What Exactly Is Wealth?

It is amazing how many people step into the investment or business community without understanding what money is, and who to create sustainable growth.

Think of money as gold coins. Earned money is money that is added to that pile. Saved money is also earned, because it is not removed from the pile. A business person can earn money by trading for more gold coins. However, they can also earn money by keeping what they have.

Money is a commodity. It is nothing more than a piece of paper. What people are willing to trade for that piece of paper gives the money value, worth.

That is why some people can build wealth and never have enough, while others can build wealth far exceeding what they will ever need. What is wealth? It is hard to define.

Look at the national lottery winners. Recently a television station went looking for million dollar winners to see how they were fairing. They found none who had taken their million dollars and earned more. In fact, most of the lotto winners were now worse off than they were before.

Two people can own one million dollars. One will become more wealthy, one will end up with nothing more than they started with. That is because one person understood that money is nothing more than a commodity which is easy to transfer. The other group, the people who lost their wealth, saw money as a ‘gold ticket’ as a resource that magically provided them with anything they want.

Look at retired couples. The current statistics for retirement state that a person need $250 000 USD to retire comfortably.

There are many people with this much in their bank account, but they are living hand-to-mouth. Others have half this, and are still enjoying life.

A conundrum that confuses even some economists who find it easy to analyse how someone with a lot of money can sustain its growth, but find it difficult to understand how a person with little money can make it magically appear out of no where – without downsizing.

The answer can be found in bullion. One ounce of gold buys the same amount of gasoline as one ounce did in the 1940s. This means that the cost of gas has not risen in more than 60 years.

However, money, the transferable commodity, has dropped in value. Now it takes $3.00 to buy the same amount of gas that was once purchased for $.10. This is because the U.S. currency pre 1971 was backed by gold. For every $1.00, there was gold in reserve.

Foreign governments could exchange U.S. for gold with the U.S. Federal Reserve. The relationship between money and gold gives us insight into how money retains its value.

Gold is not useful. You cannot eat it. It won’t keep you warm, but people want you. Gold is something you can believe is valuable.

Wealth

Not all wealth is measured in money. This is where most people make their mistakes when it comes to investing or building wealth. A passive income stream is measured in more than the money it earns. It is measured in the tax deductions, in the capital it earns the owner, in the resources that let the owner build alternative streams of income, and in assets it earns.

However, it is also how the owner manages their resources. One person can manage one million dollars and earn another.

Another person will spend their money without understanding its value. For every dollar spent, the person must receive something of equal value.

For example, trading $50 000 for a vehicle that the person will keep for five years, means the vehicle cost $10 000 a year.

Trading $50 000 for a vehicle that the owner will sell in 3 years, and have a $10 000 trade in value, means the vehicle cost $13 333.00 a year. This means the second person paid $3 333 more for their vehicle than the first person. A third person can buy a vehicle for $40 000, and keep it for 5 years, paying only $8 000 a year. In the end, this person has $10 000 more wealth ($2 000 a year) than the first investor.

Conclusion

Wealth building is all about managing your commodities. Everything is an investment. From trading commodities at a grocery store, to purchasing property, people who build wealth understand this, and measure every purchase, not by the money spent, but by its investment value.

Article Source: http://www.contentspool.com

Mark Walters is a third generation investor who guides others to financial independence through the Creating Wealth Club www.CreatingWealthClub.com

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