How The Wealthy Are Defined: 4 Standards Of Wealth
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Many people eager to grow their wealth will wake up every day in the morning and just work hard. In fact, every story of people who have made it in life experiences often encourages the notion of hard work. But average net worth is more than that in fact, it’s got very little to do with average income.
It is possible to be rich and still not be wealthy. After all, when we define wealth using a certified financial planner, there are so many things to consider. Besides, measuring wealth using average income alone can create a very distorted view of net worth.
In this post, we are going to give you tips on how net worth is measured and how this differs from income. We will also have some ideas on personal finance and some of the things you can do to escape wealth inequality through positive financial habits.
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How the Wealthy are Defined: Net Worth vs Income
Wealth inequality is often misunderstood as income inequality. There is always this mistake of using income net worth as a measure of wealth. This is a big mistake. You see, net worth refers to the summation of the total value of assets minus the total liability. In essence, total wealth is total assets minus debt. Assets can be anything including property, stocks, bonds, and so on. But with low stock market participation in most countries, consumers perceive wealth as mere income.
Nonetheless, what is Income anyway? Well, income is the total amount of money you make minus expenses. When married taxpayers filing jointly in tax returns indicate the money they have made in a given year, they include the gross amount earned. This is not income. Your income will be the average annual wage made minus all the expenses, including the taxes paid to the government.
Sadly, the economic policy institute notes that income funds are often heavily taxed compared to assets. In essence, it will be much easier to create generational wealth and get money value if you got paid in assets as opposed to real cash. Despite this, it is important to make it clear that wealth and income are often intertwined. You see, as a person, you actually need money to build wealth. How else are you going to buy assets if you don’t have surplus capital?
So, while income is not often used to calculate net worth, it is one of the most important things that can either lead to wealth or scarcity. For this reason, the first step towards becoming a wealthy person should be to increase your income as much as possible. This can be done by diversifying your revenue sources or by reducing your expenses in the long run.
Standards of Wealth
Wealth can be measured in several ways. But to be honest, there is no simple or straightforward option. After all, there are many factors that can affect your ability to build wealth. Besides, it is possible to be wealthy in one country and not so much in another. The key to measuring wealth is to avoid the comparison between individuals.
As you know, wealth means different things to different people. Instead, always look at the success of your journey to strategic wealth. If the sum total of your assets minus liabilities is above $1 million, then you can consider yourself wealthy. This does not include the income perspective.
However, you still need money management to build wealth. After all, everyone needs money to buy assets. So, if you have the chance to increase your net income, go for it. That way, you will have enough surplus capital to buy scarce resources and other assets for future generations. Nonetheless, here are some additional factors that may suggest someone is wealthy or on the road toward wealth.
#1. Owning a Property
The first thing you can do in your wealth journey is to buy and accumulate hard real assets. Real estate has in fact been described as the best investment you can make for two main reasons.
In most cases, real estate will often increase in value and there is also the chance to make money through rental income. There are however several day-to-day costs of running a real estate business including taxes on the property. But it is a very effective way of building wealth without changing your spending patterns.
#2. Buying Stocks
The stock market these days is open to everyone. You do not need any special permits or huge amounts of money to buy shares. Sadly, the vast majority of people out there don’t buy shares.
This is probably because they don’t know how to do it or maybe they do not trust the market. But either way, owning stocks with the right financial plan can help improve an individual’s income and meet commonly held definitions of defining wealth.
#3. Opening a Fixed Deposit Account
Instead of amassing savings in your regular account, you can consider opening a fixed deposit account. These accounts are defined as assets and they can earn you some decent interest every year. Although this is not the same as an individual’s assets, it’s a way of getting more money without taking a lot of risks.
However, rising inflation can make the idea of amassing savings very risky. This is because the rise in inflation often makes the money held in your bank account relatively worthless. On the flip side, if interest rates go up and inflation comes down substantially, the money locked in fixed accounts can become extremely valuable.
#4. Reducing Debt
Getting to a net worth of 2.6 million dollars can redefine success for a lot of folks. But you will not be able to get to this level if you are full of debt. Even if you have a high income and you start investing right away, as long as you have debt, you can forget more security. There are many ways to reduce debt and have fewer liabilities.
First, cut your spending on designer clothes and other luxuries. Instead, use that money to buy assets under unique circumstances. Also, get a financial planner for the upper class to help you with ideas on how you can invest your money and become a high-net-worth person.
Different planners have different skills but in essence, they allow you to stop worrying about money and focus more on building your wealth. Also, these experts can help an individual filer in underrepresented communities and other demographics to take advantage of tax benefits for more growth.
