MOST IMPORTANT THING -(MINDSET)
Whenever we talk or listen to the people around us getting rich or a Multi-Millionaire , either we skip the section or generate excuses out of no where
The excuses :-
1) he/she was rich because he was from a well privileged family
2) he/she was rich since they had their own house and don’t had to worry about other expenses as they have inherited wealth
3)he/she must had a jackpot ( lottery) due which they are rich #they must had not repaid their bank loan to become rich and so on thinking .
But the major thing comes into play whenever you want to be rich is the “MINDSET” without the correct mindset nothing is possible.
the second step after mindset comes is
( wanting factor to grow rich ) , if a person has these two factor than the very last and final step requires is persistence ( which plays a key role).
Combining all of them each has to be placed with perfect execution for the stream line of rich .
VARIOUS TYPES OF PEOPLE AND THE SECTOR OF WORK THEY BELONG TO :-
Well according to statistics the 70% of people existing in this planet are mostly employed ( person who work for 9-5) or with fixed scheduled interval . Now the main point is why are they employee reason being simple that is their thinking is towards that horizon and the amount of hunger is present within them and also the consistency to do same repeated job over and over again .
20% of the people around the globe are self- employed ( person’s those who are boss of their own and have commandant of work ) . Again the main point is why they are self employed reason being their mindset towards that horizon are different and that is the only amount of hunger which is present within them with the perpetual amount of consistency for which they become a self employed .
Now let us discuss the common factor of the above two common departments of working that is ” THEY WORK WITH RESPECT TO TIME ” ( we can further conclude that they sell their time for money which comes out to become the most common intersection of these working segments ).
The remaining 10% of population belongs to two different kinds of segments ” THE BUSINESS AND THE INVESTOR ” well these are the only two segment of working where a person has commandment of time , money and complete freedom .
What is Money?
MONEY IS A MEDIUM OF EXCHANGE THAT CAN BE ALSO CALLED A STORE-HOLD OF WEALTH
By the term “medium of exchange” we mean something that can be given to others to buy things. Basically, people produce things in order to exchange them with people who have other things they want. Because carrying money around non-money objects in the hope of exchange of exchanging them for what one wants is inefficient, virtually every society that has ever existed has created a general form of money commonly known as CURRENCY.
RELATION BETWEEN MONEY AND SOCIETY WE STAY IN! UNDERSTANDING MONEY.
When we say money to be a “store-hold of wealth” we mean a vehicle for storing buying power between acquiring it and spending. While one of the most logical things to store wealth is assets that they expect will retain their value or appreciate ( such as gold, silver, diamond(gems), painting, real estate, stocks, and bonds).
By holding on to something that appreciates, they figure that they can do a bit better than just holding on to the currency and when needed, can always exchange the thing they’re holding to get the currency to buy the things they want to buy.
This is where credit and debt come into play since without any transaction the relation between credit and debt can’t be generated, and as we all know transaction is economy. It is important to understand the difference between money and debt. Money is what settles the claim you pay the bills and are done, whereas debt is a promise to deliver money.
When lenders lend, for example, they assume the. only plus the interest, they receive back will buy more goods and services than if they had simply held on to the money. When all goes well, the borrowers use the money productively and earn a profit with it themselves, so they can pay the lenders back and still have money left over.
While the loan is outstanding, it is an asset for the lender and liability for the borrower. When money is paid back, the assets and liabilities disappear, and both the borrower and lender are better off. [i.e TRANSACTION ARE SETTLED OFF]
“ASSET : SOMETHING THAT PUTS MONEY TO YOUR POCKET , LIABILITY : SOMETHING THAT PUTS MONEY AWAY FROM YOUR POCKET ”
~ ROBERT T. KIYOSAKI.
RELATION BETWEEN MONEY, CREDIT, AND WEALTH:
It’s important to realize that most money and credit ( especially the government-issued money that now exists ) has no intrinsic value. They are just journaling entries in an accounting system that can easily be changed. The purpose of that system is to help and allocate resources efficiently so that productivity grows.
DISADVANTAGES OF MONEY: Money is rewarding for both the lenders and borrowers, but the system periodically breaks down, when that happens ( which according to history has been proven since the beginning of time ), the currency is monetized and currency value falls and is destroyed and wealth shifts in a big way, sending shockwaves through the economy and markets.
LET’S FOCUS ON – MONEY, CREDIT, AND WEALTH –
While money and credit are associated with wealth, they aren’t the same thing as wealth. Because money and credit can buy wealth, the amount of money and credit you have and the amount of wealth you have look pretty much the same. But we cannot create more wealth simply by creating more money and credit.
To create more wealth simply by creating more money and credit, we need to have to be more productive. The relationship between the creation of money and credit and the creation of wealth is often confused, yet it is the biggest driver of economic cycles.
