The secret of creating wealth is simple. You need to save enough money year on year and invest this money so that its value increases. The formula is very simple, savings equals income minus expenses. The more income you earn, the more you can save.
Most people are interested in building wealth so, in this article, you are not going to learn how to make money but instead what to do with the money to increase your wealth.
Firstly you need to know the difference between Assets and Liabilities.
Assets put money in your pocket and liabilities cost you money. The more assets you have making money for you the richer you are.
Wealth gives people a sense of security. The philosophy behind it is the more money you have, the more secure your future will be. That life will be easier and be more stress-free because you don’t have to worry about money and the things that money can buy.
ASSETS THAT ARE MAKING THE RICH GET RICHER.
Cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and finance, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately (as in the case of money market accounts).
Cash in a bank deposit is earning you interest while the downside of this is that the interests paid by the bank these days isn’t keeping up with inflation but cash is still a priority.
Rich people keep a large portion of money in reserve for two reasons:
Firstly, in order to be able to access any opportunity that presents itself, for instance, the deal of your dreams is in front of you and you don’t have the money to take advantage of it and this is one of the main reasons rich people save cash.
The second reason is that they can get higher returns straight from cash deals.
It is also important to have cash because it later becomes the payment for things that make your business run: expenses like stock or raw materials, employees, rent, and other operating expenses. Positive cash flow means your business is running smoothly.
2. Real Estate.
When it comes to making money in real estate investing, there are only a handful of ways to do it. Though the concepts are simple to understand, don’t be fooled into thinking they can be easily implemented and executed.
People prefer investing in real estate for two reasons:
Money is coming in every single month with a minimum amount of work, if you are a bit smarter you can take advantage of the technology improvements happening right now.
Population numbers are going up even with the coronavirus outbreak, more and more people are looking for a place to live and rent.
The demand is increasing so prices for properties are constantly going up and they forever will, making real estates one of the best investments one could possibly make.
In terms of real estate investments you have:
- Residential buildings, people living in your properties, and pay rent.
- Office buildings, people work in your property and pay you rent.
- Commercial buildings, businesses use your space to sell stuff and pay you rent.
- A land which can be cultivated, developed, or even left as is for appreciation.
Keep in mind that the house you live in isn’t an asset but a liability because it costs you money to live in it while it’s not putting money in your pocket.
There are three primary ways investors could potentially make money from real estate:
- An increase in property value
- Rental income collected by leasing out the property to tenants
- Profits generated from business activity that depends upon the real estate.
When government or businesses might be in need of cash they can issue something called bonds, which get sold to the interested investors.
Bond funds make money from the interest earned on the securities they own or by selling those bonds at a profit. Similar to individual bonds, bond funds provide investors with the opportunity to collect these interest dividends and capital gains or to reinvest them back into the fund.
Through these bonds, the government or businesses vows to pay the person buying the bonds a certain amount of money every month.
Generally, bonds have an expiry date on them from one month up to 30 years, these are super secured investments because they are most likely backed by the government, as you know low risks in business translates to low rewards as well.
Bonds are usually in a 3% yearly return range which is much more better than what banks offer but not high enough to get a beginner investor excited. When a bond reaches its end the principle amount is returned to the investor.
There are main ways people buy bonds which are:
- Directly from the treasury department.
- Through a brokerage firm.
There are two ways to make money by investing in bonds:
The first is to hold those bonds until their maturity date and collect interest payments on them. Bond interest is usually paid twice a year. The second way to profit from bonds is to sell them at a price that’s higher than what you pay initially.
Stocks are an easy way for you to own a % of a publicly-traded business, if a business issues R10 million shares and you own R1 million of those shares it means you are a 10% owner in the business.
This incredible breakthrough in financial instruments has allowed the average person to own a stake in some of the lucrative companies of our day with a very low entry barrier.
Can you make money in stocks?
Yes, although it’s possible to make money on the stock market in the short term, the real earning potential comes from the compound interest you earn on long-term holdings. As your assets increase in value, the total amount of money in your account grows, making room for even more capital gains.
Anything that generates money for you or helps you make money faster is considered to be an asset. If you are a farmer the tractor is an asset, a programmer means a laptop is your asset, or if you are an uber driver it means your car is an asset.
Businesses are all about staying ahead of the curve, whether you’re a farm owner or a delivery business owner or a restaurant head or even have your own fitness center. You need to be ahead of everyone in service, product, quantity, quality, and finances, and normally business owners get snagged on the last one.
Whether or not something is an asset or a liability changes depending on if it had a direct correlation to the money you are generating unless your income is directly dependent on a car, buying one counts as a liability.
It’s quite often that people confuse the two because they try to justify it as an asset when in reality they just mismanaging their own finances due to lack of self-control. You don’t need the most expensive laptop on the market to watch youtube videos.
People are making money with equipment leasing because With a lease, you get additional benefits like tax deductibles to put money in your pocket as well as additional options for upgrades over time, giving you an advantage versus if you bought the equipment.
The key to determining how to make money with equipment leasing is knowing what you want out of the leases you get on equipment.
Trademarks protect symbols, words, or phrases its quite obvious why this is a big deal when it comes to a logo or the name of the brand.
But registering a trademark isn’t just an opportunity for entrepreneurs to preserve all of their hard work from getting used by another company – it’s another way to make money too.
People tend to confuse the two between trademarks and copyright, copyrights are used to protect literary and artistic works such as songs (music, lyrics, studio recordings, live performances), artwork, poems, books, and manuscripts, etc. while trademarks are used to own a company name, logo for your business, or slogan or phrase that you use in the marketplace to identify your business.
If you own a valuable trademark that has a marketable value you can license it to people to use for commercial purposes and they pay you in return.
You don’t realize how valuable assets people are until they leave, very few people understand that companies aren’t actually real.
Companies are just figments of our imagination validated by our states because companies are just names, ideas, and innovation happening under this imaginary umbrella, and who comes up with all of this?
It’s the people, a single person can shift a company with ideas as long as you hire the right people they will make you rich.
Employees are a company’s greatest asset – they’re your competitive advantage. You want to attract and retain the best; provide them with encouragement, stimulus, and make them feel that they are an integral part of the company’s mission.
In conclusion, the rich get richer by putting money into work, because they don’t spend spontaneously, nor invest spontaneously. They take their time to assess their alternatives and then stop along the way to reassess them.
They choose investments that predominantly have some kind of yield, like dividends, and then reinvest them over time, earning dividends, or other types of yield and the reinvestment thereof contributes more to overall growth than capital growth.
So, it is important to not move in and out of investments without good reason. If you fixate on short-term performance, you will end up buying high and selling low.
And pay careful attention to costs. Your returns are going to be enhanced by whatever costs you can save. Costs are not only the fees you pay, consider things like tax, which could diminish returns.