The process of building wealth is both obvious and deceiving. Most people understand one element of building wealth, but not the other.
It looks like this: Wealth = Income + Investments – Lifestyle.
Now, I want to draw your attention to a couple of critical elements.
Notice that “saving money” is not a part of the equation.
Yes, saving money has value. An emergency fund is a great example of the benefit of saving money within the larger wealth-building timeline.
And, notice that your lifestyle is a part of the equation.
In other words:
- income and investments build wealth (over time)
- lifestyle expenses drain wealth
Whatever is left is the wealth that you truly possess.
You will not get rich by saving money alone. Wealth – and I mean serious, goal-accomplishing wealth – is built through investments.
Investments are what make wealthy people wealthy.
The other critical component that most people don’t consider is lifestyle.
Your lifestyle is the “accounts payable” portion of your life. It’s not profit. Your lifestyle (such as your home, your car, the things you buy, the vacations you take, etc) all need to be funded. Your lifestyle takes away from your wealth.
And, this means something brilliantly simple: the more that we control our lifestyle, the more of our income + investments become profit.
The more money we keep.
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