How To Build Wealth

Posted on 07. Jun, 2011 by in General

Wealth and income are two different things.

Income is what you make and the money that comes in every month while wealth is what you build up.  In a nutshell, income relates to lifestyle and wealth relates to balance sheets!   Many people confuse wealth with income. Some people can make a million a year, but be spending a million and a half. They are not rich because their liabilities are eating away at the big paychecks they bring home each month.

Wealth is a subjective concept, but one thing is universal in most definitions: being able to live a comfortable life without having to work.

Most property investors work very hard for a lucrative income but unless they manage their income, they will not become wealthy. Wealth can be created and there are some simple steps that you can take:

1.   Learn the difference between an asset and a liability.  An asset is something that puts money into your pocket each month, regardless if you work or not – such as  a properly managed rental property or a well-managed business. A liability is something that takes money out of your pocket every month, whether you work or not. This is anything with monthly payments but usually a house, car, or other luxury item. By not investing your money into assets you have agreed to continue working for money. To become wealthy, you must therefore focus your attention on accumulating assets.

2.  You can’t spend all your money and become wealthy. This is the single most significant idea that keeps people from becoming wealthy. They purchase long term debt items such as cars and jewelry as their earned income increases and do not  reinvest the extra funds  in income producing assets.

Personal financial success ultimately comes down to two very basic financial equations. There’s no doubt about it – if you master these two equations alone, you will become wealthy

Income – expenses = surplus

Surplus x many years = wealth

If you look at these equations, you’ll see that all efforts to improve your finances come down to two things: increasing your income or decreasing your expenses. The more you do of each of these, the better you will be financially.

3.  Become financially literate so you can make informed decisions regarding YOUR financial status.  Personal finance is to financial literacy what being able to read one’s own handwriting is to literacy.  Don’t rely on a Financial Planner to make you rich – do they really have your best interests at heart?  Take the time, effort and money to invest in your own financial education.  If you want to invest in the stock market, learn about it.  Same for real estate investing, find an investor who is knowledgeable and successful at what they do. And, if you want financial advice, pay someone who knows what they are talking about, and have made themselves and  their customers wealthy through their advice!

4.  Use the Power of Leverage. Your ability to borrow and tap into the financial resources of other people and institutions can enable you to accomplish many great things that would not be possible if you had to pay for them out of your own resources.  Always be looking for opportunities to borrow and invest money and achieve returns well beyond the cost of that money.  This requires planning and research, but the benefits are huge. Leverage is the best part of being a real estate investor. For very little money you can control assets worth hundreds of thousands of dollars… and in many cases you barely need any of your own money at all to do this.

5.  Take action to be where you want to be. There is no magic button or wand to solve all your problems.  Dreaming is great and the power of visualization is mind blowing but in order to succeed at anything, YOU have to take action.

If you want to build wealth to achieve financial independence then YOU have to create it!

Have a great week!



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