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Sep 09, 2011, 03.34 PM IST | Source: Moneycontrol.com

Why millionaires are millionaires

Countless books and articles have been written on how to become a millionaire. Countless CDs and DVDs have been produced on the subject.

Why millionaires are millionaires
Below is the excerpt from Sanjay Matai's latest publication Millionaires dont eat cakesthey make them published by Network 18. The book illustrates a simple Income-to-Wealth recipe.

Countless books and articles have been written on how to become a millionaire. Countless CDs and DVDs have been produced on the subject. Countless people have given countless number of talks and seminars focusing on this one of the most-preferred topics. Countless studies have been done to know how millionaires became millionaires.

The essence of all these is that millionaires
. are not magicians who create wealth out of thin air
. are not privy to some closely-guarded secret
. are not born lucky
. are not specially blessed or gifted.

Millionaires are millionaires because they have a certain value-system!

> They do what they love and love what they do. And they dream big!

> Being passionate about their work, they work hard and work smartand strive to become the best.

> They try and ensure that every rupee they spend delivers the right value.

> They are not stingy, but they hate waste.

> When they invest, they seek to make the best returns (Beware! Best shouldnt be confused with maximum returns. It is about astutely managing risk vs. returns).

> They understand the power of leveraging and employ appropriate techniques to multiply money (and not just add money).

> For them risk is an ally, not an enemy.

> And finally, of course, they are patient. They dont rush things, but wait like  a tiger for that perfect moment to make their move.

Simple! Isnt it? You knew these things all along. Am I right? Well, then what are you waiting for? Why are you still struggling with your 9-to-6 job (or is it 9-to-9 nowadays)? Why arent you financially independent?

Why arent you a millionaireyet?

Well, thats because you find the whole formula too time-consuming and cumbersome. The problem lies, not so much in understanding it, but in implementing it. In todays fast-paced world, where things work at the touch of the button, it seems anachronistic to expect people to work hard and be patient. No one wants to put in all the hard work and then wait until those efforts bear fruits. They would rather sit at home and hope to win a lottery or hit a jackpot.

Yesthe formula does test ones patience and commitment. But let me assure you, it is only the beginning thats difficult.

You know how it is with a car. When you start, it takes some time to overcome inertia and pick up speed. But thereafter the acceleration is much faster. Remember the good old Newtons law you studied in your school? Same thing with your wealth creation tooonce you pick up momentum, it becomes easier and easierand easier.

Want to see how it works? Suppose you invest Rs.5000 every month for 25 years. Thus, you would have invested Rs.15 lakhs. Assuming 10% p.a. returns, you will have about Rs.65 lakhs at the end. Let us see graphically how this money growth looks like.

 

 

 

 

 

 

 

 

 

This is fine. But the more important point to note here is how your wealth accelerates. See the graph below.

 

 

 

 

 

 

 

 

As you can see, it takes 10 long years to reach to your first Rs.10 lakhs. But the next Rs.10 lakhs (i.e. from Rs.10 to 20 lakhs) takes just 5 years to accrue; the next from Rs.20 to 30 lakhs in 3 years and so on from Rs.50 to 60 lakhs in merely 1.75 years.

The analogy of boiling water might be quite apt here. What happens when you start to boil water? To begin with, its temperature starts risingfrom 25oC to 30oC to 50oC and so on. Though the water is getting hotter, nothing noticeable is happening on the surface right up to 99.9oC. And then, with increase in temperature by just 0.1 oC, the water starts boiling.

If you didnt have the knowledge and patience, you would have stopped heating in between, exclaiming that nothing seems to be happening. This way you would never get your boiling water! Even if you take a temporary break, you may have to start all over again. So, once you begin, never stop in-between.

In short, you will realize your millionaire dreams, provided:

 You dont stop your regular contributions to the portfolio AND

 You are willing to be patient.

At some point, your portfolio will reach the critical mass. And then, like a nuclear explosion, you will experience wealth explosion.

Thats what I said earlier. You have to be patient in the initial years. But later the growth will be exponential. Thus, you will achieve your financial independence much sooner than what may initially seem to be a long and interminably wait. This is the magic of compounding. Even a genius like Albert Einstein was a great admirer and supporter of the method of compounding.

The crux of the matter is that if you are good at managing money, even little incomes can be built into big riches. But if your money management skills are poor, you may not only remain poor despite big incomes, but could also land up in a financial mess.

The suns rays are available to everyone. However, only those who focus them using a magnifying glass are able to convert it into fire. Everyone earns income. However, only those who single-mindedly use a wealth-magnifying formula are able to convert their income into wealth.

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