Building The Wealth Generating Mindset

When most economists talk about building wealth, most people think about having enough money to go on luxurious vacations, buying a big house, and dressing in the latest fashions. These people think about enjoying a gourmet breakfast at 11am, served on Irish linen table cloth, and complete with Maine hand churned butter.

Until they receive a rude awakening in the form of a brutal reality check. This reality check comes in the form of an illness that drains the family’s savings, a job loss from downsizing, or a disaster like identity theft.

At this moment, people realize that wealth is the money accumulated to protect you from poverty – that is all. More people are learning that they cannot rely on a corporation for their job security and financial stability. They need alternative streams of income, and viable methods of supplementing their income.

Assets

Wealth does not come from the accumulation of cash, but from the accumulation of assets. Most people do not understand the difference between income and wealth. A large salary does not mean that you are wealthy. Living in a huge home, with a huge mortgage, does not mean that you are living the good life.

Real wealth is a combination of saving, budgeting, reducing debt, investing, and setting financial goals.

The first thing you need to do is calculate your net worth. Subtract your liabilities, like your debts, and you have your wealth. Most people can become extremely wealthy just by paying off their debts, especially their mortgage.

There are thousands of people struggling to earn more money, while their mortgage hemorrhages their wealth on a monthly basis. If the value of your home is $200 000, and you owe $100 000, then your wealth is $100 000. However, if you pay off your mortgage, your wealth increases by $100 000, and, the interest you’d pay every year between the pay off date and the original termination date. Paying off a mortgage ten years early, can save many homeowners $20 - $50 000, much more than they would ever make with the average stock portfolio, or operating a home based business over the same period of time.

Free Money

Most people do not want free money. They do not take advantage of perks like tax deductions for people who operate a home based business. They ignore their 401(k) or 403(b) retirement funds. They leave money in their bank account instead of investing it, or even putting it in a savings account.

Spend Smart

Two households can earn the same income, live in the same sub division, and enjoy the same standard of living. However, one family can do it for $2 000 - $5 000 less than the other family. The number one enemy of wealth is therapy shopping, or shopping as a form of entertainment.

This also goes for people who operate a business. Recently a woman told me she invested $10 000 in her business buying things she believed she needed, all because she landed a $125 000 account. Unfortunately, every dollar she spent reduced her long-term wealth by $2 - $3.

If you spend $1 today that should have been invested, then over twenty years, the interest and profit could have been compounded 2, 5, 10, 100, or more times.

That means, the $10 000 this woman spent ‘for fun’ at 30 years old, may have ultimately earned her $30 000 and even $100 000 before she retired. That is an expensive shopping spree.

Reduce Debt

On the same platform, every dollar in debt drains your wealth by the amount of interest paid yearly. If you borrow $1, do not consider it as $1. Instead, think of it as $2.50 that will have been paid – capital and interest – in five years.

You do not pay sticker price for a vehicle at $30 000. Instead, you pay $45 000, the price of the vehicle, plus the interest paid.

Mindset

All of these things are part of a mindset that enables people to think in terms of building wealth. The good news is, you can also develop that mindset.

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