Creating Wealth 101
Creating wealth is a process, not one particular strategy or technique or asset class (like real estate, stocks, bonds, gold, silver, etc).
It is also a mindset. It is not just having or getting a lot of money. Many people have come into apparent wealth overnight (rock stars, lottery winners, inheritances, etc), and yet as fast as it appeared it also disappeared.
Creating wealth is a discipline. It is something you must continually work at, continually improve on and learn about. Accumulating wealth does not happen over night; for some it takes a lifetime. For others, it never happens. In fact, 96% or so of all people die broke. 3% or so are financially secure and only 1% is rich or wealthy.
How does one measure wealth?
I like to measure wealth in time, as in the number of months forward you can survive financially (without having to work). If you have more money coming in each month passively than you have going out and you only see that gap growing over time, you are by this definition infinitely wealthy.
For some, that may require a passive income of $10,000,000 a year. For others it may be less than $100,000 a year. It all depends on your lifestyle and expenses.
Creating Wealth is all about cash flow: assets and liabilities and the difference of your passive income (from your assets) less your expenses (from doodads and liabilities). The greater your lifestyle or the greater your monthly expenses, the more assets and more passive income you will require in order to achieve wealth.
You have two choices for creating wealth:
1) Reduce monthly expenses. The least favorite of the two options for creating wealth, but depending on your circumstances and surrounding environment, you may need to start with this option. Of course, you can also focus solely on option 2 if your expenses are not out of whack or growing out of control; the fastest way to become wealthy is to combine option 1 with option 2.
Side note: cutting up your credit cards and living below your means may technically make you wealthy, but at the expense of how many other areas of your life? Financial wealth is important, but don’t overlook the other areas of your life as well. Money isn’t everything as we know; money simply has the ability to help you enjoy the things you have in your life and makes the journey more enjoyable than not having money and financial wealth.
You must learn to be disciplined with your money, bank accounts, credit cards, etc and know the difference between good debt and bad debt, good assets and liabilities and bad assets and liabilities. Increase your financial education, don’t be financially ignorant with your credit cards, thinking that simply cutting them up will make you financially secure or is somehow creating wealth.
2) Increase passive income. This of course is what everyone wants to do. Who doesn’t want to have more money? But not everyone is willing to do what it takes to create or increase their passive income or cash flow. Creating or increasing your income to exceed your expenses to become wealthy involves business building and/or investing money. Either or both of these options can create a residual or passive income for you. Business Building is how the majority of the super wealthy and rich achieved their wealth; by investing money the wealthy are able to hold and multiply their wealth.
Once your passive income surpasses your monthly expenses you, you are then creating wealth and a whole new world of opportunities opens up to you. You no longer have to clock in, check in, or answer to anyone. You are in complete control and are now on the fast track (versus the rat race).
To get to this stage you must also constantly increase your financial education, to learn the strategies and principles to become financially independent. Once you have mastered these creating wealth fundamentals, your education will pay you royalties in the form of solid investments and business opportunities which will further increase your net cash flow. Increasing your financial education will begin to attract these profitable investments and business opportunities and your net wealth and passive income will continue to grow.
Always remember, when it comes to money and finances, cash flow is king and is the key to creating wealth – especially in these uncertain and volatile times!
To learn more about creating wealth, read the next article in this series: 1st Steps in Creating Wealth
+Hans Schoff
... +Hans Schoff knew from an early age that he wanted something different. At 18, upon discovery of an entirely different model based on achieving freedom (not security), he dropped out of college and started his first (home-based) business with borrowed funds (credit card) and began his study on the secrets for creating wealth. That first business expanded into a multitude of others over the years (see ABOUT page), enabling him to focus his time today on developing new assets & increasing cash flow (read: multiple streams of income) to best position himself for the many challenges we'll face in the near future. He now shares his accumulated experiences and knowledge - his secrets for creating wealth and what he's doing now - with his loyal subscribers so they too can create success to soon achieve freedom for themselves and be prepared for what lies ahead. To learn how you can discover these wealth secrets and transform your situation for a brighter future, to begin to turn your circumstances into wealth that grows and grows regardless of your background or experience or what lies ahead, simply fill in the red form down below...
Creating Wealth 101 http://t.co/XamYEMJL
Ultimately, you control the reigns on how you obtain financial freedom. I did the cutting my expenses before. It works to an extent, but really, if you want to buy something because it is better, then why bother cutting? I like wearing nice clothes. I certainly am going to work to make sure I can do that, go to conferences to speak at, and enjoy spending time doing stuff with my son.
Why not just strive to make better goals, achieve those, engage with new people, and overall make more money? It has to be all done without hesitating, and all with an open mind to continuously learning.
Hey Nile, I agree with you. I’d rather focus on creating more income to meet my obligations than having to cut my expenses. Either way though, your expenses have to be less than your income. But what you focus on to achieve that objective may reveal a lot about your goals and where you’re headed. Thanks for the comment!
Hello Hans
Understanding that creating wealth is a process, not one particular strategy or technique or asset class is very important. it is also important to know that creating with an abundant mindset. Thanks for inserting this side note, “cutting up your credit cards and living below your means may technically make you wealthy, but at the expense of how many other areas of your life?” Wealth is more than just financial numbers. Excellent post.
