Wealth isn’t just a state of being; it’s a mindset. Take a look at where a lot of lottery winners end up – many of them wind up being completely bankrupt within a few years. They were superficially wealthy, but they never possessed a wealthy mindset. Without the understanding of how to create and maintain real wealth, they did not know how to keep their fortune in their hands. You must choose to be wealthy – it will never fall into your lap. No matter how many good things come your way, if you don’t know how to utilise the time and money you have to generate wealth, you will be lost.
You must choose wealth.
In Bradley J. Sugars’ book The Wealth Coach, he discusses the concept of wealth building in terms of the “Money House”. Building wealth is like building a house – without a proper foundation, nothing else will hold. Wealthy people view their time and money in a way that is fundamentally different from the rest of us. They do not see money – they see assets. They understand the difference between passive income and active income. They understand how to utilise capital to generate cash flow, and use cash flow to generate capital. Their assets. not money, are used to obtain both. All of these wealth-building concepts can be summed up in terms of the Money House.
To build wealth, you need to generate a source of cash flow. To generate cash flow, you need capital. To obtain capital, you need income. The Money House consists of wealth at the top, bolstered by cash flow and capital, and supported by passive and active sources of income. Understanding the difference between active income and passive income is the first step towards building your own Money House. If you do not make the gradual transition towards obtaining passive income, you’ll never be able to build up your own wealth.
Unlike passive income, which continuously generates regardless of whether you put in time or not, active income is the income you get by trading your time for money. There is absolutely nothing wrong with this – most people across the world make their living in this manner. The problem is, your time is limited. There are only so many hours in a day, and there are only so many days in your lifetime. If you trade your time for money until retirement, you will only stop working in your 60s…then die a few years later. You traded nearly all of your life’s time for money, and you didn’t even get to enjoy it for more than a few years.
To build wealth, you need to look at time as more than a measure of how many hours you can work in a day. You can only work so many hours in a day, and that number of hours represents your absolute earning limit if you are trading time for money. By developing passive income, your earning potential is no longer tied to how many hours you work in a day. The difference between people with a wealth-building mindset and everybody else is that they see time and active income as an investment towards developing sources of passive income. All of your income will start off as active income, but by utilising your time and money wisely, you can begin to cultivate assets and investments that will continue to pay you forever. In other words, passive income.
Think about it: an author only writes a book one time, but they can continue to sell it for as long as they are alive. A business owner continues to derive profit from their companies long after they stop managing its day-to-day operations. Property owners rent out their homes and enjoy a steady stream of money from the people staying in them. These people gradually transitioned away from active income to passive income, and their passive income is derived from the assets and investments that they own and manage. The wealthiest people use the passive income they gain to buy even more assets, continuing the cycle even further!
Starting from the bottom is tough. It’s even worse if you are mired in poverty, because you have no choice but to spend most of your time obtaining active income just to stay afloat. But building the Money House doesn’t require that you make a large initial investment. It can start with something as small as a few stocks, or taking a class or two at a local community college. These small steps are investments of time towards the wealth goal that you want to obtain.
Time is a limited, precious resource. Spend it wisely, and it will give you returns beyond anything you could imagine.