Do you ever imagine why few people appear to get rich easily while most of the others live their entire life full of financial struggles? Have you wondered what is that difference which makes few people rich – is it education, hard work, intelligence, luck, family background or is it about their choice of work, job, business and investment?

You will be surprised that the answer to the above is No, according to one of the hugely popular books on personal finance “Secrets of the Millionaire Mind” by T. Harv Eker. Eker says that though few of the things mentioned may contribute to financial success, the underlying reason for success itself is quite different. goes. In this piece, we will attempt to go deeper and unravel what makes the real difference between the rich and the poor.

It's very much about how you think:

It can be said that poverty begins and is rather allowed to continue in one's imagination first. One's actual material life then becomes a self-fulfilling prophecy of this image. You ultimately become what you think of yourself. If you are always thinking about problems, are small minded, keep finding faults in everything and worse, think low of yourself, then that is what you may end up living your life with. The need for self-admiration, thinking big, thinking about possibilities and opportunities cannot be underestimated.

But, everything else remaining same, why do we think the way we do? The answer to this question is given below.

Your subconscious mind plays a critical role:

Right from childhood we are subjected to subconscious learning from our families, friends, schools, events happening around us and so on. This is the main reason people with different family backgrounds and cultures tend to think differently. Imagine a typical Gujarati /Punjabi /Sindhi business family and compare that to any well-educated South Indian family. You can almost predict how the lives of children will shape up in such families and what will they do in their lives. The risk-taking ability, money management skills, attitude to wealth, etc. are ingrained in our subconscious minds to a greater extent than you think. This plays a very crucial role in shaping who we are and who we will be in our lives. If your subconscious mind is not set for a high level of success then probably you will never have a lot of money. The good news is that you can change this subconscious mind with your conscious and continuous rethinking on these aspects of life.

How the rich think and act differently?

Now that we have established that your thinking mind and your subconscious mind plays a very important role in financial success, let us get back to the starting point – the difference rich and poor. It would be really interesting to see how a financially successful guy is thinking differently from a financially deprived person.

1. Rich people believe in creating their own future and destiny. Poor people let life happen to them and accept their destiny.

2. Rich people make it their game to win and make more money. Poor people tend to play the money game safe so as to not loose.

3. Rich people live their lives as if they have a commitment to being rich. Poor people live life as if they want to be rich and are more eager to showcase being rich rather than being actually rich.

4. Rich people think big, think about possibilities and opportunities. Poor people think small, think more of obstacles and difficulties in anything they do or think of doing.

5. Rich people focus more and spend more time exploring and exploiting opportunities. Poor people spend more time talking about obstacles and focus on solving problems in life.

6. Rich people admire, learn from and aspire to be like other rich and successful people. Poor people normally resent, find faults and crib about rich and successful people but never learn.

7. Rich people tend to associate and network with most other rich, positive and successful people. Poor people tend to associate with their likes or other negative or unsuccessful people and do not network.

8. Rich people are willing to promote themselves and their value and tend to create a personal brand for themselves. Poor people do not like personal selling or promotion and do not indulge in making a personal brand or value.

9. Rich people often think of problems as smaller than themselves and something which can be resolved easily. Poor people often think of their problems as bigger than their capability and something which would need tremendous efforts.

10. Rich people are very good at observing and learning what they need to from virtually anything or any person. Poor people are poor at observing and learning and often tend to only believe that they know.

11. Rich people tend to work smart for results or profits based on their intelligence and enterprise. Poor people tend to work hard and choose to get paid based on time and work done.

12. Rich people think of getting the maximum advantage of any situation or deal and not loosing. Poor people think more of a win-win situation and choose either among options available to them.

13. Rich people know, keep track of and focus on building their net worth. Poor people focus more on their working income rather than their actual net worth.

14. Rich people are good at managing and growing their investments /wealth. Poor people often mismanage their wealth and tend to make sub-optimal investments.

15. Rich people put their money to good use and make it work hard for them. Poor people focus on working hard for earning their money but do no put their money to work.

16. Rich people are more courageous and tend to act in spite of fear by taking calculated risks. Poor people are overwhelmed by fear and tend to not take any risks.

