What is Wealth Creation

Posted on 22. Mar, 2012 by in Wealth Essentials

What is wealth creation

I love the concept of wealth creation, but it can be interpreted in so many different ways.  Some people think about making money, others about collecting assets and more still about their health and life wealth.  I spend a lot of time thinking about it myself and while I feel that all of these things contribute to my overall wealth I’ve never really been able to define an approach to what is wealth creation.

Wikipedia defines wealth as the abundance of valuable resources or material possessions, basically this means that you are considered wealthy if you have a lot of something that others value.  What Wikipedia and many other sites don’t tend to tell you about wealth creation is how to get these things.

How to create wealth

I really like describing things in simple terms, I also like to see things instead of just having them explained to me.  For this reason I’ve come up with a very basic equation to describe wealth creation as I see it.

wealth equation

OK, so the term ‘equation’ is probably a little too grand in this case, if you don’t like it call it something else.  What I’m trying to demonstrate is an approach to having anything you want using a method that will never fail.

This is not as simple as it sounds and while it might not look too sexy, if you approach wealth creation in this way you can not miss.

Let’s take a look at some examples

 Earning money

Everyone is interested in money to a certain extent and the way most of us make it is by working for someone else.  If you are really clever you may find a way to do it for yourself, but fundamentally you still rely on other people to pay you.  In order to create more financial wealth you need to get better at what you do, learn new skills and offer something that others are willing to pay for.  It takes time to develop these skills and there are generally few shortcuts, however if you stay focused on your goal and work towards it with a consistent approach your chance of success over time is pretty high.

Saving money

My wife and I have saving accounts for just about everything and we stash away small amounts with every pay.  Individually these amounts aren’t very impressive, but over time they can make a huge difference.  This is the most basic and absolutely the most effective way to grow your financial wealth and have the things you want without getting into trouble.  Consistency is the key, not just in saving, but also in watching what you spend as well.

Making money

You may disagree, but I feel that earning money is quite different to making money.  Making money tends to suggest it is just appearing without the need to earn it first, it probably comes as no surprise that I’m a huge fan of this theory too.  I think that this is completely possible to realise, you can see it through compound interest on your savings, where the interest on the money you have saved begins to make money all by itself.  Sometimes it is easier to see (and can happen faster) through the returns you receive through various investments.  Once this begins to happen, you are well on your way to a comfortable retirement.

Maintaining your health

Ask anyone that does regular exercise an they will tell you that consistency is the key to success.  Skipping sessions and trying to make up by doing more later will not get you the same result as the one you get with a consistent approach (this is exactly the same result you get if you put off saving and investing as well).  Find ways to get motivated by doing the things that interest you and will get you out of bed, off the couch and outside.  Do it consistently and you will never need to worry about that aspect of your life wealth.

Having the things you want

Applying the wealth equation to this area of your life can impact your life in a major way.  In a society where the emphasis is placed on instant gratification, the ability to understand your financial position and live within your means will give you a huge advantage over the long term.  By all means I think that you should have the things you want, but you can’t have all of the things all of the time.  Find creative ways to have them without negatively impacting your finances and you will feel a whole lot better about them too.

Doing the things you want

I think that doing what you want is a great driver, but it can also cause some serious wealth creation problems as well.  If you are unhappy in your job, or can’t commit to doing something then your ability to earn may suffer.  If you want to party or travel, then this is going to impact your savings.  If you want new cars, all the latest gadgets and bigger and better homes, then your ability to make money will likely be reduced.  If you would prefer to sit on the couch, watch TV and eat more calories than you burn, your health and lifespan are going to take a dive.

Don’t let the fear of the time it will take to accomplish something stand in the way of your doing it. The time will pass anyway; we might just as well put that passing time to the best possible use.

Earl Nightingale

Having and doing the things you want is great, but you need to be conscious of your choices and the impacts they may have.  Don’t view it from one side though, ultimately it’s really important that you do what makes you happy.  That very well may be partying or travelling, so go do it.  In fact, do any of the things that I have suggested might impact your wealth negatively if it is going to make you happy, because wealth creation is about you.

I think that wealth creation is about consistency over time, so do the things that will make you happy now and in the future.

