It’s Your ‘Outcome’, not Income that Matters

Dear Investors

Most people out there always talk, or worry about how much money they make. They compare salaries for jobs. They get second jobs to supplement their income. They leave jobs to go make more elsewhere. Everything they do in life is based on the final end of year income. How much did company reimburse that medi claim you made for the year?

Well, I've learned that this is the absolute worst way to judge your financial situation. In fact, it doesn't matter how much you make. Your financial situation has very little to do with your income.

It has everything to do, though, with your expenses, or what I like to call your 'outcome'.

Expenses are the key to getting rich. As Robert Kiyosaki said in his book 'Rich Dad, Poor Dad', the definition of wealth is how many days you can live without working. In order to live everyday without working, you must have more passive income than expenses. Passive income is defined as income you gain without having to do any physical work (i.e. collecting rent checks, music royalties, stock dividends, etc.).

In our education system, they teach us to do well, go to college, and get a prominent job with a great salary. However, let's look at some of the jobs. Most doctors go to school for umpteenth years, and then get out and have to build their practice. They make nice incomes, but they also usually have very high expenses due to student loans and the cost of their education.

A doctor may make over INR 20,00,000 / year. But add in a family, education bills, insurance cost, taxes, natural debt, and everyday expenses, and your 'Outcome' is maybe about INR 250,000/year. Now let's take a cop. A clerk does not have to go to school for that long, if at all. He makes a salary of somewhere INR 160,000 - INR 250,000 (at least in Chennai). That sounds like a lot less than the doctor, but it's not.

The clerk has very little, if any, expenses. He spends very little money on anything except everyday expenses. He also only works 5 days/week, so he has 3 2 days to do something else to supplement his income. At the end of the year, he probably had the same 'outcome', if not better, as the debt-ridden doctor.

Now, not every doctor is left with student loans. Not every clerk is debt free. It is not necessarily the job I am criticizing. I am speaking about the thought process this country teaches in its education system. They expect you to want to go out and make the highest salary, but they don't teach you anything on how to handle your expenses, how to properly buy a home, or how to balance your finances. They expect you to learn it on your own.

Until a good friend handed me 'Rich Dad, Poor Dad', my financial education was non-existent. I thought you got rich by making the most money every year. I didn't know anything about passive income, balancing finances, or even what the real definition of being rich is. After I read this book, and countless others like it, I started to understand what it means to be wealthy. I made it my goal to further my financial education every day.

This made my goals easier to choose. It made decisions easier to make. I now had an education to base them on. The one thing that definitely stood out was….it's not your income, it's your 'outcome'. It does not matter how much money you make, it's how much you keep. Controlling your expenses is the key to getting rich, not your income.

I'm curious about everyone else's take on the lack of financial education most Indians have. Feel free to comment on any situations you have experienced in your life that may be related. I'd love to start a discussion on this topic so we can all learn a little more….