Last week our blog post, Basic Wealth Building Tips For Young Women, raised a pertinent question amongst some readers:
“What exactly is wealth building?”
It may initially seem like a simple question to answer, right? “Wealth building is… the building of wealth.”
However, delve a little deeper and the real underlying question is: What is Wealth? What are we talking about when we’re talking about building wealth. Again, it may seem like a simple question to answer but that is what we’ll be discussing in this post.
In the dictionary you’ll find the definition of wealth as follows:
1. a great quantity or store of money, valuable possessions, property, or other riches
2. In Economics
- All things that have a monetary or exchange value.
- anything that has utility and is capable of being appropriated or exchanged.
Many people think wealth is about how much is in the bank, but wealth goes beyond your salary to incorporate anything of value that can be bought and sold. You probably have money in the bank, but is that wealth? Isn’t that just your salary that is paid into your account and mostly goes out again to pay bills? If you stopped working, and relied solely upon what you have in the bank, would it sustain your current lifestyle? If so, for how long?
Wealth isn’t about the size of your salary. Think about it: your salary dictates the kind of lifestyle you have and your lifestyle dictates the type and size of the expenses you have. In wealth building your wealth comes down to investments, savings and assets you have outside of your flow of monthly income and expenses.
When discussing wealth building we’re talking about your ability to maintain the lifestyle you choose using funds derived from savings, property and investments. We are not just talking about the money you have in a checking account for your monthly expenses. We want you to look beyond that to investments and assets that can grow in value over a period of time and perhaps eventually provide you with an income to replace that which you receive from an employer.
This is, perhaps, the most elementary way to understand wealth: How much would you need in terms of monetary income to maintain your chosen lifestyle?
Once you have the answer to that question the next step is to design a plan that will get you to a place where you have that regular income without needing to actively work for it. Your goal should be to get to that figure as early in your life as possible, but you do need to be realistic about it.
Wealth isn’t about the amount of money that goes through your account each month. It’s about the amount of money you can hold onto and turn into something greater. The ideal situation would be to have investments that regularly return enough profit for you to forget about actively working to maintain your lifestyle. This is what we encourage everybody to look towards and plan for.
The accumulation of wealth is not something that normally happens overnight. For most people it will be a lifelong series of short-term and long-term goals. Achieving each goal will be a rewarding experience and will be easier if you are disciplined and intelligent about your investments. When we speak of wealth building we are addressing the steps that are helpful and/or necessary for you to successfully manage a realistic plan that will achieve your goals.
Check in with us regularly for regular up-to-date and helpful wealth building information.