Investing is The Ultimate Path to Wealth

Some people just to things differently than the rest of us.

 

If you’ve read the book “Rich Dad Poor Dad” by Robert Kiyosaki then you already know how the wealthy use their time and resources.

What Is Leverage?

 

In a nutshell, the rich tend to invest their time into building assets, and then leverage these assets over and over again. Most people generate income by swapping their time for money, and that’s a less effective way to build wealth.

 

The fundamental principle underpinning the path to wealth is that of financial leverage. There are limits on how much money a person can make as an employee or small business owner, as they are essentially stuck on a treadmill, swapping their time for money. Since the total amount of time we have is limited, so is our ability to make income using only our time.

 

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Small business owner and employee are both trading their time for money in a very linear way; the factory worker and the lawyer are directly swapping their time for money – just for different amounts.

 

What About Business Owners?

 

The same can be said for the small business owner and the self-employed. An ambitious consultant, for example, who charges $300 per hour is still “stuck on the treadmill” when it comes to wealth creation, because he only gets paid when trading his most valuable commodity; time.  If the high-paid consultant isn’t able to swap time for money, perhaps due to being sick, going on holiday, or simply being unable to find clients – his income stops.

 

Can You Leverage Time?

 

The big business owner or an investor, in contrast, has time leverage – and it’s this leverage that leads to true wealth. When you build an asset- say a published book for example- you can then leverage your initial effort multiple times to generate passive income.  The book can be sold month after month, without having to create anything new.

 

While might have taken an author hundreds of hours to write a book, if the author subsequently gets paid a $2 royalty on each book sold and sells 10,000 copies each year, that’s a passive income of $20,000 – meaning that he’s rewarded multiple times on their initial effort.

 

This it the path to true wealth and financial freedom, because the individual is now managing assets, rather than trading time for money.

 

Investor Benefits

 

Similarly, investors leverage their financial resources in order to make money – they might spend some time to review different cryptocurrency exchange platforms in order to invest their money wisely, but in doing so they aren’t directly trading time for money in the same way most people do that are employed or self-employed.

 

You can select the level of risk you’re willing to take, and that may vary greatly from one person to another.

 

The investor is ultimately leveraging their assets; meaning they have their resource of money working for them, rather than them working for it.  To understand the magnitude of how wise it can be to start investing, rather than trading time for dollars, think of how much a $1,000 of bitcoin would be worth today if you had bought it a few years back.

 

Make the Effort

 

Creating a passive income model takes a big investment of time, but remember that you can earn a payoff for years into the future. Consider building wealth with a passive income source.

This post is for educational purposes only.

 

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

Co-Founder: accountinged.com

(email) ken@stltest.net

(website and blog) https://www.accountingaccidentally.com/

(you tube channel) kenboydstl

 

Image: Bullseye, Jeff Turner CC by 2.