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…’

NOT TRUE.

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

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. AND THIS MONEY GROWS AT A RATE HIGHER THAN INFLATION. This combination has to exist.

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. And if this addition to the capital is ALSO EARNING more than the rate of inflation..the greater the number, the faster the increase in your richness..so you get richer.

These numbers are of course very small…to get seriously rich you need to have some nice big amounts with a lot of zeroes in your bank 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.

Of course there are exceptions of people who create wealth by sheer talent (Sachin Tendulkar), by people who keep getting a chance to fail again and again (Abhishek Bachhan), people who take their company public (Uday Kotak, Rashesh Shah), people who inherit wealth which they multiply further (Azim Premji, Mukesh Ambani).

However, there are people who ruin the family wealth too like Mafatlal, Anil Ambani,…

I am not talking about these people – let us for a minute say they are beyond us, but for small people like us…what I said above is worth repeating

“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.