Does money equal wealth?
What is wealth?
When most people hear the word ‘wealth’ they normally think about money, earnings, income, savings and riches. To me, wealth is not just about money, but about having a plentiful supply of ‘what I want’. OK, words like ‘I want’ sound selfish, however I will admit that ‘yes’, I want more free time, better health, more freedom, a happier world, more time to go on holiday and so on.
These desires can largely be fulfilled through financial wealth, so that is what this article is about.
As a starting point… If you stopped working today, how long could you last before not being able to continue to pay for your current lifestyle?
Let’s see, well maybe the first couple of months would be OK, after all you would still have your final months pay cheque, then there’s a couple of savings account that you have been contributing too, so they should help, then after that friends and family would be able to help out for a while, after that though with no further money coming in for the mortgage, the car, food and other day to day living costs I think most people would start to find things really real tough within 6 months, would you last a longer or shorter period of time?
Logically higher wage earners should last longer than lower paid workers, however they would often last much less. As people earn more they tend to spend more also. The new job promotion brings with it the pay rise, the bigger house and the prospect of two holidays abroad per year. Of course, throw in the addition of a family and life just gets more expensive, but at least you can access loans and credit cards that you can secure against your higher paying job right!?
Where is your money really going?
It doesn’t matter how much you earn if you are spending more than that amount each month, then you are always going to be in danger. Try this quick test…how much money did you earn last month? Ah, you answered that very quickly with confidence, now, how much did you spend last month on everything?….I’m waiting……still waiting…are you sure? Where did you get that figure from? You don’t sound very confident.
A simple equation…
Where is your money really going?
So it is a simple equation – money in needs to be higher than money going out, we seldom sit down and actually work these things out though. This is the first part of the problem, we don’t know where our money is going!
The second part of the problem is the misconception that people have about rich people. People tend to assume that the rich worked hard for their money, then bought the cars and the house with the money they earned. That is the big misconception, you see there is a curious little step made by the wealthy, but missed out by the majority of people that if people only took this step they could stop themselves from falling into a lifetime of insecurity and become a millionaire instead.
The Millionaire Step
This is the missing link that separates the haves from the have not’s in life: Create passive income! You see, the first time most people get their financial heads above water in life from their first promotion or whatever, the excess money tends to go on luxury items and upgrades in cars, the future millionaire doesn’t do this, they invest this money into building passive streams of income.
Rather than squandering all of their salary each month and making paltry savings contributions, they spend frugally, they do not buy a big car or a big house. Instead they buy a big car and a big house… at a later date… with money they have created from passive income. The difference between the two approaches is huge in terms of wealth building strategies. Furthermore, they are likely to go and re-invest this passive income to generate yet more money for them and lets not forget, they may well still have the good old 9-5 ticking over nicely too! It boils down to this:
“Don’t work hard for the money, let money work hard for you”
If it were that easy why isn’t everyone doing it?
Firstly, people don’t often sit down to really think through their finances in this manner but even if they did and they were aware of this missing step, what most people lack is the discipline to hold back on the lifestyle upgrade until they have started to generate their own passive income.
Now, I have no idea what stage you are at with your wealth creation, you may or may not feel this applies to you but if it does and you are looking to create a wealthier lifestyle for yourself and your family, what can you do? What are these passive income streams that I have alluded to so far?
Well there are a lot of different methods to generate passive income and we’ll go into a few of those here but just to be clear on what we mean by passive income, another quick question:
Which one would you rather be, the person who walks to the stream each day to get their water, or the person who lays the pipe just once and sits back and lets the water come to them never having to worry about that tedious tiresome fetching and carrying anymore.
That analogy is pretty much the size of it and unfortunately it is what most of us are tied into, going to work everyday doing the work over and over again to keep getting that pay cheque at the end of the month which unfortunately never quite seems to be enough to get ahead of the game. Of course the person who does the work just the once, yet gets paid over and over again for this work is the person who has generated passive income which is one of the very best wealth creation strategies, especially when these income streams are from a variety of sources and thus spreading the risk.
Here then is a quick run down on some passive income wealth creation strategies. Generally they fall into one of two categories:
1) Passive income from investing
2) Passive income from creating
Passive income from investing includes things such as: stocks, shares, bonds, mutual funds, money markets, rental property or just straight forward investing in an already successful business. Always bear in mind though that your financial decisions should not feel as though you are gambling with your money they should feel as though you are making educated decisions with your money, there is a huge difference.
Passive income from creating includes as the name suggests creating something just once that will yield you an income over and over again in the future. Examples of this are small businesses that you employ someone else to run, any automated business, creation of products such as ‘how to’ information products that can be sold over and over again, royalties on products you have created and probably the best as the start up costs are so low are automated online internet businesses.
There are plenty more than the few ideas offered above, some great books are available on just this topic (How To Make Millions With Your Ideas by Dan. S. Kennedy is my recommendation). Take your time and educate yourself in one or more of the above strategies. Sitting at home thinking that this all sounds too hard, too technical and too ambitious is not going to get you anywhere! In two years time you could be sat there with a minimal support net for you and your family, or you could be enjoying the fruits of being proactive and have created your own passive income stream.
Yes, I know I know, it is very easy to write about these things but doing them is another thing entirely. So, here is one BIG tip I would like to offer you on starting your own passive income stream. Here it is…..ask for help. People love to help.
Imagine if someone came up to you quite genuinely and asked for help in your particular area of expertise and said that you had been recommended to them as a someone that they would be able to learn from. How would you feel? Probably flattered right? Willing to help? More than likely. What’s more if they have been recommended by a friend (or friend of a friend) then they may well feel duty bound to help you as much as possible.
So, I suggest you ask around your friend network and business contacts and make a list of people or friends of friends who are already successful in one of these fields of passive income and wealth creation mentioned above. Next, approach them quite genuinely explain who you are and how you have found out about them and ask them if they wouldn’t mind meeting for a coffee (or whatever seems suitable) and ask them quite genuinely if they wouldn’t mind pointing you in the right direction in how to get started, or read a few books on the subject first and go with a list of sensible questions to get the ball rolling. Don’t be shy about doing this, people actually admire someone with the ‘balls’ to do this sort of thing and remember people really do love to help others and will go out of their way for you!
One quick word of warning though, beware of the person that approaches you and says that they are the guru in a particular area/field. Guru is a term that is used about other people not a term people use about themselves. If an opportunity seems to good to be true it probably is, use your judgement and common sense, ask for help and persist. Success is just the other side of a few problems, problems are good – they point the way to success.
As a final re-cap on our wealth creation strategy:
First, find out how much is going in and out your accounts each month.
Secondly, create a buffer of savings and work hard for your next lucky break.
When that promotion comes or when you have saved a reasonable amount DO NOT waste it on upgrading your lifestyle just yet, instead invest as much as you can on an ongoing basis into developing passive income streams. When you have developed these passive income streams reinvest this money in creating more of the same (or other passive income muses). Once your passive income stream reaches a level that you could potentially live happily off on its own, then this is the time that you can start to buy the cars, the bigger houses and so on – with money you already have.
That is a wealth creation strategy that can be implemented by anyone, including you, no matter where you are at today, the decision is yours! What will you do?
“Don’t say what can I do with my money, say what can money do for me!”