What Is Wealth?
Most people believe the terms “wealthy” and “high-income” are the same. Surprisingly, most high-income earners are not wealthy; although they earn a lot of money, they don’t keep much of it. To be wealthy is not to amass material possessions, but to increase net worth by collecting appreciating assets.
The 7 factors of wealth
1. They live well below their means
Control spending by creating an artificial economic environment of scarcity. Pay yourself first by investing at least 15% of income before spending on anything else.
Minimize realized (taxable) income, maximize unrealized (non-taxable) income.
Sacrifice high consumption today for financial independence tomorrow.
Get a mortgage less than twice your annual income.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth
Save and invest early. An early start with low income can outweigh a late start with high income.
Invest at least 15% of gross/pretax income.
Follow a budgeting and plan your finances.
Invest passively with a buy-and-hold method to reduce capital gains and turnover.
3. They believe that financial independence is more important than displaying high social status
Dollars are like seeds; you can consume them or plant them to grow.
4. Their parents did not provide economic outpatient care
The more dollars adult children receive, the fewer dollars they accumulate. Those forced to provide for themselves tend to be wealthier than those who are given financial aid.
5. Their adult children are economically self-sufficient
Helping the financially weak generally makes them weaker.
6. They are proficient in targeting market opportunities
Offer goods and services to the affluent. Although they’re often frugal concerning consumer goods and services, they’re not as price-sensitive about investment services, accounting services, tax advice, legal services, medical care, educational products, homes, and products and services for their businesses.
7. They chose the right occupation
Sell your intellect; it’s portable across industries and geographic locations.