Some background that may help!

Before I get into specifics of what we do, I would want to explain few
basic concepts of personal finance. Very interesting, and will help us get
on the same page.

Money vs Asset
One of the reasons that motivates us to do what we do today, is that it
helps us generate an income. That income can, in turn be, used to buy
the necessities and luxuries of life. But a lot of times, we earn far less
than what we deserve because of lack of some basic financial knowledge.
Look at the graph below.

This is the distribution of world’s total wealth. What’s striking here is

that the top few people (~ 300) possess the wealth that’s more
than the sum total of rest of the world’s wealth! Shocking, but true.
This is called as “Global Wealth Inequality”. More than 95% people
competing within less than 5% of the world’s wealth! The biggest factor
for this huge difference is the financial knowledge these top 5% possess.
Let’s debunk some myths now.

Myth: Our financial success is determined by our salary.

Fact: The financial success of all the top 5% is determined by their Net
Worth
Look at the rankings of richest people. They are always sorted by their
Net Worth.

NET WORTH = ASSETS - LIABILITIES

Simply put, Net Worth is the liquid cash you can get if you decide to sell
of what you have (other than what you need for yourself). Also, the more
your Net Worth, the more ongoing income you can generate. One of the
keys to increase your Net Worth is to increase the number of Assets you
hold. We will cover shortly on what’s an asset, and what’s not. Hint:
Assets don’t necessarily mean Real Estate.

Forming Assets is the only way to allow parallel incomes. The basic
problem if we don’t focus on building Assets is:
 We can’t have diverse sources of incomes because of limited 24 hrs
a day.
 There is always a trade-off between the income we generate and
the amount of time we have for ourselves and family.

Let’s understand this concept through the following graph.

When our focus is just on making immediate money, we try to increase

our rate of earning, generally at the expense of investing more time
and effort.

Let’s see how accumulating wealth can solve this problem.

We’ll have the first phase of putting some smart and dedicated time and
effort (Critical Effort) without expecting a lot of income. This is the
foundation to building an asset. We spend good amount of effort in
educating ourselves and enhancing our business skillsets. Once this phase
is over and we have built an asset, a continuous income flow starts.
This leaves us with a lot of time for ourselves. We can enjoy this free
time for certain period, and then start building another asset. This phase
is lot more interesting because we have already learnt the skillsets, and
have a lot of peace of mind to experiment new things and apply
creativity. Second income flow starts. And so on… Soon, we start to have
parallel sources of income. This is the reason why the rich people are
getting richer. Not because they have a lot of money to invest, but they
understand this science and took efforts to learn the skills.

What’s the biggest reason not many people have a

high Net Worth?

The answer is sticking through the Critical Effort (CE) phase. Majority of
the people lack patience and quit mid way. But smart people, who
understand this picture, keep learning and wait till the end.
Examples of an Asset

 Real Estate, if it’s put on rent or lease (it can be sold off and
generate ongoing income, but hard to afford by most people)
 Intellectual Property/ Patent rights (it can be sold, can give royalty
lifelong)
 Become author of a trendsetting book (same as above)
 Owner of a business (it can be sold off, can generate income)
 Owner of a User base/Subscriber base (will discuss on this shortly)

Examples of what’s NOT an Asset (liabilities, active

cashflow)

 Your own house where you’re living (can be sold off, but can’t
produce income)
 Gold, diamond, etc (can be sold off, but can’t produce ongoing
money)
 Our certifications and career (produce income, but can’t be sold off)
 Stocks, unless one has mastered the science of investing and
trading (he should have at least read the book The Intelligent
Investor)

How to create an Asset?

While we now understand the significance of creating assets, most of us
can’t afford to leave our existing profession and remain without any
income source through the CE phase. So, let’s scan through the list of
examples of assets and see what’s practical.

 Real Estate, if it’s put on rent or lease (But do we have a corpus

amount to invest in Real estate property any time soon?)
 Intellectual Property/ Patent rights (very rare patents gets
monetized, very uncertain)
 Become author of a trendsetting book (same as above)
 Owner of a business (would need dedicated time and money.
Possible, but not alongwith job)
 Owner of a User base/ Subscriber base

This is ‘the’ option of the present time. How come we never heard of it?
We actually did. That’s why Whatsapp was bought by Facebook for a
whopping $19 billion (19 x 10^9 dollars). The magic wasn’t the app, but
the large user base. Every user of Whatsapp was valued at $42 each.
This is the reason why Bill Gates, the world’s richest man in IT domain,
quotes in his autobiography, The Road Ahead,

"Corporations will redesign their nervous systems to rely on the networks

that reach every member of the organization and beyond into the world of
suppliers, consultants and customers." (Gates, 1996: 153)

There are two aspects of creating an asset using this idea:

 Find a platform that can be leveraged once the user base is ready

 Learn the science and skillset of creating and retaining a user

base