WHAT DOES IT MEAN TO BUILD WEALTH?
Have you ever wondered what the difference is between money and wealth? Earning a good living is, without a question, fantastic… However, “having money” and “creating wealth” are two distinct concepts. Money pays the bills, yet it’s money that goes in and out of your pocket. You have more than just income when you have wealth – savings, assets, and investments. Wealth is a collection of resources that can be used to generate and seize life’s opportunities.
Building wealth doesn’t normally happen in a day, a year, or three years. Building wealth entails taking a number of measures throughout time. It’s a long-term process that necessitates consistency. Wealth-building becomes a life pattern if you follow that discipline. And as you progress through life, your ability to accumulate wealth and pass it along from generation to generation improves.
PYRAMID FOR WEALTH BUILDING
Consider wealth accumulation in the form of a pyramid.
Base layer
The cash flow layer is the foundation layer. Before a person can actually begin to accumulate money, he or she must be able to consistently create enough income to cover monthly expenses. In the event of a financial emergency, it’s also a good idea to have enough funds set aside to cover at least two months’ worth of living expenses, and preferably three to six months’ worth.
The second layer
After you’ve established a solid cash flow foundation, you can start investing in assets, such as real estate or equities. These investments should potentially increase in value over time, allowing you to retire comfortably at some point in the future.
The third layer
Moving up the pyramid, your estate, or the riches you’ll leave to your family, is the next tier. This could include your company if you’re a business owner.
The top layer
Your legacy goals, also known as philanthropic goals, are at the very top of the pyramid. These are the numerous beneficial ways you may share your wealth by giving back to your community.
THE WEALTH BUILDING THREE PILLARS
Consider wealth as a three-pillared structure.
Assets in Real Estate
Because real estate appreciates in value, the first pillar of wealth creation is “Real Property Assets” (your own house and investment real estate).
Furthermore, after you own a property, you may be able to access your home equity, which means you may be able to borrow money with your home as collateral. Home equity allows people to have more financial freedom and possibilities.
Investments
The second pillar consists of investments, such as a retirement account with stocks and bonds.
Entrepreneurship
The third pillar is entrepreneurship, or running your own business.
Note: For most people, the family residence holds two-thirds of the family’s wealth. Home equity can be a source of money for all of your wealth-building endeavors, and a home can help you leave wealth to future generations.
THE OVERALL VISION: YOUR FINANCIAL PLAN
Seeing the big picture might assist you in achieving your financial objectives. Professionals can assist you in developing your strategy.
What is the definition of financial planning?
Financial planning entails developing a long-term vision and setting clear objectives for the future you desire. Making a financial plan allows you to see what you’re aiming towards and how all of the important parts of your financial puzzle fit together to form a full picture.
The following are major components of your financial plan:
- Your occupation, military service, or business
- Your financial plan
- Your checking and savings accounts
- Debts you owe Major assets you hold
- Investments in real estate insurance
- Planning for the next generation’s inheritance
ADVICE FROM A PROFESSIONAL
Take advantage of expert guidance. For as low as a few hundred dollars, several financial services providers will answer basic financial questions for free or construct a basic financial plan. Financial counsel does not have to be expensive. You may have to pay for some planning services, but it does not have to be.
Keep in mind that paying for financial planning guidance now can save you money in the long term if it helps you make good financial decisions.