17. Rich people are committed to learning and they constantly learn and grow themselves. Poor people are laid back thinking that they already have enough knowledge and do not learn actively.

As Eker says, “The size of the problem is never the issue—what matters is the size of you!”. Understanding the above differences in thinking and changing our own thought process should be our goal. These changes, when put to practice in real life, will act as the steps or blueprint to dramatically improve our financial success factor.

WHY DO BUDGETS FAIL?:

Budgeting. It is one thing that every business and even every household should do. We all must have read much on budgeting and I would be surprised if anyone did not know about the importance of budgeting in personal finance. Yet, it is very rare to find an individual who is committed and consistent in preparing and following budgets for his/her household expenses. In this article, we will talk about budgeting try to find reasons as to why budgets and the budgeting exercises fail?

What is budgeting?

Let us start with the understanding of budgeting. Simply put, 'budgeting' is the process of creating a plan to spend your money during a particular period. This spending plan, along with the limits on different types or heads of expenses, is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do. Budgeting is simply balancing your expenses with your income.

Typically, the budgeting exercise for a household would be done on a monthly frequency. It would include all your net income cashflows and also your net outflows and expenses. As such, you will have a clear idea where your money is coming from and going into.

Purpose of budgeting:

The purpose of budgeting is basically to ensure the following things:

• you are never over-spending in any area

• ensure that you never run out of money

• you want to save some money to invest

• you have control over your spending habits / behaviour

• plan expenses so as to avoid discretionary expenses

The 50/20/30 Rule:

It is important here to talk of this very popular thumb rule for budgeting called as the 50/20/30 budget rule. The idea here is to divide after-tax, net income into different baskets with limits. The first basket of 50% would be your 'needs'. The second basket of 20% will be allocated towards your savings. The remaining 30% will be on for your wants or discretionary spending. The proportions of this thumb rule are very generic in nature and you will be advised to fix a proportion that is more suited to you.

Note that the 'needs' here are mandatory expenses that you cannot ignore or push forward. These will include things like house rent, utility payments, school fees, maid salaries and grocery bills. The savings component gets a higher priority over optional / voluntary spendings.

Why we fail:

1. Wrong Plans /Inadequate Limits: Quite often, in the initial zeal of preparing a budget, you may likely go more strict. Inadequate limits on a certain type of expenses may feel very restrictive and thus may lead to a breach. A wrong plan may also mean that you entirely underestimated the expenses or over-estimated the income. There may also be a possibility of any expense head missed out. To be successful, every plan has to be properly prepared in light of your historical spending habits so that there is a sense of continuity.

2. Lack of self-control: Too many people spend money they earned, to buy things they don't want, to impress people that they don't like. This popular is so true for so many of us. Lack of control on what you need to buy or on what things you need to spend are the biggest reason for the breach of budgets. Having self-control on your spendings will go a long way in securing your finances and meeting your budgets.

3. Lack of discipline: Lack of discipline in preparing and following a budget is often the next culprit for failure of budgeting. We often get tired very easily in the process such that we lose track of our progress. For the success of the entire budgeting exercise, one has to be very disciplined to record and track your progress. Over time, one is also likely to lose interest in this exercise believing it to be boring and uninspiring.

4. Lack of appreciation: Most of us may begin the budgeting exercise without an adequate level of conviction or commitment to follow the same. This may be due to the person not really understanding and appreciating the full benefits of budgeting. Keeping yourself half committed is never going to work.

5. Lack of team work: Budgeting for a household is a team effort. Your spouse, children and even parents would be expected to agree to and follow the budget. Even your children would be given fixed pocket money or budget limit for managing their affairs. If any family member does not

6. You missed out emergencies: It is very likely that one misses out for accommodating any emergencies since these emergencies do not occur very often. We are not even talking of big emergencies here since we believe you would be having an emergency fund to look after the big ones. What we are talking here is about the small, unexpected emergencies like, loss of your mobile phone, a car repair expense, your child falling sick for few days, unexpected medical checkups for parents, and so on. It would be advisable to keep a small portion of your budget, say 5% only for unexpected small emergencies for the month.

