There are two different ways people can become wealthy. The first example is by inheriting wealth, and the second is by gradually accumulating wealth from nothing. In this article, we focus on the way to accumulate wealth from zero.
In 2015, more people around the world became wealthier than ever before, reaching 1,826, as well as a record number of wealthy individuals under the age of 40 years old, self-made billionaires, and female billionaires than in previous years. In 2021, the number of world’s wealthiest exploded to an unprecedented 2,755 person and continue to rise. In 2021, the number of wealthy people in the world is 660 higher than in 2020.
Extreme wealth is growing significantly faster in emerging markets than in advanced countries. And most importantly, wealth is increasingly becoming a self-made, even in advanced countries. Since it is possible to accumulate wealth from zero, our book The First Investor is centered on how to build or accumulate wealth from zero.
As over half of Europe’s wealthiest individuals inherited their fortunes, compared with one-third in the United States, this gives us a strong view that individuals can accumulate wealth from zero, which thus leads us to ask a fundamental question concerning how individuals can accumulate wealth from nothing? Well, The First Investor has answers to that question.
However, among those who accumulated wealth from zero are company founders, executives, politically connected, or in employees in finance sectors. Generally, traditional sectors built half of the rise in wealth in European countries, while the financial sector and technology-related sectors are both largely responsible for the rise in wealth in the United States.
This illustrates that individuals who want to accumulate wealth from zero must first have sustainable income, for instance, by simply being an employee in any sector. Although some employees in specific sectors can generate higher incomes than others, which will lead to accumulation of wealth faster, getting employed in any position can also trigger the accumulation of wealth.
Income represents the flow of cash that one earns every month or year, whereas wealth is the total stock of assets that one owns, either through accumulation or inheritance. Although income is the primary source of building wealth for individuals, the income itself, however, is not wealth. Moreover, generating income does not automatically lead to wealth creation. Instead, the purpose of individual is the driver of wealth accumulation.
Thus, the income represents the mechanism of building of wealth. Whereas income streams mostly take the form of cash, wealth components are both financial and non-financial assets. Wealth is also an important metric since it can be inherited, unlike income. Therefore, we must ask ourselves the most important question, which is: What is the importance of accumulating wealth?
The important of creating wealth is that it can determine which opportunities individuals have to create in their lives, whether to approach profitable investments, gain a proper education, or pursue different occupations. However, what is wealth?
As we answered this question earlier, here we are referring to financial wealth; that is, the commonly accepted definitions of financial wealth in the financial market focus on assets that are marketable and thus possible to sell or purchase at a marketplace. Related to this is the concept of income-generating assets, that is, assets that have a base value and, at the same time, the ability to produce additional funds beyond the inherent value for the investment holder.
Therefore, for those who want to be wealthy, they must use a disproportionate percentage of their income to acquire productive assets. By doing so, they multiply their chances to garner substantial profit from capital gains, thereby building their own wealth from their own income or salary.
The accumulation of wealth can be driven by different mechanisms and can thus consist of a mixture of different income streams. For this reason, following, we explore a short overview of the main sources of income that can contribute to one’s stock of wealth.
The high source of income that represents the most powerful sources of wealth creation are Chief Executive Officer (CEO) or top manager, financial trading, entrepreneurship, and inheritance. And additionally, there are, of course, other sources of income streams, such as income generated by artists, athletes, and media celebrities that also contribute to the accumulation of wealth.
Becoming financially independent requires us to step out into the unknown and conquer fear. Doing so suggests that exploring new thoughts and ideas, adopting or acquiring new attitudes and incorporating them into our lifestyle means getting out of that comfort zone we are so accustomed to.
Having said that, it is not only the ability to adopt positive attitudes, plan ahead, and maintain a savings account that leads to financial freedom; another key factor is willingness to save. People who feel little importance in saving and do not recognize the importance of savings are at greater risk of financial problems than those who save regularly. Also, there are two different types of attitudinal factors that play a negative rules in people’s lives, people who are easily tempted, and those who are short-term thinkers.
Both groups are more likely to get into financial difficulties to some extent. People who are defined as easily tempted are those who often feel tempted, for instance, to regularly buy things they do not really need and find it hard to resist to purchase. On the other hand, short-term thinkers are those who spent for the present and don’t plan for the future financially.
Such attitudes are often deeply rooted in a person’s character, and hence, harder to change, particularly in the short term. Fortunately, they can be changed in the long term. This is an area in which efforts to prevent people from getting into financial difficulties may prove successful, particularly by financial education, as outlined in The First Investor.
To understand the impact of negative financial attitudes, socio-economic circumstances, such as income level and educational qualifications, must be considered. Indeed, it is often those who do not plan for future financially who are at the greatest risk of encountering adverse financial events, as having little to no financial advantages makes them vulnerable to the consequences of economic downturns.
For example, in Great Britain, between 2009 and 2011, house foreclosures mostly occurred in the areas with the lowest rates of employment, below average income levels, and negative financial attitudes. Similarly, in the United States, people of low socio-economic status also experience the most frequent house foreclosures. These facts highlight the importance of changing negative financial attitudes for those in this category.