Journey To Wealth Creation (Guide)

Perceptions of what constitutes wealth changes over time among societies. The ancient Egyptians, for instance, once had a monetary system based on wheat. Some cultures have used other commodities, such as rice and salt in place of money at times. Inuit and Eskimo societies traded in seal oil and blubber, which they could eat as food, or burn as fuel to provide light and heat. 

African and Native American tribes once used wampum and shells as the basis of their monetary systems. In economics, wealth is the net worth of an individual, that is, the value of all assets minus all liabilities. It includes all his assets such as money, real estate, and personal property. It is the product of one’s labor which satisfies all his needs and wants.

While wealth represents what a person owns, income is what he earns, and it consists of the inflow of cash. In the long run, income creates wealth if it is properly managed. A person may have a huge income, but if he doesn’t invest wisely, he will not be able to accumulate wealth. Income is usually expressed in monetary terms such as the total amount received as a salary, wage, profit, interests, rents, and other earnings for a certain period. 

It is what a person earns and spends for consumption and also what he saves. Having a huge income does not ensure a person to become wealthy. High income earners usually have high standards of living which make them spend more while there are many who earn less income but may save more and acquire wealth. It all depends on how a person manages income.

Income is earned immediately, but wealth take years to acquire. Wealth can be acquired by spending income on things or assets that can generate additional income. Being rich and being wealthy are not the same thing. They’re related, but they’re not the same. The rich have lots of money, but the wealthy don’t worry about money. That’s the key distinction.

While the rich might have lots of money, they may also have lots of expenses that keep them up at night or they might have a high paying job, but they have to get up every day to go to work in other to generate more income. Thus the rich relies on regular income.

The wealthy on the other hand don’t have these worries. Why? What’s the difference? First, let’s look at the definition of wealth. The definition of wealth can be defined as the number of days that you can survive without having to physically work and still maintain a standard of living. Ultimately, it’s not how much money you make that matters, but how much you invest and how long that money works for you. 

The smarter thing to do is to use those funds to build your assets to increase your cashflow and then let that cashflow pay for those consumer items and those luxuries. What some people do to afford new things is to budget or live below their means. This is a scarcity mindset. Often, it doesn’t move you forward. A better mindset is to expand your means, not live below them. 

If you want a new car, then ask yourself, what assets do I need to create that monthly income that will be required to pay for those assets? Then builds your assets and in time, your net worth. Over time, you will be able to afford the things that you need or want.
The key here is to not work for your money, rather have your money work for you. If you’re wealthy, you’re able to make decisions in life. If you’re not, life is going to make those decisions for you.

To succeed on your wealth creation journey, you need a wise strategy. Wealth creation is a long-term endeavour, so it’s inevitable there’ll be many ups and downs, but with the right attitude, you can steadily grow your nest egg.

“Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.” –Warren Buffett.

There is no quick fix in wealth creation, it is very much a process that takes time and if there is a secret it’s that the more time you have to create your wealth the better. Wealth creation doesn't magically happen overnight. For instance, ownership investments are often risky, however, the risk reduces with time, so you need to keep perspective. 

Don’t waste time devoting funds to such investments if you don’t plan to stay in the market for at least five years. Remember, most long-term investments accrue value over decades. When you buy an ownership investment, you own that asset—something that's expected to increase in value. Ownership investments include:

Stocks: Also known as an equity or a share, gives you a stake in a company and its profits. Basically, you get partial ownership of a public company. A good percentage of your portfolio should probably be made up of stocks.

Real Estate: Any real estate you buy and then rent out or resell is an ownership investment (though it can sometimes be classified as an alternative investment). The home you own fulfills a basic need, so it doesn't fall under this category.

Precious objects: Precious metals, art, collectables, etc. can be considered an ownership-type of investment if the intention is to resell them for a profit. They also fall under a separate category, "alternatives."

Business: Putting money or time toward starting your own business—a product or service meant to earn a profit— is another type of ownership investment.

Given the nature of the economy - which is an organic, ever-changing phenomenon - you can’t expect all your investments to flourish all the time. It’s natural that at different times some will do better than others. This is the main reason why intelligent investors diversify.

Different investments can generally be categorized as ownership, lending and cash. Those categories are broad descriptors, but they're helpful in explaining how different types of investments work. But investing companies break things down a little differently. They go by asset class: stocks, bonds, cash and alternatives. 

We already know about stocks, bonds and cash—the most traditional ways to invest. In terms of asset class, alternatives are everything else. Also, it's easy to categorize some investments alternatives, because they could actually be considered ownership or lending investments, depending on how they're bought. Let's take a look at some examples.

