As i already say repeatedly that, The poor & Middle Class people have poor spending habits. The commonest is "Dipping into Savings". The Rich people know the fact that, Savings are used to create more money and not to pay the Bills.
Unfortunately, Middle class and poor people have a very low Financial IQ. What they do is, they save money but they treat these savings as an Emergency Fund. So in case of Emergency they use this Savings. Second important thing is that, for middle class people Birth day parties, Weekends, Travels & tours, Drink parties and movies are Emergencies.
What i want to focus here is, Emergency Fund and Savings are two different things and you should keep separate both of these 2 things. You should never treat your Savings as an Emergency Fund and vice versa.
You have to build an Emergency Fund First before you start Savings and Investing. Emergency Fund is 3-6 months of your Monthly Expenses. So in case of Emergencies like Medical Emergencies, your home can run without you going to earn. Emergency Fund having 6 months of Monthly Expense is the best.
But yeah, Of course you want to arrange a party with your friends and so you are using your Emergency Fund. This should not happen. You want to arrange a party and you don't have spare money is not an Emergency at all.
Once you build a sufficient Emergency Fund, you should start Savings and then Investing. Now just think that, for what purpose you are doing Savings and Investing? Well, for your Short-term, Medium Term or Long-term Goals right? So you should invest your Savings.
Remember, Savings are only used to create more money and not to pay bills.
Think that, What is Savings? Well, Savings means after deducting all of your monthly Expenses from your Income what is left is a Savings. After paying all the bills like Credit card bills, Loan payments, Electricity, telephone, Gas Bills, Petrol, food and Entertainment Expenses........etc....
After paying all of these bills, what is left is Savings.
Unfortunately what the poor and Middle class people do once they have large Savings? Well, they plan trips, take more loans, buy Plasma TVs.... and more..... Savings are not for these purposes. Savings are only to create more money. Savings are only to buy Assets like Stocks, Bonds, Gold, Real Estates, Businesses, Art, Intellectual Properties......etc....
Once you buy Assets out of your Savings and these Assets grow in size and start throwing additional income for you, You buy Luxury items like mobiles, Plasma TVs, Electronics, Tours from it. But first of all your Hard earned Money (Savings) should go towards buying Assets only and not the Liabilities.
If you want to buy a Car worth Rs. 10 lacs on Down payment of Rs. 2 lacs than you should first save money and buy Assets out of it. And once the Asset Grows sufficiently and start throwing sufficient Passive Income to cover all of your Car Loan payments, you buy a Car. Because Now your Assets are grown sufficiently so it can pay your Car loan Monthly payments without you working hard in the Economy to pay it.....
Rich think like this. They always use their Savings to create more money. They always use their savings to buy Assets out of it. And once these Assets grow sufficiently, it start throwing additional Cash flow for them and from these additional Cash flow, they buy Luxury items.
This is the Logic why rich people don't work for money. Because they buy any Luxury items only and only after once their Asset Column grows sufficiently.
So from now onwards, you also do the same thing. Don't use your Savings to buy Luxury Items or to repay bills. Just buy Assets out of your Savings. Just Invest your Savings in some good stocks, mutual funds, Bonds, Gold, Real Estate, Art, Online Assets (Blog, Websites) or any other Asset and let it grow. Let your money work for you harder. Let your money make money.
And once your Asset Column grows sufficiently and start throwing additional passive Income (Cash flow) for you, with the help of this passive income you buy Luxury items.
So Finally, Remember, Savings are only used to create more Money.....!!!
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