Building Wealth

Cnnfn has been publishing short biographies on people they consider, “Millionaires in the Making.” The stories are generally centered on the real estate investment accomplishments of the folks in the stories, and while the stories can be somewhat gloated at times, there are lessons to be learned.

The primary lesson is the poignant fact that wealth is generated through ownership. It is the ownership rights to the cash flows and equity growth of appreciating assets that builds wealth.Many people equate wealth with a high paying job, and put to the right use, that income can produce wealth, but the high paying job in and of itself does not constitute wealth. This is a very clear distinction. Thomas J. Stanley and William D. Danko make this distinction clear in their book, “The Millionaire Next Door,” when they define the difference between “Income Statement Affluent (ISA)” and “Balance Sheet Affluent (BSA).” In short, “Income Statement Affluent” individuals have big incomes and generally big debt. “Balance Sheet Affluent” individuals own the rights to appreciating assets that produce cash flows. The rights to these assets generally lead to big incomes, but the distinct difference between the ISAs and BSAs is the BSAs own the rights to their income, and the ISAs must always make an exchange for their income. The primary form of exchange is their time offered through employment.

The knowledge of these facts should spur anyone to action in acquiring cash flow producing, capital appreciating assets. The following are examples of assets that appreciate over time and provide cash flow:
(this list is no way exhaustive)

- Mutual funds
- Dividend paying stocks
- Real estate
- Ownership of a business
- Copyrights and Patents

While it is very obvious the acquisition of any asset requires capital and risk tolerance, this alone should not be your defeat. The creative and desirous mind can accomplish great things. Mutual funds and dividend paying stocks can be purchased by virtually anyone, and many brokerages now allow you to purchase incremental shares in order to allow you to invest small amounts over time (see http://www.sharebuilder.com/).

Real estate on the other hand generally will require some form of up front investment to purchase a rental property, but if you already own a home, you can borrow against your home equity to provide a down payment for a rental property. In the beginning, if your rental property breaks even you are doing well. Over time the cash flow will increase and equity will grow, thus providing you with a great source of income and wealth.

In your search for financial security, remember that ownership will create the most wealth and security in the long-term. Manage your income well, and invest your excess income into wealth creating assets. Twenty years from now…you’ll be thankful you did.

The following are related links to this article:

Cnnfn - Latest Story

http://sharebulder.com/

Edward Jones Brokerage

Google - Real Estate Investing


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