The way wealth is built …

Damn, I had just finally trashed (and, I mean that in the nicest possible way) the Tycoon Report article that I had excerpted yesterday and the say before … after all, there is such a concept as “too much of a good thing” …

But, I wanted to cover the basics of making money today – hence, my digging the Tycoon Report Article out of my trash (a third time!) because the author, Jason Jovine, just happened to have summarized it really nicely in that same article:

Let’s start off today with a very short, simple lesson on the basics of money.  The way wealth is built is based on just a few things …

1.  How much you make (your income).

2.  What your expenses are.

3.  How you invest your money.

(I am of course not factoring in any inheritance or gifts that you may receive; they are just icing on the cake.)

The key here is to focus on the words “the way wealth is built” … here, we are talking about making money.

And, to make lots of money, if boils down to a ‘simple’ formula:

fn{a($Income – $Expenses)} x fn{b(%Returns – %Expenses)}

Now, I haven’t done maths in 20+ years, so the formula (mathematically speaking) is cr*p, but the principle is this:

Your wealth is some function of how much you earn (less what you spend each year living, etc.) together with some function of how and how much you invest (less any expenses involved in ‘investing’).

This means that there is more than one way to skin the ‘get rich’ cat; for example:

1. You can earn a sh*tload every year on your job (say, $250k p.a.), save a huge % of it (say 35% pre-tax), and invest in a bunch of off-the shelf products (e.g. mutual funds, ETF’s, etc.), taking into account that you will only get circa-market returns (stats say, usually less) and carry some costs (averages 1% – 2% of funds under management, hopefully all tax advantaged at least until withdrawal).

2. You can earn an average salary every year (say $50k p.a.), save a reasonable proportion of it (say 15%, preferably pre-tax) and amp up the returns on your investments (carrying some additional risk in order to do so) … I say ‘some function’ because you can (and should, IF getting rich on a small salary is your prime concern) borrow as much money as you believe that you can handle to increase the upside (of course, you again increase your risk).

3. You can increase your income (e.g. start a full or part-time business, with all the attendant risks) and then invest per 1. or you can amp it up (again) and invest per 2.

There are many combinations, hence strategies, available – obviously increasing your income and increasing investment returns greatly increases your chances of getting rich(er) quick(er)! As does lowering both your personal and investment expenses.

Now, the article’s finally toast!

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