Think About Your Wealth Equation Or You Will Never Get Rich

Wealth creation in a simple formula. Will your formula get you where you want to go?

Let’s think about money.

Most people would like a few more dollars in their bank account. This is for a good reason as a study I described in the following article showed.

I assume you are one of the people who wouldn’t say no to an extra bit of cash. How do you plan on getting it?

I think that while many people would like to have more money, very few have a promising plan that can get them to that goal. I also think that you can use a simple formula to find out how good your chances are of becoming wealthy with your wealth creation strategy.

Let’s do the math.

Your Wealth Equation

Most people work in a job where they are paid a certain wage for the time they spend working. Let’s say an employee of a company earns $20 an hour. For a 40-hour week, that’s $800 a week and about $3500 a month. $42k a year.

No matter how hard he works, he won’t make more. Unless he gets a promotion, which would give him a few percent more.

His income equation is:

hours worked in a year* hourly wage = yearly income

Since his hourly wage is fixed and his working hours are also limited, his income is capped, which makes it almost impossible to become wealthy considering he has to spend the majority of his income to survive.

But if we assume that the same employee has already invested $30,000 and earns a 10% return per year, his wealth formula changes as follows:

hours worked in a year * hourly wage +money invested* .1

This is where the magic of leverage comes into play. The invested assets are scalable in contrast to the working time as the fixed salary, which allows him to grow his income over the coming years.

If our employee saves and invests more, he can earn more, which in turn can help him earn more. I think you know compound interest.

The Power Of Leverage

However, there are two other forms of leverage. To get rich at a young age you probably need to use all three as I found out in this article.

Besides capital, labor and an audience can be powerful forms of leverage that allow you to scale your income almost indefinitely. At least if you succeed at what you do.

Let’s say you are a business owner who employs workers. You pay them a salary, and they create value for you that allows you to earn more than what you pay them.

The third form of leverage is the one that makes successful creators, such as musicians, YouTubers, or writers a ton of money. As they have a huge audience, they can sell millions of products without any cost of reproduction.

Every song and every Youtube video only has to be recorded once. Every blog post and every book only has to write once. No matter how many people will stream, buy, watch or read them.

Key Takeaway:

Money can certainly make your life better. Why not think about how to actually get it?

Becoming rich only by saving a part of your fixed salary is hard. Unless you earn an incredible amount.

In order to become wealthy, you probably need to find a position of leverage.

Investing is probably the best way to start. Starting a business allows you to use the other forms of leverage to your advantage: an audience and people who work for you.

Thanks for reading!

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