Chops Money

How to Build Wealth, Part 3

Tuesday, May 5th, 2009 | Uncategorized

Own Things That Produce Cash Flow or Appreciate in Value

Once you’ve learned to spend less than you earn (or earn more than you spend) you should start to see money piling up in your bank account.  But this isn’t the end - that money is sitting there doing nothing!  Your money is like a little army of dollars and you are the general.  It’s up to you to deploy it properly, so that it starts earning more wealth for you.  Lazy money that relaxes in a checking account earning 0.0001% interest doesn’t build wealth.  You need to use it to own things that make money.

The debate over what money producing things to own is vast and never ending.  Some people love the stock market, some hate it.  Some love owning real estate, others would never touch it.  In my opinion, there isn’t one asset to own that’s better than the rest.  The only thing I know for sure is that you need to own something.

That ”something” doesn’t even need to be tangible.  Owning skills or knowledge is a great way to make money.  Another way to do it is to own things that produce no cash but are likely to appreciate in value.  This means that owning gold, a stamp collection, or antiques are all viable ways to get wealthy.

Once you own things that produce money you can take advantage of compounding.  Compounding is where you take the money produced by an asset and use it to buy more of that asset.  It seems like a simple idea, but it’s really a game changer when it comes to building wealth.  It changes the math behind making money from something linear (such as I’m saving $500/month) to something exponential (I’m saving $500 this month, $600 next month, $700 next month, etc.)

Exponential math is what causes flu pandemics.  It’s what causes viral videos on YouTube.  It’s what is taught in elementary school math class as A Penny a Day Doubled.  And it’s what can make great wealth.

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