Monday, April 09, 2007

Building Your Wealth

As you begin to develop these attitudes and habits regarding your finances, you will eventually meet your financial goals, no matter how modest or ambitious they may be.

First of all, believe that you can achieve these goals and create wealth for yourself. By developing the habits of budgeting, saving and investing, you will be able to either pay off your debts, send your kids to good schools, start your own business, save for retirement or all of that and more.

What this article about is building financial wealth and what it should mean to you. The first thing to do is understanding the meaning of assets, liabilities and net worth. These three make up the simple formula of:


The kind of asset that you need to have is what’s called a wealth-creating asset, that is, something that generally increases in value or earns interest, such as:

• savings account.

• retirement plan.

• stocks and bonds.

• real estate property

A liability is called debt, which is money that you owe. They come in forms like:

• mortgages

• credit card balances

• loans (car, student, etc.)

• medical bills.

The difference between assets and liablitily is called net worth, and this is the measure of your financial wealth. The general idea is that your assets should be able to cover your liabilities and leave enough so that you are able to meet your financial targets.

So how do you do that? Three words:




Set goals

To start making money and keeping it, you need to set goals for yourself. Make a set of short-term goals (e.g. earning $6,000 in 4 years for a down payment to a house) and long -term goals as well (e.g. having $5,000 a month to live on in your retirement).

The more specific your goals are, the easier to assess how near or far you are in achieving them. In setting goals, be realistic and set a clear time period in achieving them. You also need to devise a plan of action to reach these goals while at the same time being flexible enough to be able to change goals and plans as you go along. Your plan should be framed around the things mentioned below:

Create a budget (and stick to it)

By creating a budget and keeping to it, you will be able to see where your money goes. This means setting aside a specific amount for specific expenses (for example $250 for rent, $50 for vehicle maintenance). This is usually made on a monthly basis. Another thing that a budget helps you do is seeing to it that you don’t spend more than what you make as well as finding ways to use your money that can increase your wealth.

To develop your budget, you have to figure out what your monthly income is and from that assign specific amounts to the expenses you make each month. It will also mean you have to keep track of your expenses to see whether you are following your budget. By knowing how much money comes in and knowing how it goes out as well will put you in control of your money, which is the first step in building your wealth.

Save and Invest

In addition to meeting your expenses, your budget should have an amount set aside for your savings. This, after all, is what you’ll be building your wealth on.

So now that you’ve set aside an amount to save monthly. Where are you going to put that money? The answer lies in investing or putting your money to work in order to make more money.

An investment is anything you’ve gotten yourself with the intentions of gaining benefit or income in the future. Investments increase by either making money for you (through interest or dividends) or by appreciating (gaining) in value over time. The money that is earned or the appreciation in value of these investments are what increases your wealth.

Investing can be very tricky as good ones will make you money while bad ones will lose you money. So be sure to do more than your fair share of homework and gather as much information as you can. Consider how much work you’ve put into getting your savings together, and match that effort in deciding which investments to work on.

This is just the beginnings of your plan to build your own personal wealth. Over time, the need to develop more complex strategies will arise. But they will never stray far from these three basic principles. So even as you start small, stick to the program. As things look up, you’ll be able to see just how far you’ve come and the contentment will be all the more satisfying.

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