I got this on Google…and I think the original is in Mr. thanks. See the picture properly, only the bottom 2 can be got with money. I know one very insecure person almost 60 years of age who desperately tries to look rich (his networth will not live him 2 months without his salary, has no retirement fund, his son has left him for good)…and will spend any amount to get the top 3. Remember, getting rich is easy, but there are some myths also..lets get rid of the top myths..

Two Myths about getting rich

There are a few myths about getting rich – here lets debunk two of them.

  1. Living Frugally and
  2. Saving money.

These two conditions are NECESSARY but not SUFFICIENT conditions.

Many people believe that if they live frugally, they will get rich. So they will earn well, but spend very little. They will use the cheapest form of transport, eat cheap stuff, etc. and save money. They hope to get rich by doing this. Actually saving money is fine, it puts a lot of money in your hand – and now that money has to be invested. Just saving it is not enough.

When people save money, it lies in instruments like Endowment plans, savings bank account, fixed deposit account, public provident fund, national savings certificates, etc.

  1. Debt instrument preserve your money: they preserve it exactly as it was! MONEY does not grow in a debt instrument.
  2. The ‘interest’ that you get in a debt instrument is equal to or less than inflation: Over a long period of time the interest is equal to inflation. The only inflation that it protects is the inflation that the government announces from time to time. The retail inflation that is applicable is far higher than the inflation that you see in the papers. In effect you are getting NEGATIVE INTEREST ON YOUR INVESTMENTS – i.e. you are losing money to the monster called inflation.
  3. The interest that you receive, howsoever meagre is taxed at regular rates: So if you are a tax payer a small part of the interest received is lost to taxation. In fact the bank may deduct about 10% tax, and the balance tax will have to be paid by you as an advance tax.
  4. The impact of the taxation is so bad that the compounding over a long period of time is lost – or its impact reduced.

Moral of the story: Keeping your money in a debt instrument is for preserving it and not for growing it. You get rich only when your money grows, not when it gets preserved.

However while keeping in debt instruments you can do the following:

  1. Keep it in an income deferred way: thus you postpone your income to the time that you withdraw and
  2. Convert the income from a regular income to a capital gains income.

These two steps ensure that the debt portion of your money also grows at a reasonably faster rate than a bank fixed deposit.

This just means that if you must keep money in Fixed Income instrument keep in Public provident fund or in debt funds using the Growth option – so that you pay tax only when you withdraw and not on an yearly basis.


Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Leave a Reply