While many of us have jobs, freelance, or started businesses, a lot of us are also still living paycheck to paycheck and are figuring out how to take things to the next level and start to build wealth.
If you need to “work” to meet your financial needs, I’ve got bad news– you’re not wealthy.
Don’t get me wrong, I’m not suggesting that working hard is a bad thing. Let’s just draw the distinction between working hard at trading dollars for hours, versus making your hard earned money work for you.
Most people believe the key to building wealth is getting a high-paying job. And so most of us tirelessly work long hours to amass more skills and climb the corporate ladder.
While “income” and “wealth” go hand in hand, using the terms interchangeably is misleading. The most wealthy individuals don’t necessarily draw the highest levels of income. For example, top executives, celebrities, doctors, or professional athletes may have high salaries, but a lot of them cannot sustain their lifestyles without their careers. Many wealthy individuals, on the other hand, have never earned an exceptionally large paycheck.
Being wealthy means you own things that generate your income for you. The income from your investments alone is enough to cover all your expenses and you do not have to trade your time for money. Wealth means you have freedom.
Having income, on the other hand, simply means you earn compensation for performing a service, selling goods, or property. Passive income is also included, which would include income earned from financial investments.
Wealth does not mean high income. Wealth means that you can walk out of your job right now and survive.
It’s simple and it takes commitment, but it sure beats having to rely on a paycheck all your life.
Investopedia gives a simple 3-step way to generate wealth: make enough money, save it, and then invest it.
This may seem basic, but the most fundamental step before you can begin to save or invest to build wealth, is having a long-term source of income that covers your needs and have some left over.
You make enough to pay for a nice apartment, pay off student loans, cover your credit card payments, get groceries, eat out when you want, travel occasionally, and buy the things you want. You live well and still have a little saved for a rainy day–but not enough. Sound familiar?
There’s only one reason why this occurs: your wants exceed your budget.
You may think you don’t have enough to save, but chances are, you do. The most important step is to distinguish between what you really need and what you merely want. Get serious about your long term goals, put together a realistic budget, and stick to it. Before you know it, you can start making those savings work for you.
Congratulations, you’re now making enough and saving enough and are ready to build wealth.
You don’t have to be a genius to invest your money. All you need is a few basics, a plan, and the patience to stick to it. There is no guarantee that you’ll make money from the investments you make. But if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money.
There are many different ways you can go about investing, including putting money into stocks, bonds, mutual funds, ETFs, real estate (and other alternative investment vehicles), among others. Every investment vehicle has its positives and negatives, and understanding how different types of investment vehicles work is critical to your success. How you choose to invest your money depends on your values, risk tolerance, and time horizon. And you need to ask the right questions. For example, what does a mutual fund invest in? Who is managing the fund? What are the fees and expenses? Are there any costs or penalties for accessing your money? These are all questions that should be answered before making an investment.
When starting on your path to building wealth, take to heart the steps outlined above.
If you’re ready to learn more, sign up to get access to our online training session and learn how to invest like the 1% by passively growing your wealth from Investment Expert, Alan Lewis.
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This article originally appeared on The Smart Investor, an online academy helping people invest smarter and make better financial decisions. Last Updated: August 6, 2019 As a real estate investor, the experience is going to be necessary to get far, but the more you know before you start, the better off you’ll be….
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