Wealth is defined as the accumulation of vital resources and is found by taking the total market value of the physical and intangible assets and subtracting all debts. It is usually a mix of inherited and accumulated assets. Investing is one of the main ways wealth is accumulated whether through real estate, investing in a business or the stock market. Going back to biblical times The Parable of the Talents in Matthew 25:14-30 specifically talks about the wise men who traded their talents in the exchanges, both making a sizable profit. The fool hid his talent where it could not grow and his master was not pleased.
Many people do not understand the importance of financial literacy, accumulating wealth through investing and passing it down to their children and future generations. Proverbs 13:22 specifically says a good man leaves an inheritance to his children’s children. Our children and each successive generation should not have to create all of their wealth from scratch.
For most of us, creating wealth is a challenge as poverty levels continue increasing and the middle class in our society is on a continual decline. The media and popular culture glorify excessive spending and living above our means. For many Americans, the modern mindset involves making as much money as you can — only to spend it frivolously on items that depreciate in value.
Below, I describe four of the key wealth building practices and fundamental ways of accumulating wealth.
1. We must change our thinking on debt and spending, understanding the fact that wealth building is not going to be an overnight process. There needs to be an overwhelming desire to make serious lifestyle changes and be 100% committed to exercising control. That is the first step to building wealth and your ability in doing this will set the stage for powerful changes in your life. Goals and plans must be written as well as action steps put into place to achieve them. The action steps should be reasonable enough so that the positive habits can be formed which will in turn help you achieve your goals. One of the plans should definitely be a monthly spending budget. Living beneath your means is absolutely necessary and it will allow you to save money and prepare you for the next steps.
2. Getting out of debt is the next step to building wealth. Starting first with high interest credit card debt, then paying off any student, car and other lower interest loans including your mortgage (if you have one). Excessive debt and bad credit could keep you from qualifying for a home loan and will give you considerably higher interest rates. Increasing your credit score and continually monitoring your credit report can play an important role in wealth building.
3. Once you have gained control of your spending and paid down as much debt as possible, saving must be a consistent and continual part of your overall plan. Having at least six months of savings and planning for emergencies is key to not falling back into a debt stricken situation. Producing multiple streams of income is also recommended and could ensure that your income is always greater than your expenses.
4. Investing is the next step in wealth accumulation. Owning your home and making sure your budget will allow for the mortgage and all other incidental expenses is very important. Next, properly managing your 401K and/or other retirement accounts is key to successful investing. Many people do not understand the basics of managing their accounts and have not prepared for the day when Social Security could be substantially reduced or even eliminated. Next, starting an investment account early either to help fund your children’s education or build your own savings, plus keeping low-cost life insurance is important in establishing generational wealth. Finally, educating your children early on about these wealth building practices will prepare them so they continue building on the foundation you set.
Allow Legacy Investing & Wealth Management to give you advice with specific strategies on accumulating wealth through investing in securities, or simply let me manage your investment portfolio. Contact me today.
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