Thanks
Perry A Davis Jr
Music City
Perry, appreciate your feedback. Thanks for stopping by!
Hans,
Great advice for people beginning on a “financial freedom” journey. Cutting expenses is definitely a must for people without large amounts of spare cash.
I also think it’s important for people to really understand the difference between an asset and a liability. Creating passive income is also essential.
Dewane, appreciate your comments, thanks for stopping by!
Hans, I like the way you started off this blog post. I’ve often wondered about the “easy come, easy go” part of winning the lottery or inheriting great riches. How could someone let that much money slip through their fingers?? I think it’s more than just not knowing how to handle money… I think it’s also because so many people don’t really believe they DESERVE the money, and therefore they don’t respect it. Money is a tool, and should be used wisely.
Willena Flewelling
Willena, good point. It definitely has to do with belief. Tony Robbins once said you’ll only ever make as much as you need to make. So even if you’re just barely getting by and WANT more money, it’s not enough. You must believe and expect to make more. You’re income level will stay in line with your growth; the more you grow, the more you’ll make. Hence, Think (learn and do) & Grow Rich…
great post .I was just closing your site page recently but when I really found it interesting and informative.I am new to your site I am also a content writer and I write articles on various topics of Finances . I really liked the way you have presented your site. Nice post keep it!!!!
Hey Nicholas, glad you found the site! Thanks for the feedback
Great post, Hans! You are so right about the two paths to wealth. It seems like people are obsessed with only one of the two, but it really is both. Some people have a spending problem, and other people have an income problem. The real trick is figuring out what yours is, and when you do, this will help you figure out how to move forward.
Right on Steve! Becoming aware of the problem is the first step in solving it. As they say, if you find yourself digging a hole, the first step is to stop digging! You just first have to be aware that you’re digging down deeper and deeper…
Hans
this is really a wow and great blog.
If people apply what you just explain to use more people will become success full with money.
Great stuff .
Regards
Theuns
Thanks Theuns, I wanted to pass on some key information that most people are never taught, yet can make a real impact in people’s financial situation. It’s all about financial education. Thanks for your comments Theuns!
Hans,
I was under the impression that there are only two ways to create wealth – 1) by having people work for you (time leverage) or 2) by having money work for you. Reducing expenses is a part of operations and really can’t produce wealth. Expenses are part of living and cannot be avoided or eliminated.
Passive income is absolutely the way to go, no question about. How you go about creating your passive income is determined by your ingenuity and persistence.
Thanks for the thought provoking piece.
RICK
Hey Rick, you are right that you cannot CUT or SAVE yourself wealthy. Creating wealth requires passive income, and my post assumed you were already creating some amount of passive or residual income. Just like in Kiyosaki’s Cash Flow 101 game, you may get to a point where you are close reaching your goal of financial freedom – maybe you are only $1000/mo away from your goal, let’s say. In that case, you could either add an additional $1,000/mo in passive income or reduce your expenses by $1,000/mo (like paying off credit cards, getting rid of other liabilities, etc) and reach your goal. Of course, some expenses are necessary live, you are obviously correct. And to that end, it is therefore also necessary to create SOME amount of passive income to exceed even the most nominal and necessary of expenses to become financially free. Thank you for pointing that out so that we can clarify what it takes for creating wealth. Appreciate your comments!
– Hans Schoff
Great message Hans … I think it’s great to go for building additional income, but there needs to be a balanced strategy. Seriously, it’s one thing to prefer making more money than having to cut spending, but how many “rich” people have made headlines because they’ve spent more than they made (which is usually more than most will make in a lifetime) or gotten into trouble with the IRS. I believe a wealth mindset is as much about keeping more money as it is increasing earnings. Thanks for the inspiration!
I agree with you Marty. It really is all about how much you keep. And certainly, the less you spend the more you keep so it can help you in creating wealth that much faster.
Wealth is the fundamental thing. Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on. You can have wealth without having money. If you had a magic machine that could on command make you a car or cook you dinner or do your laundry, or do anything else you wanted, you wouldn’t need money. Whereas if you were in the middle of Antarctica, where there is nothing to buy, it wouldn’t matter how much money you had. Anyway, thanks for sharing and looking forward to the next one!!!
Hans,
I couldn’t agree with you more. I have tried and failed at attempting to budget and spend less money. Since I began to focus on building an online business, I keep having to spend money to learn and grow and understand the business world. One of my main goals now is to create passive income and to leverage my time to be able to reach more people at one time (instead of my usual one-on-one counseling sessions).
Erica
Erica, you’re not alone. These crucial money skills are not taught in schools and therefore most people usually pick up the same bad money habits as their parents who of course also were never taught proper money habits or skills. So the process repeats. However, the wealthy also pass on their GOOD money habits to their kids as well – is it any wonder that the rich get richer? (Look at Donald Trump’s kids for example…) Thanks for the comment Erica. Leveraging your efforts through creating passive income as you’re doing is the key going forward for those looking at creating wealth!
If you keep doing what you have done until now without working on “Mastering Your Money Mindset” you will keep feeling drowned in overwhelm, loads of debt and desperation.
Hello,
I was just going through your site and I really found it interesting and informative. I am a content writer and I write articles on various topics of Finances. I really liked the way you have presented your site.
Thanks.
Sophie Kinsella
Hey Sophie, thanks for stopping by. I appreciate your feedback!