from dividend income.

The thing is that when you invest in the stock market then you don't earn from it until you don't sell that stock. But instead of regularly investing if you follow a dividend income strategy then you get all these benefits as the company grows.

Lesson Number 5: Start Living Below Your Means

This thing is repeated a lot of times but still, it is necessary to repeat it again. In the book “The Almanac of Naval Ravikant”, the author says that if you really want to achieve financial freedom then this is the only way that whatever money you are earning, learn to live your life in less than that. Accept a normal standard of living.

For example - If your expenses are 1 lakh monthly and that is only if your life is going on then when you will maintain this standard of living and you will increase your income.

Suppose from 1 lakh you start earning 2 lakh, 3 lakh but still your expenditure is just 1 lakh. Your standard of living is just that much only. Then only there are chances that you will be able to reach financial freedom. 

Whereas on the other hand if you are earning 1 lakh and you are spending 1 lakh then 0 will be left with you and then when you start 2 lakh and you start to increase your standard of living also. You start purchasing a big car from a small car,  start taking big mobile from small mobile and start spending more.

This means you start increasing your standard of living slowly. So if you do this then you will not be able to achieve financial freedom.

So this lesson is very necessary to understand that you should live below your means not always but many times.