5 Ways People Lose Their Money and Go Broke in the Long Run?
If you ask anyone questions related to money, everyone will say, yes money is extremely important in their life. We all know about this and accept money as the backbone of society and economy. Then why people don’t have money with them? Why only a handful of people are having so much wealth while rest are still struggling?
As per the article published in Wikipedia, half of the world’s wealth belongs to the top 1% and top 10% hold 85% of the world’s economy? In other words, 90% of the world’s population holds 15% of the entire wealth and resources.
So, let’s understand why people lose their money and go broke in the long run. Also, I like to inform you that these are my research and understanding of the circulation of money in people’s life.
Lack Of Financial Education
One of the sad things about our education system is they don’t emphasis the importance of becoming a job creator. Our whole education system revolves around how to get good marks and get a suitable job.
Apart from science, arts, commerce, sports, music, there should be separate courses on how to create wealth? In this program, students should be taught the difference between passive and active income. They should learn as many ways to create sources of passive and active income. Plus, they should be taught how to invest in the stock market.
I believe since the majority of people are not taught anything related to how to manage and grow wealth that’s why people suffer in the long run. Society and common people have to realize an active source of income is not the only way to grow your money in the long run. I am writing this point due to my personal experience.
Lack Of Discipline
Another reason why people suffer is because of lack of discipline related to managing finance. When I was working as an active employee, my friends use to ask money from me regularly. The reason being they have spent all their monthly income mostly on purchasing liquor and cigarettes.
If you do some rough calculation you will know that a young working executive spends at least Rs. 70000/- every year on these items. So, in the coming ten years he will be spending above Rs. 7,00,000/- ($10,000 approx.) and just to damage his/her health. Here, I have not included large money people spend enjoying in a disco or pubs. This is just an estimate of what bachelors spend while staying with friends in the hostel.
Now, if you have invested that money in stock, gold or any other assets then in 10 years it would have been multiplied. I am not saying you shouldn’t consume but by doing so you’re deteriorating your health in the process. And all this is happening due to the lack of discipline for money.
Credit Card Trap
Banks are clever in distributing credit cards to their customers. I remember when I was in Hyderabad, India as soon as I got selected for a job, within a few days associated bank gave us both debit and credit cards. Credit cards come with an annual charge, maybe say Rs. 500/- and you will say what’s so harm in paying that much amount to the bank annually.
First of all, you didn’t apply for it. So, it was forcefully handed to you. Now, suppose you never used credit card even once in a year, still, they will deduct Rs. 500 from your account. So, in 10 years, you have paid Rs. 5000/- to the bank without ever using it. Suppose, they have ten thousand customers like you, which means bank made fifty lakh ($66,666/-) in one year without customers using their credit cards ever. And the bank is using just a system which they created once.
Credit cards are good but if you know how to use them properly. I know many stories of how people get trapped in the credit card usages. Even I have suffered once because I was not aware of its usage. Currently, I am not an active employee of any company but I still manage one credit card and since I am using it well, I am not facing any issues now.
Buying Liabilities Instead Of Assets
How many of you have read the book called “Rich Dad Poor Dad”? If you have read this book, I am sure you are aware of the difference between assets and liabilities. But if you haven’t then let me tell you the difference. Liabilities are those through which your money goes out and assets are those which brings money for you.
In simple words through my understanding anything which requires more maintenance cost then your earnings are all liabilities. Even so-called luxury cars and big homes are liabilities unless you are earning something by using them. Do you know with in the first year your car value depreciates 20% to 30%? Instead, purchasing gold or silver is better as their value increases.
If you have a home through which you can earn rent then that is an asset. If you have a car which people can hire and pay you then that is an asset.
Another thing which you can do is first purchase some asset, have regular income through it and then purchase the car of your dreams. Remember wealthy people purchase assets, common people purchase liabilities.
Stop Taking Financial Advice From Friends And Family
If you want to become wealthy learn from a wealthy mentor. It is the same way if you want to become a cricketer, learn from a cricket coach. This rules technically apply in every aspect of life.
So, tomorrow if I want to learn about the stock market and how I should invest then I will look for someone who is personally doing this task. I will look for that mentor in my life. You can take advice from anyone but do self-study and implement as per your understanding. In terms of investing always follow statistics never opinions. Also, remember everything takes time there is no short cut and get the rich quick scheme.
I have shared these points as per my limited knowledge about money. I believe out of these above points if you can educate yourself about finance then that will be boon for you and your family. I have heard from many top-class investors that if you have money 80% of your life’s problems will be solved automatically. Everyone is working or doing something in life just to earn money and the last thing which I will like to say, build sources of passive incomes as soon as possible.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2020 Vikram Brahma