Wealth should interest the person who wants freedom because wealth gives you options. As it says in Easy Rider, it is hard to be free when you are bought and sold in the market place.

I have investigated the difference between people who are wealthy (as opposed to high income) and those who are not, and have found one key difference.

The difference is that the wealthy invest for the long term, and those who are not wealthy (irrespective of their income – this includes some very high income earners) – do not. Investment may be in stocks, real estate, businesses or other assets – anything that increases in value and produces income. That seems simple and obvious, but it isn’t.

The high income earner who is not an investor is simply another middle class wage slave. I have seen them before – they achieve a high income but it never really translates into financial security because tax takes so much of it.

Many people are searching around for the next job, investment opportunity or trading course that will make them wealthy, but this confuses short term income with wealth. Wealth is something that grows like a plant – certainly it needs nurturing and care but it also happens without your second by second involvement.

One other key element is that wealthy people use leverage. This means that they multiply their efforts and capital by using the efforts and capital of other people, whilst retaining control.

They leverage effort by focussing on what their core strengths are, whilst employing other people for non-core areas. This is similar to how a large corporation outsources its cleaning or IT to another company. A wealthy person will use an accountant to do book keeping, and even employ people to help out with household tasks if it allows them to focus on what they are best at.

They leverage money by having access to lines of credit for investment purposes. The interest is generally a tax deduction. This is important to the wealthy person as tax is one of their largest expenses. The wealthy person seeks to convert income into assets, and leveraging money is the way that they do this.

The wealthy person invests in assets that they understand, and they are not frantically buying and selling at each rise and fall of the markets. They tend to diversify to spread their risk over a range of sectors and take close personal control of their assets, not thoughtless relegating this task to someone else. Their aim is long term capital gain (which they can realise by borrowing against their assets) and income (preferably in a tax reduced way).

If you are going to be free, it is important for you to achieve wealth to avoid being another victim of the system and to be able to live life on your own terms. This means that you, as a free person, must become an investor.

Tags: investment, secret of wealth, wealth

This entry was posted on Saturday, September 27th, 2008 at 9:29 pm and is filed under Wealth and work. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.