This is something we need to be aware of, or we may not be ready to meet the blows which come to everyone sooner or later, weather you are rich or poor. This article describes the distinctive difference between how the rich, the middle class and the poor manage their money. A big portion of this analysis comes from the book “Rich Dad Poor Dad” by Robert Kiyosaki. Realistic examples of three main income classes of Singaporeans have been added to the context.
Most of lower class spend all their money and they don’t even have enough to live by. A small portion of them will have some left over to save. However, the money they save is mostly put in a bank account which gives a tiny interest rate of 0.05% p.a. If you live your life in this manner, it is impossible to become rich.
Example of the poor’s residual income:
If the income amounts to $2000 per month and it is entirely used up for expenses, the remaining cash flow is $0.
Some people can earn S$10000 but also spend S$10000. These people with high income are the middle class. The middle class is generally highly educated and people have a high income. However, without proper financial management, they take on debts and almost never pay them on time. Interest on credit card debt can become uncontrollable if compounded over time. Most credit card interest rates are at 24% p.a. – that means your debt amount will double in roughly 3 years. Again, some middle class people will have savings, but they mostly put the money in a bank or use some fixed deposit which only yields a tiny 0.05% p.a. for deposit accounts in Singapore.
Example of the middle class residual income:
In this example, the person saves $857 per month. Yearly savings amount to $10,284. Interest earned on savings put in the bank: $10,284 * 0.05% = $5.142.
Example of the rich residual income:
As seen in the table, the rich will strive to increase their income. They will seek multiple sources of income instead of relying on a single source. They will create passive income for themselves through investing in stocks and property. Firstly, they will not take up unnecessary debt so that their expenses can be kept to a minimum. In the example above, the person saves $4,437 per month. He saves $53,244 a year. Let’s say he invests this amount and has a return on investment of 18%. His money compounded over 4 years will double to $106,488. Secondly, the rich invest their money. That’s a common link I found among all the rich people.
In conclusion, if you want to become rich, consider following the steps below:
1) Increase income and learn to create passive income.
2) Reduce expenses.
3) Invest your money and learn to invest wisely. (Note: It’s true that many people have burnt their fingers in the stock market. Most of the time these are individuals who have no knowledge of investing. You do not want to be one of them.)
4) Do not take on bad debts, especially credit card debts. If you have a credit card, do not overspend and always pay on time.
Author : SGyounginvestment
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