The Dam Analogy

wealthymatters.comA river and a dam across it is a nice way of visualizing one’s finances.A source of income is like a river.To save a bit of it is like building a dam across the income stream.

In real life dams are used to impound water in times of plenty so that it can be used when water is scarce.Deducting money from a salary cheque to fund one’s pension or investing regularly in a mutual fund  via a SIP , is like holding back water in the time of plenty to use when water is scarce.If a person comes by a windfall,say, by selling a business/ winning a lottery/receiving an inheritance etc. and saves/invests the money safely,it is akin to storing rainwater from a freak shower for use later. Read more of this post

Wealth“Wealth is having all that you want and need.

There are two ways to achieve this:

1) Work to aquire all that you want and need.

2) Reduce your wants and needs to less than what you have.

Both methods are difficult.

In practice, a mixture of both will be employed to gain wealth but option 2 will always be available where option 1 may not always be.”

This is something I came across while surfing the net yesterday.The original is here.

I think it’s a nice and clear way of putting things.Wants are infinite.Our definition of needs are often extended to include everything we can have.Living below our current means is a sure shot way of accumulating a corpus.The corpus , in time , could be put to work to increase our means and so reduce you direct labour to have the things we want and need.In the mean time , work , both hard and smart , is a given.

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