Title sounds confusing? Let me confuse you a little more…

You have heard this many times…right? The rich get richer..why do you think this happens?

Well it is because whenever we buy something we pay a price, right? Well let us say you go to a hotel where a ‘masala dosa’ is sold to you for Rs. 75. Immediately your mind goes to the costing and you tell your partner…‘Just see this..the material costs are Rs. 3 and he is selling it for Rs. 75…’ 

The hotel owner is LOOTING US….

NOT TRUE. not true at all.

Sales price of Rs. 75 includes material costs, interest costs, salary costs, rent (another form of interest), managerial costs, taxes, bribes, and MARGINS.

When you buy a dress, when you buy a plane ticket, when you travel by a toll bridge, when you BUY a car OUTRIGHT, – you are paying some element of interest. So look at the hidden interest – even when it is not so obvious. Another obvious INVISIBLE interest is when you stay on rent – it is just paying somebody else’s capital…

See how you are paying interest EVEN when you are not ‘servicing’ a loan? Now if the interest paid by you is less than the interest received by you, you will get richer. So if your UNEARNED income – dividends, rent, interest – amounts for which your money is working (and not you) is GREATER than ALL your expenses…OBVIOUSLY you will get wealthier. Or at least richer for a start.

Now this is true for all the things that you buy.

So if you earn Rs. 10 lakhs a year (post tax) and your annual expenses are Rs. 4 lakhs, you are adding Rs. 6 lakhs to your kitty. YOU ARE GETTING WEALTHY…by Rs. 6 lakhs ONLY IF YOU WORK.

Now a rich man who is earning Rs. 6 lakhs as dividend / interest / rent and is spending say Rs. 4 lakhs and he is earning Rs. 6 lakhs from his efforts, HE is getting rich by Rs. 2 lakhs a year EVEN IF HE STOPS WORKING and he is getting rich by Rs. 8 lakhs if he continues to work.

Thus if your UNEARNED income is greater than ALL YOUR EXPENSES…you are EARNING more interest than what you are paying. If you manage your assets well, and EARN well to add to your kitty you get wealthier faster…

These numbers are of course very small…to get seriously rich you need to have some nice big amounts with a lot of zeroes to your net worth account. However the principle is the same

“if your UNEARNED income is greater than your total expenses you are getting richer…if the income is from various sources and you are still adding to it, YOU are WEALTHY’ – not too many know the distinction…