Before you anchor yourself to the goal of becoming wealthy, you should have a clear definition of the term wealth. At the most basic, wealth means having an abundance of something; however, an abundance of “something,” can be a truly relative concept. Financially speaking, if your concept of wealth is owning a large home and having more than one new car, you may need to carefully calculate how much income you will need to achieve that goal. For others, the notion of not having to work, regardless of income, is good enough to constitute wealth. In fact, a family receiving a passive income of $25,000 a year may consider themselves wealthy.
Income can be relative. Consider the difference between working 40 hours a week for $50,000 and staying home and managing a few investments for a few hours a week to make the same annual income. Working for a regular paycheck is not perpetual. You cannot fully project what circumstances may come that can affect your ability to work, nor whether you can maintain employment at a certain pay rate. Employment ensures that the only way to get more money is for you to work for money. Passive income; however, is income garnered through the work your money is doing for you, such as investments in real estate, royalties, annuities, or stock options.
Working for money is important, because unless you inherit money with which to launch an initial investment, you will need to get money in some way. Low-income people will find it most difficult to work toward earning a passive income, but having a passive-income goal will help them to accumulate wealth over the years. Putting money into savings accounts to earn interest, investing in employer-matched 401(k) s, and buying small cash certificates and bonds may be a good way to begin investing small amounts of a small income.
Once those savings accounts start building, investors can take those amounts and invest in the more risky, yet higher yield options. A low-income investor might not want to invest his entire portfolio (which may only amount to a few thousand dollars) in a risky stock market, but can begin investing with a portion of that money as diversified into different investments to decrease risk.
Each step of the investment process should include increased, yet guarded risk options. The higher the risk, the higher the potential payout.
Decreasing expenses is almost as powerful as earning passive income. Getting out of credit card debt, paying off the car loan, and paying off the mortgage will leave only a few necessary expenses (food, utilities, gasoline). Can you imagine living rent or mortgage-free, with no car payment, no credit card debt, nor loan debt? If you were able to grow your own produce in the garden, and become a coupon super user, you might reduce your food bill. If you can make your home a green home, equipped with solar energy, green airflow technology, and low-cost lighting, you can even reduce your electric bill.
You can make your living expenses so low, that most of your income is savable income. Realistically speaking, of course, many of those options are available to those who already have the wealth to get them (solar panels); however, you or anyone can lower household expenses by minimal means and by doing so, you can increase your wealth. Eventually, you might be able to afford some solar panels.
Wealthy people need to be frugal. A wealthy person who can afford to buy an expensive car might wait a few months or a year before purchasing it. He may wait until he can sell a house for a $30,000 profit, or until he can get some renters into the house he just bought for an incredible bargain.
Enjoy What You Have
To be completely satisfied with what you have right now means you will not make a desperate decision that leads you further into debt. There is no standard on the newness or bigness a person’s house should be. You could have $9 million, and still drive a nine-year-old basic car.
The challenge of working toward the next level is more satisfying then finally reaching the apex of some pre-determined notion of wealth. You might feel wealthy making $20,000 a year, and you might even live a higher quality of life then your friend who earns $80,000, but has an ugly school loan, a mountain of credit card debt, and an inflating mortgage rate.
There is nothing wrong with money, but the idea that it is attached to some level of happiness, status, or self-worth can make money a painful and worthless pursuit. If you can learn to be satisfied with your current financial envelope, you will find that you many spend less money, and eventually, you will be able to work less to earn money. You might achieve wealth through careful spending, saving, and investing.