What Does It Mean to Build Wealth?
What does it mean to build wealth in this day and age? This is a question that many Americans struggle to understand. Growing your wealth is a difficult task as the cost of living continues to rise. However, it’s attainable if you develop a feasible plan of saving, budgeting and investing.
There are many strategies and layers to building wealth. But you won’t know where to start without building your knowledge base on the idea itself.
What Does It Mean to Build Wealth, Exactly?
If you asked 100 people what building wealth is, you would probably hear 100 different answers. There isn’t a standard definition that everyone relies on.
So what does it mean to build wealth? It’s the process of generating and maintaining long-term income through multiple sources. This includes your savings and any assets that generate income, such as your investments.
In fact, Merriam-Webster defines wealth as an abundance of valuable material possessions or resources. These possessions and resources include “all property that has a money value or an exchangeable value” and “all material objects that have economic utility.”
Let’s start with the foundation of this process: your income streams. In general, there are three types of income. There is your earned income, your passive income and your portfolio income.
Earned income is your livelihood and main source of money. You put in the time and effort, and, in exchange, you are compensated for it. Unless you have luck on your side, you can’t begin to build wealth without it.
Passive income is your earnings from any property, partnership or enterprise in which you are not actively involved. The most common form of passive income is rental properties. In addition, passive activity includes interest income through peer-to-peer lending or partnerships.
Portfolio income, on the other hand, is often considered another form of passive income. However, for this instance, it’s best to separate the two and paint you a clearer picture.
It’s actually a subset of passive income that covers all your income from investments. Dividends, royalties and capital gains fit it into this group as well.
How to Attain Wealth
What does it mean to build wealth? You now know the various ways you can generate income. But how do you save and maintain it?
This is the tricky part that can stifle anyone. This step doesn’t discriminate, no matter if you bring in more than six figures each year or not.
The foundation to wealth is your income, but the key to building wealth is your ability to save and budget effectively. It’s important to develop a plan that not only saves your money but also eliminates your debt.
The 50-20-30 rule is a great place to begin. It’s a rule that has jump-started many individuals’ ability to build wealth.
This guiding principal suggests that you place 50% of your income into your fixed expenses first. That takes care of your monthly bills.
Take the next 20% and place it directly into your savings. It’s best to open an account that gives you the highest yields available.
The final 30% of your income covers your living expenses. Here’s where you can completely miss the mark if you aren’t careful. It’s vital that you live within your means and steer clear of taking on debt.
If you already have debt, such as credit cards or other loans, pay them off in a timely manner. Make your payments each month and use bonuses or extra money to pay them off even more quickly.
Build Wealth Fast Through Smart Investments
Did you know one of the quickest ways to wealth creation is by investing in the stock market? For instance, the average rate of return for the S&P 500 has been around 10% since its inception. And the S&P 500 index is historically a benchmark for determining performance grades in the stock market.
Therefore, when you are ready to reap the rewards of investing, sign up for our daily e-letter below. The experts at Investment U provide the latest stock trends, analysis and investment opportunities in the market today.
So what does it mean to build wealth? It means you are doing a great job of making money, saving that money and investing it properly.