When most people think of “creating wealth” it conjures up grandiose mental pictures of fabulous riches and exotic celebrities. However, “wealth” simply means you own valuable assets. There is no particular reason why normal, regular people can create wealth using nothing more than their current income and intelligent decisions. The principal barrier to achieving this goal is a mindset that “It takes money to make money.”
Wealth building has become a key topic of conversation in the financial media. Traditional financial advisors frequently talk about equity and debt. (aka ‘stocks and bonds’) This is certainly a part of wealth building, but the current world has become highly complex. In order for people to achieve their financial goals, they need to think about wealth building differently. Many people go through booms and busts but never manage to get ahead. This is especially important for people who over-invest in buying a home and under-invest in other financial assets.
During business and economic discussions, it seems that distinctions are rarely made between income and wealth. Income represents the resources that are accumulated annually. Wealth represents the total amount of resources that have been accumulated throughout the tenure of your life. Income must be earned by you year after year. Wealth can be used to generate income year after year, without any direct input from you. (Now we’re talking …)
Every time that an asset class rises or falls, the media begins to challenge the notion of wealth, productivity, and output that many people hold in their minds. The typical situation for most people is that they think of wealth as being measured in money. For people like Ben Bernanke, money means currency. For people like Bill Bonner, money means gold. However, in both cases, I see wealth as something much deeper.