Monday, April 4, 2011

I wanna be Wealthy!!

Wealth, why do I find the creation of wealth so important? A few years ago for no apparent reason I suddenly thought “Shit, very soon not gonna be a teenager anymore and I’m still living completely off my parents” I need learning how to make money, and that was where it all started.

My parents might have mentioned the importance of wealth to me once or twice but unfortunately I was never really thought how to create it. I had to learn for myself. The formula was always, go to med school, graduate and work as a doctor and you’ll be comfortable. Well I do not want to be just comfortable. I want my great grandchildren to be comfortable as well.

The idea of wealth is an interesting one.
Oxford dictionary defines it as an abundance of valuable possessions or money.
Rich is defined as having a great deal of money or assets.
Hmmm abundance vs great deal, go figure.

I cannot remember where I read this from but I remember somebody described wealth as the length of time one can survive from the day he stops working. So a person might be rich but he might not be wealthy. Lets say Mr A has a million dollars and decided to stop working. However, he has 500 000 dollars in debt that he has to pay off. On top of that he has a few cars to maintain and a lot of other expenses as well. So in half a year he would have depleted his money. Mr B on the other hand only has 500 000 dollars but has no debt and lives a modest and down to earth life, his half a million dollars can easily last him a few years. Hence, Mr A is technically richer than Mr B but Mr B is wealthier. I hope that makes sense.

So how do we amass enough wealth to feed our children’s children? I personally think the key is passive income.

An active income is income you get from working your day to day job.
A passive income is income you get from the sides. i.e. investments and businesses.

Say me, as the unintelligent investor. My active income would be generated by being a doctor. With that active income, I invest in different companies. Maybe I set up a few businesses with some friends. Maybe work my way to be on the boards of different companies. So with my active income, I will have to do different things to generate passive income. By doing that, I am making money work for me instead of working for money. If I ever get to the point where my passive income is greater than my expenses, I technically can stop working for the rest of my life. Now that is where we all want to get to. That is probably as wealthy as you can get.

I think in this day and age where opportunities arises everywhere if we look hard enough, trading our time or expertise for money is inadequate. We all need something more.

So how are you creating passive income and building your wealth? For me, I’m educating myself and experimenting in the share markets. I’ll most probably get into commodity trading and property investing when I have enough of an active income to support it. Are you doing anything about it? Are you happy with making money from your day job only? Do drop me comments or send me emails. I am more than happy to read about your thoughts and ideas.

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  1. I am pretty sure that definition of wealth is from Stanley and Danko's 'The Millionare Next Door' or if not then at least they present the same idea.

    - Joel.

  2. Haha thanks dude, I can remember where I read it.