Money is a topic that has broken up marriages, split up friendships, and driven wedges between people. It is the thing people both love and loathe. It seems, these days, that money is harder to come by and yet the cost of living is still rising. People play the lottery in hopes of winning millions. Others hope for riches to make their problems go away. Some will lie, cheat and steal to get it. But what is money exactly? Having money and being wealthy are two different things. As we work on building our wealth, we must understand the difference.
What Money Is and Isn’t
We need to define what money is and what it isn’t. When we talk about wealth we aren’t talking about money, we’re talking about worth. Money is one component of it. When we talk about being rich, we are talking about having a large amount of money.
Money is essentially cash and cash equivalents that we as a society have agreed to exchange for goods and services. This includes physical cash such as dollars and coins. A cash equivalent can be a check, gift certificate, or traveler’s checks that can be exchanged for goods and services. There is also virtual money or what we see when we log into a bank account online or use PayPal to electronically transfer money from one account to another to buy goods and services.
When we say an asset is liquid it means that it can be quickly converted to cash. Stocks, for example, are very liquid. You can sell your shares of a stock for cash. A house can be converted by selling it, but it takes time. Liquidity is also used to describe a person’s ability to cover their liabilities in general. If someone or a company is liquid, that means they have wealth (assets minus liabilities). If someone or a company is illiquid they have debt (more liabilities than assets).
Another form of money is credit. You may have a credit card or a line of credit. A credit card is how much money a bank is willing to loan you on a purchase by purchase basis, usually at a very high interest rate. A line of credit is the same thing but your home (or another major asset) is used as collateral to secure debt. If you have a credit card with a $10,000 limit that is how much risk the bank is willing to take on you. This doesn’t count toward your wealth but it does contribute to your credit rating, a measure of how risky you are to lenders. Here is the bad thing about credit cards, aside from being legal loan sharking, owing on your credit cards is only considered a liability. The credit limit is not considered an asset.
A form of money that is on the rise is Bitcoin. This isn’t important for the purpose of learning how to create wealth. It’s an interesting vehicle because it removes the issue of currency exchange rates when buying goods and services globally.
Being rich doesn’t automatically translate into being wealthy. Wealth is what you have left over after you use your assets (cash, stock, home) to pay what you owe (bills, mortgage, taxes). The best type of asset is that which creates a steady stream of income. This is how people create financial freedom or the ability to have money flowing in whether or not you work a certain number of hours a day.
We must separate the picture of wealth from the picture of rich.
To figure out your wealth create a personal balance sheet showing your assets and your liabilities. Assets are things such as property that appreciate or has a resale value, liquid assets such as savings, cash, and retirement funds. Liabilities are what you owe such as loans, credit card debt, and so on. It seems like it should be more complicated than this, but it’s not. Wealth is what is left over after you pay everyone you owe. This is often referred to as net worth. The great thing about wealth is you don’t need to be rich to create it. You can build wealth at any income level, even if you’re making $30,000 a year. It takes some practice, budgeting and a whole lot of patience. But it can be done. We must separate the picture of wealth from the picture of rich. A wealthy person may not have to means to jet off to Paris for the weekend, but they have enough for retirement, a college fund, to buy a house or to pass to their children (generational wealth).
The Secret To Building Wealth Is You
The key difference between poor and rich people is mindset. Being poor isn’t just a financial status, it is a state of being. People with a “poor” mindset will also be broke no matter how much money they make. Think about the lottery-winner curse. This is a phenomenon in which a person who suddenly comes into a great deal of money, such as winning the lottery, will lose it within three to four years. They go back to being broke. Why? Their bank account changed, but not the way they thought about money. People with a “rich” mindset are the opposite. They could suddenly go broke and be rich again within three to four years. Why? The same exact reason. Their bank account changed, but not the way they thought about money. Educating yourself about money and how to turn it into wealth is great. But the first step to building wealth is to create a mindset that changes your thinking about money. You must examine your feelings and beliefs about money and where they come from. Many people’s belief system, whether they are aware of it or not, about money is that it’s bad and rich people are evil. But the reality is the Bible says there is nothing wrong with riches and wealth. What people do with their riches and wealth or what they do to get it, now that can get dicey.
You deserve to have an abundance. There is no reason you can’t generate wealth, despite what the statistics currently say about black women. We have several resources to help educate you and get you on the path to being wealthy. Please share this post, mention #BlackEVEolution, and follow us on Twitter, Facebook and Google+. We know you’re looking for more great content like this. Connect with us now to receive original and informative content that will help you be healthy, wealthy, wise and woke.