Wondering what jobs can make you rich? Well, we’ve not only got some answers for you, but here’s also the quick guide to personal finances analyzing money in jobs vs. business.
It a well-known fact that humans makes their choices for their economic benefit. No matter what we do – selecting an internship, going to a networking event or even meeting people on a personal basis. Sometimes we are not able to realize it ourselves, but in our subconscious, we have always made our calculations.
If you’re asking the question what jobs can make you rich, you are not alone, as many ambitious students in your age wonder the same thing. It’s natural to want to be financially secure and earn as much in life as we think we deserve.
A job is a quick and easy way to achieve economic independence, as compared to starting your own business. This is the primary reason why most people prefer to do a job over starting their own business.
When more and more people do jobs, it becomes socially more acceptable and seems the right way to go about in life. So for most of us, doing a job is an obvious choice. It’s what our education system prepares us for. It’s what our parents expect us to do.
Highest Paying Jobs in India
However, the question we are about to answer is what jobs can make you rich. A simple quick answer would be, if you are in the business of money, then those jobs have a high potential to make you rich. For example investment bankers, financial advisor, equity analyst, etc. are some of the highest paying jobs. In India, here is a look at some of the jobs, including the finance related ones and others, which have the highest salaries:
• Investment Banker
• Equity Analyst
• Financial Advisor
• Business Analyst
• Management Consultant
• Chartered Accountant
• Medical professionals
• Law professionals
What Jobs can make You Rich?
If you truly want to be rich, you first need to define – what is rich. You are rich in a job as long as you are in the job and you get paid well. However, there’s always an uncertainty in jobs, and there is a limit to what you can earn. There are hardly any jobs where you can afford a sports car or a plush mansion or penthouse. How many people can you think of who can afford all this and are doing a job? So if you started by asking the question what jobs can make you rich, perhaps that wasn’t even the right question to ask.
Basic Financial Knowledge for Students Preparing for Professional Lives
To become truly rich, you first need to have a basic knowledge of finance. The first thing is to understand some basic financial terms like assets and liabilities. In simple words, an asset is something that you own that makes you money NOW (and not in future). For example, if you own a house that is let out and you have a rental income NOW. Note the stress on the word NOW, if your house is not earning any rental income, then it’s not an asset, since you are most likely losing money on it, such as maintenance. In this case, it’s a liability for you, not an asset.
Another important thing to note is that you don’t have to put any major ongoing effort to earn money from your house, you just only need to rent it. You can own multiple (say 10) houses and keep collecting rent, without much effort. A rich man or woman has a lot of assets, he/she invests money in such a way that they keep earning more money for them. That’s what an asset is – it should ideally be able to bring monthly income without major ongoing efforts.
Now let’s get to some math. Consider the lending rate of interest to be 8%. Now, let’s say you take a loan of 100K and invest in an asset that makes you money. So in order to make a profit, you should earn more than 8K annually to recover your investment, otherwise this would be a liability.
Job vs. Business: Why Jobs don’t really make You Rich?
When you are in a job, you are not creating an asset for yourself. You are just lending your services and getting paid for it.
Finance for Someone Doing a Job
Let’s do a simple calculation of the salary you’ll earn, the taxes you’ll pay on it and your expenses.
When you are in a job, you have to pay an income tax upfront on whatever you earn. So essentially, the salary you receive in-hand is after tax deduced “at-source”, also known as T.D.S. For example, if you earn 100K annually, you need to pay say 30% in taxes. So you just have 70k in hand, and then you can spend this money on buying a car or your other expenses.
So imagine Siddharth earns ₹100 in a year. Now, his company deducts tax at source (TDS). After paying 30% tax, he gets ₹70. Say he now uses this income for the following expenses:
Foreign travel: ₹20
On all these expenses, another tax is also applicable: G.S.T. of 12-28% (this may vary depending on the item). So let’s take an average of 20% GST, applicable on all ₹70, which calculates to ₹14. So, the total tax Siddharth has paid this year is ₹30 + ₹14 = ₹44. That means, Siddharth only had ₹100-44 = ₹56 that he could spend for the actual items he bought.
Now, let’s say Siddharth decides to save up all his income in the bank next year. Again he earns ₹100, and saves ₹70 after paying income tax. The next year, he gets 6% interest from the bank, which calculates to ₹4.2. Now there’s another problem. This interest is also taxable, and he has to pay 30% of ₹4.2 = ₹1.26. So now he essentially gets “in-hand” ₹72.94. So effectively, he earned only 4.2% as the interest.
Now there’s another concept we need to consider – inflation. Inflation is basically the reason why things get more expensive over time. Say a bottle of Coke cost ₹20 when you were in grade school, and now costs ₹40. The average rate of inflation is 3.4% – 5% per annum.
Now, Siddharth who invested his ₹70 in the bank account, got ₹72.94 the next year. However, due to inflation, the actual value of his money isn’t ₹72.94 the next year. At the rate of 4% inflation, the actual value of this money is ₹72.94/(1+4%) = ₹70.13.
