Wealth is defined as having an abundance of valuable things. Abundance is created when you collect more than you use. But, how do you do that? In this capitalistic economy, there are opportunities to collectively as a society become more abundant. But, in general, it is often quite binary. Either you are becoming wealthy and make someone else less wealthy, or you become poorer while making someone else wealthier. It is a simple math. You are either subtracting from your abundance, or you are adding to it.

Wealth is a complex topic that involves work, tax, investment and balance sheets, but it has some simple guiding principles that can help you towards a path to wealth.

  • liability
  • asset
  • cash flow

Liability

Where is your money going today? Do you have debt? If money is going out, you have a liability. Minimizing money going out is the single most important thing. Many high income earners fail to create wealth because they fail to take care of minimizing their liabilities. Your liabilities are how you are helping others become wealthier, and making yourself poorer.

If you are paying interest, rental or subscription fee, you have debt. Student loan, mortgage, credit card, housing, car payment, and even your Netflix subscription are all liabilities. Your first order of business is to pay off or get rid of your debt.

Asset

If money is coming in due to something you own, you have an asset. You are on the other side of liabilities. You are the one getting the interest payment, rental, and subscription fees. Stocks that pay dividends, rental properties, and even cash in savings account are all examples of assets that adds to your abundance and grow your collection.

Buy and own assets. Do not sell them if you can, and keep on collecting them.

Cash flow

So, how do you get rid of liabilities and collect assets? It is all about understanding what you have coming in, and deciding how they will be distributed. Some call it budgeting, and some call it cash flow balance. It means money coming in versus money going out.

Income

Obviously, bigger the pot, there is more you can do with it. But, just because you don’t have six or seven figure income does not mean you don’t have enough to start your path towards wealth. Six or seven figure income is made up of individual dollars. Every dollar count.

Look to increase your pot, but start the journey today.

Distribution

While understanding that there are necessities, main decision still is whether you are going to distribute cash to grow your own wealth or to grow someone else’s wealth. Food, housing, and clothing are some of the basic necessities. But you are choosing to consume them for your own comfort rather than producing them. There are also degrees to the comfort you are paying for. You will be surprised what you can live with and live without.

In terms of budgeting, you could start with below example distribution.

  • 70%: Living expense
  • 10%: Pay off debt
  • 10%: Asset creation
  • 10%: Giving

Summary

We all have our own situations that dictate whether being in this journey towards wealth creation is the right thing to do or not. But, many times, only difference between the wealthy and the poor is that wealthy did it while the poor just thought about it.

Do not be influenced by others. Do not spend to satisfy other people. Do not buy or sell just because someone else told you so. Whatever your current income is, it is all about making the decision to spend less than what you can afford, and accruing assets.

  1. Minimize your expenses
  2. Pay off your debts
  3. Collect assets