REITs: Real Estate Investment Trusts, or REITS, are another way to invest in real estate. Instead of buying your own property, you work with a company that earns profit from their own real estate investments.

Really, an REIT can be an ownership investment or a lending investment, depending on what type you buy. You can buy an REIT that gives you a share in the real estate itself. This would count as an ownership investment.

When you buy a share of a REIT, you are essentially buying a physical asset with a long expected life span and potential for income through rent and property appreciation. But you could also invest in the mortgage of the real estate, which would make it a lending investment.

Venture Capital: This is money you give to a startup or small business, with the expectation that it will grow, and you'll get a return on that money. A lot of times, venture capitalists become partners in the company, owning part of its equity and getting a say in business decisions. In this way, they can be thought of as ownership investments.

A lot of people can and do become rich at some point in their lives, but those that build their financial IQ, that is, learn and build their knowledge, are the ones that actually can become wealthy. Knowledge is the new currency. Without it, you’re doomed to follow other people’s advice without knowing if it’s good or bad.

88% of wealthy people read 30 minutes or more each day for education or career reasons, versus only 2% for the not- wealthy. 86% of wealthy people love to read versus 26% for the not- wealthy. 86% of wealthy people believe in lifelong educational self-improvement versus 5% for the not-wealthy. 

The higher you build your financial IQ, the less you have to work to acquire high quality cashflow assets. The same assets that provide you passive income while you sleep or play. What you want to do is build a business and invest in assets. You want to add assets to your personal balance sheet that generate monthly income. 

Once that income from your assets exceed your monthly expenses and it does this on a predictable basis, and you invest these income over time until they assume a multiplying effect then you’re no longer rich, you’re wealthy. You’re out of that so-called "rat race". Now, you’ve actually created streams on income.

 A Successful Wealth Plan Will Require:
  • A long-term investment strategy;
  • A commitment to seeing that strategy through;
  • An understanding of your tolerance for risk.

Adam Smith, in his seminal work The Wealth of Nations, described wealth as "the annual produce of the land and labour of the society". This "produce" is, at its simplest, that which satisfies human needs and wants of utility. Generally, a smaller percentage of your portfolio must be made up of cash to satisfy needs and wants.

While wealth, is the abundance of your valuable resources or valuable material possessions, cash equivalents are investments that are "as good as cash". This might be a simple savings account. It might also be a money market fund. 

A money market fund (also called a money market mutual fund) is really a type of lending investment, but the return is so low, it's considered to be a cash-equivalent investment. It is basically, an open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper (commercial paper, is a short-term debt instrument issued by companies to raise funds generally for a time period up to one year. 

It is done by very creditworthy large corporations and other commercial entities that need to fund day-to-day cash needs, often termed working capital). Money market funds are widely (though not necessarily accurately) regarded as being as safe as bank deposits yet providing a higher yield. 

As you go through the many stages of your life, your ability to set money aside will fluctuate. This fluctuation must be factored into your long-term accumulation strategy. A successful plan requires asset accumulation paired with strategies that can help ensure you don’t outlive your money.

How To Develop A Plan That's Right For You

Being rich is measured in terms of money, but being wealthy is measured in terms of time. You need an effective plan for setting money aside for the future­-one that will allow you to maintain your current lifestyle and also consistent with your investment goals and the amount of time you have to save.

With so many terms associated with investing, knowing what exactly to invest in can seem complicated. But once you organize these terms into categories, it's actually pretty easy to understand how they work.

Commodities: Investing in a commodity is investing in some sort of resource that affects the economy. Oil, beef and coffee beans are all different types of commodities. The contracts you use to buy these goods are called Futures Contracts.

Precious Metals: Like we mentioned earlier, metals and collectables are, technically, ownership investments. You own the gold you're buying, for example. But it's not a stock or a bond, so most people refer to it as an alternative.

Depending on where you're at with investing, many of these may or may not be on your radar. Most beginning investors will likely find CDs and mutual funds to be most useful. As you learn more about investing and how to diversify your portfolio, you might consider REITs or TIPs.

Being wealthy is a choice for every Man or Woman. But then who will choose not to be wealthy. You have to discipline yourself to make wealth-building a lifelong pattern. If you do, you’ll keep getting better at it as time goes on. Regardless of when you begin to accumulate wealth, a successful plan will require. 

Wealth Creation is simply the art of turning your time or present resources into profits and equity.

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