So as you can see, essentially he has marginally earned anything over two years, and in most cases, lost money. Sadly, this is the reason why people who do jobs don’t become rich over time. Their standard of living may improve a bit, because of salary increases and savings, but not enough to make them “rich”.
In order to become rich, you need to invest your income in such a way that you gain more money than the general interest rate, say 8%, otherwise the value of your money would be depreciating, considering the inflation rate, which would be close to the prevailing interest rate.
Finance for Someone Doing a Business
When you run a business, things are much different. Businesses pay taxes only on profits, not on total earnings. So you only pay taxes IF you make a profit. A good business aims to create assets that generate income.
However, business owners usually don’t want to show a big profit, since profits are taxable. So they buy expensive things for themselves, like a sports car, claiming it as a business expense. Businesses can also claim depreciation and amortization of expenses.
Let’s do another simple financial calculation, this time for a businessman.
Say Aakash is doing a business. Now let’s say his company did a total sales of ₹1000, out of which he earns a profit of ₹100 in a year. Say he now uses this income for the same expenses as Siddharth, but bills them in his business account:
Foreign travel: ₹20
On all these expenses, he also paid the same G.S.T. So again, taking an average of 20% GST, applicable on all ₹100, which calculates to ₹20. However, since Aakash showed all expenses in his business account, he essentially showed a profit of ₹0 this year, thus paying no income tax. Moreover, his business also gets a rebate of 9% on the G.S.T. he paid, which calculates to 9% of ₹20 = ₹1.8. That means, Aakash actually earned ₹100+1.8 = ₹101.8, which he could spend for the actual items he bought.
Now, let’s say next year, Aakash decides to draw a minimal salary of ₹10 and re-invest all the rest of his income to expand his business. Because of this, now his business does a total sales of ₹1090, out of which he earns a profit of ₹102 next year.
Say he buys a new house for this ₹102, again bills it to his company, essentially paying ₹0 taxes again this year. Once again, his business gets a rebate of on the G.S.T. he paid on the house (12% of ₹102 = ₹12.24). This calculates to 9% of ₹12.24 = ₹1.1. So this year, his total earnings, which he could use for expenses are ₹10 + 102 + 1.1 = ₹113.1. Adjusting for inflation, this still comes to ₹113.1/(1+4%) = ₹108.75.
As you can compare, earning the “same amount” actually means very different things for these two guys. Job-salary-earner Siddharth now owns ₹70.13, a car and a TV. Whereas businessman Aakash now owns ₹108.75, a car, a TV, a house AND a business that keeps expanding.
The Pros and Cons of Job vs. Business
The taxations system has been made by the rich, thus it favors them all the time. Now I may have over-simplified a few things here, but you can always read this book “Rich Dad – Poor Dad,” which explains this concept in greater detail.
Now after all this, you must be thinking that if businesses are the short-cut to becoming rich, why doesn’t everyone do a business? Why do people do jobs? That’s because there really is no short-cut to becoming rich.
In order create a successful business, one needs to put in much more effort as compared to a job. In a business, the returns on investment are also not guaranteed in the beginning. There is a lot of uncertainty, but this hard path is the way to become truly rich. Not all businesses succeed, and you need much more than hard work and talent to succeed in a business. That’s why business is considered the risky career path, and most people don’t prefer to go that way, since most businesses actually end up failing.
You also, however, need to understand that a job may not be risky in the short-term, but could be insecure in the long run. Someone can lose a job not just because they’re not talented or hard working. Many other factors could cost one a job. In some cases, a department stops being profitable and lays off people, in other cases one can be forced to leave when the management changes, etc.
Assets and Liabilities: A Short Guide for Students
Students need to have a basic financial understanding of terms like assets and liability, and of the taxation system in a practical way. It’s easy to claim that we know the theory, but to truly understand it requires some effort.
When you are in a job, you are building someone else’s asset; thus you are not able to build your own. In a job, your income sources are dependent on only one source. So there is a high need for you to save money, as your income source is not truly guaranteed. Whereas a rich person invests his or her money in such a way that they have multiple sources of income, without being actively involved in each of them.
An investment banker also invests money in such a way that they earn income from various businesses without being actively involved, a rich person also does the same. They invest their money in such a way that it makes money for them.
Rich people understand the value of money.
Money lying in the bank not generating enough interest also means losing money.
Now you may be wondering, what are these assets that I should be investing my money in? Well the answer is simple, you need to evaluate every opportunity mathematically, and see if it is generating you any active income.
Investing in a property that is expected to increase its value over time is actually not an asset. This is because it may even lose its valuation in future, as its value is a notional thing. I would advise you google concepts like time value of money, and cash flow to understand financial basics. It’s extremely important, especially for youngsters as this knowledge with respect to personal finance is never discussed by parents, nor taught in schools or colleges.
So I hope this short guide not only helped you answer the question what jobs can make you rich, but also helped you understand how rich people truly become rich. As I mentioned above, this is just the beginning, and there’s much more to learn.
All the best!