To all of my dearest readers and visitors,
After hearing lots of misconception of wealth creation, I see there is an urgent need for me to put it right according to its true meaning and to disclose the methods of creating wealth.
It is also my intention to coach and assist people to build their wealth so as enable them to be financial independent so that they can take control of their lives. However, each person must be clear that he has to be accountable to himself and have to take appropriate steps to work towards that end. No one can help himself to achieve that end if he does not desire to do so.
All of us have to be mindful that we need to know how to fish, which is the only way, we can assure ourselves of having fishes for the rest of our life. No offence is intended to anyone and please read this article with an open mind.
To create wealth, it is vitally important to get its’ definition right. It is not equal to richness. Richness is a relative and subjective term which has no definite meaning. Wealth is also not equal to income. A huge income does not guarantee that it will generate wealth. It is very much dependent on the person consumption habitst. Wealth is the residual income after deducting all the expenses. As such, wealth is defined as the Net Worth that is the accumulation of your residual income over time. Therefore, to create constant and lasting wealth, you need to add value to all your financial resources. These financial resources are simply utilised to create added residual value over time.
Wealth Creation usually involves three simple processes, which are listed below for your reference and understanding.
1. CREATE WEALTH
Once you fully understand its’ true meaning, you are able to work toward creating wealth precisely and confidently. The key here is to create as much residual income as possible. Residual income is total income minus all expenses wholly incurred to generate that income. Here, you can see that it is not the quantum of the income, but what remains after expenses deduction that is important.
To create wealth, you have to control your consumption, at the same time increase your residual income. In reality, you always have a choice either to spend the residual income away to acquire a higher lifestyle; or be frugal and save more. Egos and financial peer pressure dictate how you spend or to use it to create more wealth to you. Many of us have wealth creation fantasies but few of us will see our fantasies materialise in our lives.
2. ACCUMULATE WEALTH
It is always important to note that not all assets are of equal value in promoting long-term wealth. The real key to creating wealth is very much dependent on how much is spent on acquisition of assets that really appreciate in value.
A person, who spends on things that depreciate in value, will decrease his wealth. We must invest in assets that will actually increase in value, and thereby increase our personal net worth over time. Therefore, when more money is spent on Wealth-building Assets, the faster you will achieve a higher net-worth.
Here, perhaps you may be able to relate it with the implication of compound interests over time. Just imagine that you save a dollar every day with a fixed rate of interest, the annuity table will tell you how many years you will become a Millionaire. It is amazing, right.
3. MONITOR AND GROW THE WEALTH
Once you have accumulated several wealth building assets, you need to comprehend its nature of trade and its risks profile so as to take full advantage of its potential.
Here, you need to monitor and review each type of wealth-building assets in term of its return, growth in value and potential value. You will note that some assets give you a much higher return as compared to the others. Higher return assets may however carry higher risk exposure.
To ensure that the wealth buildings assets give you the highest possible yields, you need the expertise of that trade so as to grasp the highest yield for your wealth-building assets at any time. Needless to say that you need the skills and know- how for you to create the highest possible wealth for yourself.
However, you must also realise that you need to purchase other type of assets out of necessity, for entertainment or other reasons.
Some examples of non-wealth building assets are:
- Furniture, unless those appreciate over time.
However some of these assets may add value to you indirectly such as when it facilitates your work and generates more value than the amount you spend on them.
No doubts debts can kill. However, if you can use debts to generate income which exceeds the cost of borrowing and also generates cash inflow that is more than sufficient to settle its due installment, then, it makes sense for you to leverage on debts to generate more residual value for you.
I trust this article gives you an insight and understanding of the true meaning of wealth and the simple three process of creating, accumulating and managing its growth. With this clearly in your mind, you will be able to take appropriate steps to build your wealth. This is a very basic and fundamental framework for everyone who intends to build wealth and it is vitally important to get this right in the first place.
Wishing you every success. Stay tuned and look forward to seeing you again.
- JAMES OH
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