7. Give it time: Rome was not built in a day and neither can you hope to build a perfect budgeting culture in your home from day one. Budgeting may require a behavioural and even a lifestyle change. It may take some time for the people to adjust their spending habits as per budgets. Be patience and be considerate enough when you start the journey. Perhaps the first few months will be more of learning for everyone but one should not lose hope and keep committed to this over the long term.

Fortification of your finances:

What does fortification of your finances really mean?

The term fortification essentially means creating a defence or reinforcement that gives you strength against any attack or in other words – risk. True financial fortification would mean that your defence or support has to be very strong and all protective against any kind of risk of financial loss or expense. Essentially it would mean that you and your family is financially ready to deal with any unpleasant, unexpected developments.

Typically any person or family always is faced with some financial risks which may follow any unpleasant event like death of earning member or hospitalisation or accident or illness of any person. There are also many other type of financial risks, but we will ignore them for this article. Without adequate protection against death, disease, disability, etc., the long term financial goals of a family like education for children, purchase of home, marriage plans, etc. too are put on high risk.

Life insurance, health insurance, critical illness insurance and accidental insurance are tailor made products that help you in fortification of your finances. They protect by minimising the cash demands on your existing savings or wealth earmarked for your financial goals. By providing you with additional capital, the insurance plans should take care of your financial needs at such times. However, it has to be noted that the insurance protection cover has to be adequate to ensure that you remain in safe waters.

Here are some of our thoughts on your fortification of finances.

Emergency fund: The emergency fund is your first source of support should any unexpected development take place. There is no product for emergency fund however, it is very important that such money be kept in liquid assets. Mutual fund liquid schemes can be good avenues for keeping your emergency fund. The fund should be kept secured and whenever any withdrawals are done, it should be replenished back. Typically at least three to six months of your total household expenses should be kept in emergency funds. How much to save will depend on case to case basis and typically those with volatile income streams should have higher targets.

Life Insurance: While many of us have life insurance, typically the underlying product is a traditional insurance plan sold by your friendly insurance agent. Unfortunately, such plans normally have very low insurance cover which will prove to be inadequate for your family for sustain themselves for the future. So how much should be the cover for?

The life insurance cover should be able to

(a) repay all your existing liabilities,

(b) provide for all pending financial goals like education, marriage, etc., and

(c) provide for regular household expenses (inflation adjusted) for foreseeable future.

You may realise that your existing life cover will be very inadequate to meet all the above. Traditional plans will come at a very high cost for such cover and will be unaffordable. The only product that can meet your need is the – pure term insurance product which provides at the highest cover at the lowest cost. However, there is also an upper limit on same. We would recommend that you should sit with your financial advisor to really understand the cover you should take. Typically for a middle class family with four/five dependents should have term insurance of at least Rs. 1 to 2 crore.

Health Insurance: Health insurance is indispensable today and a must for everyone. There are many products available in the market that will help you smartly plan for health expenses of you and your family. Products like floater policies, top up and super top up products are popular and a good mix of right products will truly help you manage your financial risks in this regards.

The question here too is how much cover will be adequate? With fast rising medical health costs, the health cover amount should be regularly assessed. Typically a family should have at least 5 to 10 lakhs of family cover depending on your financial status and city. Buying a health insurance at early age when everyone is healthy is highly recommended as you may find it difficult to get a policy in future post any medical condition arises.

Accident Insurance: The accident insurance is another basic product highly recommended. It is more of an advanced product and protect you against hospitalisation, treatment expenses for certain kind of accidents. It will also protect you against temporary or permanent – partial or full disability unlike any other product. It will also provide you with protection against temporary loss of income post accident. Being an inexpensive product, it is highly recommended. The cover amount should be at least upwards of Rs. 50 lakh and if possible should be even higher than term insurance as family expenses will be very high post any disability /accident. However, getting a higher cover is not easy and will depend a lot on your income and nature of job.

Critical Illness Insurance: The critical illness is a bit more advanced product which you should explore. It would provide you with financial support when any critical medical condition develops. The need for critical illness is subject and if you have a family history or likelihood that a critical medical condition may develop in future then it is more recommended. Also, it can be seen as an extra layer of protection which you may opt for to further fortify your finances if you can afford it along with the basic insurance products. A critical illness cover of about 20-25 lakhs would be adequate for most people.