“WEALTH OR WEALTHY – to common people wealthy refers to people who have an abundance of material possession, but in actual finance, we define wealth differently.
In the world of finance, we do not define the wealth of the rich in terms of material possessions. One way we determine whether sometimes or not is based on net worth.
Net worth is defined as the current value of one’s assets fewer liabilities, and how to determine whether one is wealthy or not.
whatever your age, whatever your income, how much should you be worth right now? From years of surveying various high-income / high-net-worth people, we have developed several multivariate-based wealth equations.
A simple rule that determines the adequacy of one’s expected net worth.
“ MULTIPLY YOUR AGE TIMES YOUR REALISED PRETAX ANNUAL HOUSEHOLD INCOME FROM ALL SOURCES EXPECT INHERITANCES . DIVIDE BY TEN . THIS, LESS ANY INHERITED WEALTH, IS WHAT YOUR NET WORTH SHOULD BE “
~THOMAS J. STANLEY & WILLIAM D.DANKO
THE JOURNEY THAT CAN BE FOLLOWED TO BECOME RICH :
The very basic thing which comes after the mindset and selection of sector- work you choose or you are there is the difference between INCOME AND WEALTH class .
INCOME ORIENTED THINKING AND ITS CONSEQUENCES :
Person those who are far more concerned about income – earnings belong to employed and self-employed segments in life , as they earn more and pay more amount of huge taxes , so that they again have to earn and become income oriented .
The persons belonging to this segments sell their time for money and want massive returns due to which it takes more time to upheld the scenarios .
WEALTH ORIENTED THINKING AND ITS CONSEQUENCES :
People who are concerned about wealth- earnings belongs to business and investor segments in life as they don’t sell their time for money and they have commandment on time and money .
Since they belong to mindset of wealth earnings , as they contribute to the entire society and their individual growth .
To belong to wealth oriented mindset the person must develop themselves to grow rich .
THINKING FROM A NORMAL PERSON PROSPECTIVE :
Now observing from a normal person prospective we see that a person with deemed income and low wealth can also become rich by following some basic rules and discipline .
The steps as followed :-
- SAVE AND INVEST THE DIFFERENCE .
- FOLLOW THE PROCESS OF SAVING AND INVESTING FOR AT LEAST 7 YEARS FOR FINANCIAL INDEPENDENCE .
- CONTINUOUSLY GROWING YOURSELF .
THE VERY FIRST STEP : (THE PROPER MINDSET)
Before starting to invest or before understanding any meaning of investment one must have a mindset of “FOCUS” since before understanding any concept of investment we must have patience and calmness, which lacks the most in the majority.
The moment one concentrates on itself it becomes very easy for the person to generate consistent focus on the work that he or she is doing, which bears time into the different segments of mental development, now once the person is satisfied with self, now comes the perfect time to resonate with the concept of investing.
First, a person has to be very conscious and perfectly valuable to money, money in the terms of saving, and if that cannot be controlled then the further process of investing can never be controlled.
We have never listened to the entire proverb, we just had gone through half of the verse that is ” SAVE AND INVEST THE DIFFERENCE” what we have heard from our very young age is just to save and the remaining half verse is avoided which itself is inevitable.
ABSOLUTE FINANCIAL FREEDOM –
What would it be like if you could do anything you wanted, anytime you wanted? How would it feel if you and your family never had to want for anything again? If you were able to give free freely and live completely on your own terms, not anybody else’s, and all without ever having to work to pay for it.
The money you make while you sleep your investment income would provide for your unlimited lifestyle. Maybe you would buy your parents the home of their dreams, or set up a foundation to feed the hungry or help clean up the ocean.
Remember once you’ve freed yourself from the need to work for the rest of your life, how about freeing up your lifestyle? Financial Freedom would mean you’re independent, you’ve got everything you have today, plus two or three significant luxuries you want in the future and you just don’t have to work to pay for them either.
But as we all know that consistency is the key to all these surplus valuations, one must possess financial freedom in terms of their numbers just by writing them down in a notepad.
- expense No.1 – ( Total amount )- Rs.-average per month
- expense No.2 – ( Total amount ) -Rs-average per month
Now just write down all the expenses continuously like that and whatever the number comes in for financial independence annually divide by 12.
Now calculate the total monthly income number for financial freedom, now multiply that by 12, and you’ll have the annual amount you need for financial freedom Rs. _______________ amount per year, now just think if this amount comes to you without even working for your income is the day you become financially free or which is called financial freedom.
“THERE IS ONLY ONE THING THAT MAKES A DREAM IMPOSSIBLE TO ACHIVE :THE FEAR OF FAILURE “
~ PAULO COELHO
The main factor that comes in is the hunger and desire for financial freedom and you being an individual have to unleash your strength and capabilities, if this happens within you and you get inspired by something that excites you so much that your desire is completely unleashed, there you become completely obsessed with it, and you focus on the object you desire.
