Building wealth can be one of the most exciting and rewarding undertakings in a person’s life. Aside from providing a more comfortable day-to-day experience, a substantial net worth can reduce stress and anxiety as it frees you from worrying about putting food on the table or being able to pay your bills. For some, that alone is enough motivation to start the financial journey. For others, it’s more like a game; the passion beginning when they receive their first dividend check from a stock they own, interest deposit from a bond they acquired, or rent check from a tenant living in their property.
While the thousands of articles I’ve written over the years are geared to helping you learn how to become wealthy, I wanted focus on the philosophical aspect of the task by sharing with you five truths that can help you better understand the nature of the challenge you face as you set to the task of accumulating surplus capital.
1. Change the Way You Think About Money
The general population has a love / hate relationship with wealth. Some resent those who have money while simultaneously hoping for it themselves. Yet, absent some fairly specific exceptions, in a prosperous and free society, the reason a vast majority of people never accumulate a substantial nest egg is because they don’t understand the nature of money or how it works. This is, in part, one of the reasons that the children and grandchildren of the wealthy have a so-called “glass floor” beneath them. They are gifted knowledge and networks that allow them to make better long-term decisions without even realizing it.
A fascinating example comes from the field of behavioral economics and involves first-generation college graduates accumulating lower levels of net worth for every dollar in salary income due to not knowing about basic concepts such as how to take advantage of 401(k) matching.
The bigger principal here is that capital, like a person, is a living thing.
When you wake up in the morning and go to work, you are selling a product – yourself (or more specifically, your labor). When you realize that every morning your assets wake up and have the same potential to work as you do, you unlock a powerful key in your life. Each dollar you save is like an employee. Over the course of time, the goal is to make your employees work hard, and eventually, they will make enough money to hire more workers (cash). When you have become truly successful, you no longer have to sell your own labor, but can live off of the labor of your assets. In my own life, my entire career has been built on getting out of bed in the morning and trying to create or acquire cash-generating assets that will produce more and more funds for me to redeploy into other investments.
2. Develop an Understanding of the Power of Small Amounts
The biggest mistake most people make when trying to figure out how to get wealthy is that they think they have to start with an entire Napoleon-like army of funds at their disposal. They suffer from the “not enough” mentality; namely that if they aren’t making $1,000 or $5,000 investments at a time, they will never become rich. What these people don’t realize is that entire armies are built one soldier at a time; so too is their financial arsenal.
A family member of mine once knew a woman who worked as a dishwasher and made her purses out of used liquid detergent bottles. This woman invested and saved everything she had despite it never being more than a few dollars at a time. Now, her portfolio is worth millions upon millions of dollars, all of which was built upon small investments. I am not suggesting you become that frugal, but the lesson is still a valuable one. That lesson: Do not despise the day of small beginnings!
3. With Each Dollar You Save, You Are Buying Yourself Freedom
When you put it in these terms, you see how spending $20 here and $40 there can make a huge difference in the long run. Given that money has the ability to work in your place, the more of it you employ, the faster and larger it has a chance to grow. Along with more money comes more freedom – the freedom to stay home with your kids, the freedom to retire and travel around the world, or the freedom to quit your job.
If you have any source of income, it is possible for you to start building wealth today. It may only be $5 or $10 at a time, but each of those investments is a stone in the foundation of your financial freedom.
4. You Are Responsible for Where You Are in Your Life
Years ago, a friend told me she didn’t want to invest in stocks because she “didn’t want to wait ten years to be rich…” she would rather enjoy her money now. The folly with this type of thinking is that the odds are, you are going to be alive in ten years. The question is whether or not you will be better off when you arrive there. Where you are right now is the sum total of the decisions you have made in the past. Why not set the stage for your life in the future right now?
These aren’t empty feel-good words or admonishments. I’m going to repeat it again: Where you are right now is the sum total of the decisions you have made in the past. Your life reflects how you spend your time and your money. Those two inputs are your destiny.
Article from: https://www.thebalance.com