What is your approach to wealth creation?

Image by ToniVC

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18 Responses to “What is Wealth Creation”

  1. krantcentsNo Gravatar

    23. Mar, 2012

    A goal and a plan is the surest way to wealth creation. It helped me achieve financial independence at an early age (38 y.o.).

    Reply to this comment
    • Money CactusNo Gravatar

      24. Mar, 2012

      38 is an awesome effort! I had similar plans when starting out, but I’m not sure I’ll get there that soon. By 40 would be nice ;)

      Reply to this comment
  2. maria@moneyprincipleNo Gravatar

    24. Mar, 2012

    Very similar to your approach – in fact I just yesterday published a post on the same theme. What I have been puzzling over thought is what do you do when you are running out of time? What if you don’t start a pension early, can you catch up?

    What I am driving at is that I like your equation but there are missing functions in it.

    Reply to this comment
    • Money CactusNo Gravatar

      24. Mar, 2012

      Hey Maria, good questions. You can make a start any time you like and it is never too late however, you can’t ever really catch up by starting later. Compounding interest is is a pretty powerful tool and even saving a small amount now can be better than much more later.

      I’d love to see a revised equation if you have one, this one is pretty simple after all. Let me know what you think is missing and I’ll incorporate it.

      Reply to this comment
  3. Yes, doing something consistently for a longer period is essential to planned wealth creation. The main question is then what to do. This should be something that you want to do and are able to do. And it should be something that is profitable: more revenue than costs.
    In formula format:

    Wealth creation = wanted profitable action x consistency x time

    Reply to this comment
  4. Very nice article! Yes “making” money is very different from “Earning” money. As far as I am concerned I believe to make money by creating value for users of my website.

    Reply to this comment
  5. Dannielle @ Odd CentsNo Gravatar

    26. Mar, 2012

    I know that if I want to create wealth, I can not blow my money on clothes and shoes. It might make me happy to have these things now, but in about ten years, they won’t be around…

    Reply to this comment
  6. Great points here – consistency over time is what can help generate wealth – though I dont think savings counts (for me, anyway) that wealth had already been created, it was just being reallocated to me

    Reply to this comment
  7. Interesting thoughts about the making vs earning money – I never thought of it that way, but I wholeheartedly agree.

    Reply to this comment
  8. Simple Finance BlogNo Gravatar

    28. Mar, 2012

    I absolutely agree with your thoughts creating wealth needs to be done consistently – things like automatically putting money into your savings account (or investments) at the start of the month has been crucial for my family as we build our financial foundation.

    Reply to this comment
  9. Roshawn @ Watson IncNo Gravatar

    28. Mar, 2012

    I guess my definition is more closely aligned with the one based on assets. I wonder about the exercise example you provided: it seems to meet that if you get slightly off track, your body may not notice, but the culmination of missed workouts is what is the ends up messing you over. I would think the same is true regarding finances: it’s a marathon not a sprint.

    Reply to this comment
  10. Tim JosephNo Gravatar

    30. Mar, 2012

    The post is absolutely fantastic! Lots of great information and inspiration both of which we all need! Also like to admire the time and effort you put into your blog and detailed information you offer! I will bookmark your blog!
    DIY radiant barrier

    Reply to this comment
  11. Debt consolidationNo Gravatar

    04. Apr, 2012

    Personally for me wealth creation starts with watching what you spend your hard earned money on. Debt could pile up like a snowball. It is not about how much you make but rather how much you spend. BTW, great article and good for you guys!

    Reply to this comment
  12. Chris GoldNo Gravatar

    04. Apr, 2012

    I agree with your consistency/time approach as wealth creation can be frustratingly time consuming. The shift to “making money” requires a long term approach and the ability to prioritize saving, investing and getting away from a transient come and go mentality towards spending. Finding consistency may be the hardest obstacle but it will certainly pay off.

    Reply to this comment
  13. Cash AdvancesNo Gravatar

    11. Apr, 2012

    In my eyes the terms ‘wealth creation’ and ‘making money’ are two totally separate things. As making money is just a short term process such as writing an article for money for example. Whereas with wealth creation, personally I see that as a long term strategy such as creating a profitable business.

    Michael

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