Just be ferociously focused on the new life or object you desire and once you reveal it remember, wherever focus goes energy flows.
Have you ever experienced this? you bought an outfit, or you bought a car, and suddenly you saw the car or outfit everywhere? How did this happen? Because part of your subconscious mind called the RETICULAR ACTIVATING SYSTEM knows this is important now, so it notices anything it relates to it.
Just remember -Anything that’s important, anything that focuses on energy flows into it.
Anyone can invest in any asset that they demand but the condition arises when a return percentage is calculated, here we will learn how to calculate the returns in the stock market considering stocks to become assets and if you are a beginner still it will be helpful to understand the return on investment.
Returns on investment is a basic computation made to assess how an asset is performing. every investment can be represented as a set of inflows and outflows. return is the comparison of the inflow and outflow and therefore the benefit to the investor from making the investment.
returns can be positive or negative. a negative return means that the investment has yielded losses rather than benefits.
We just need to compare the inflow and outflow to understand the return whether it’s positive or negative. [ INFLOW -represents the principal invested, OUTFLOW- the amount generated ]
RETURNS CAN BE MEASURED IN TWO WAYS:
- COMPARING THE AMOUNT OF INFLOWS AND AMOUNT OF OUTFLOWS ON AN INVESTMENT IN ABSOLUTE RUPEE TERMS ( YOUR NATIVE CURRENCY TERMS ).
- CALCULATING A RATE OF RETURN BY COMPARING INFLOWS AND OUTFLOWS.
WHAT ARE ABSOLUTE RETURNS?
the absolute return on investment is calculated as:
|(END VALUE – BEGINNING VALUE )/(BEGINING VALUE) * 100
|(RETURN ON INVESTMENT /ORIGINAL INVESTMENT )*100
These formulas can be applied to get the absolute returns of any investment made, in the formulas given above the rate of return is converted into percent terms by multiplying by 100.
Now, let us consider an example and understand the concept of absolute returns :
Mike purchases shares of a company for ₹23000
And sells them at ₹28000,
whereas Robin purchases shares of the same company for ₹2500 and sells them at ₹3100.
Let us calculate the absolute returns of mike and robin individually,
Absolute returns of mike:
The Inflow(beginning value ) = ₹23000
Outflow(end value) = ₹28000, so after applying the formula we get an absolute return of
(28000-23000)/23000 *100 = 21.74%, which is the absolute return of mike on his investment.
Absolute returns of Robin:
The Inflow( beginning value)= ₹2500
Outflow (end value) = ₹3100, so after applying the formula we get an absolute return of
(3100-2500)/2500 *100 = 24%, which is the absolute return of robin on his investment.
Now, by comparing mike has a higher return in terms of rupees, but earns a lower rate of returns as compared to robin.
The concept of absolute return is widely used in financial markets ( such as the absolute return of market indices such as Sensex or Nifty are often used to measure the performance of stock markets for periods less than one year )
Absolute returns does not take into account the holding period of investment, to calculate the returns as compared to the holding period we require to calculate the “Annualized return”
What Are Annualised Returns?
Annualized returns are a standardized calculation of return on investment, which is calculated on the holding period of investment per annum. it can be calculated by the following formula:
|(END VALUE- BEGINNING VALUE)/ BEGINNING VALUE)*100 *(1/HOLDING PERIOD OF INVESTMENT IN YEARS )
WHICH INCLUDES THE HOLDING PERIOD
Let us understand the concept of annualized returns with the help of an example.
Mike purchased a house for ₹20 lakhs and sold it for ₹30 lakhs after 1 year, whereas Robin purchased a house for ₹20 lakhs and sold it for ₹30 lakhs after 3 years.
Let us calculate the annualized return for mike and robin individually –
Annualized returns for Mike
The Inflow( beginning value) = ₹20 lakh
Outflow( end value) = ₹ 30 lakh , time = 1 year.
(30lakh-20lakh)/(20lakh)*100*(1/1) = 50% , annualized return on investment for mike
The annualized return for Robin
The Inflow( beginning value) = rs.20lakhs and the outflow(end value) =rs.30lakhs , time = 3 years.
(30lakh- 20lakh)/(20lakh)*100*(1/1)= 16.3%, annualized return on investment for robin
if we calculate the absolute returns then for both of them the returns become equal whereas if we calculate the same for annualized returns, by very common sense we can say that mike has better returns as compared to robin
since these returns are based on the holding period of investment, in other words earning a profit of rs.10lakhs in 1 year is superior to earnings rs.10lakhs in 3 years.
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