The Concept of Wealth
Updated: Jan 12
Wealth is a measure of assets, or the total number of things you own. And wealth grows because access to money provides access to better opportunities. Thus, money makes money. It's a fairly well known concept, but what goes largely misunderstood is the idea that income should be derived from wealth. This means the majority of the money you earn should be a consequence of something you own, such as a business or real estate.
401k and IRA programs are a great examples of growing wealth through the ownership of assets. Investment accounts such as this require an individual to deposit small monthly payments over a period of time, and the money is then invested into stocks, bonds, and other assets. Over time, the assets rise in value compared to the value of money, so they can be sold at a higher price than they were purchased which results in a profit for the investor.
This happens for two reasons: (1) assets have the ability to rise and fall in value over time based on their intrinsic value and (2) the value of money declines by roughly 2% each year (loses roughly half its value every 32 years).
The common misconception about money is that a person should have a checking and a savings account; the money used for expenses goes in the checking account and the rest is saved in the savings account. All excess money put into the savings account is deteriorating because of inflation.
People need to own assets to both protect the value of their money from inflation as well as increase their own wealth. The easiest way for the average person to do this is through real estate ownership and investing in stocks and bonds through a money manager.