Summary: To accumulate wealth, earn more and spend less.
To clarify the concept of wealth, we can use a simple framework: Wealth is defined as income minus expenditure. This definition involves two key variables: income and expenses.
The first variable is income. According to National Wealth Theory, individuals can be categorized as workers, investors, or real estate owners in economic activities. Workers earn income through wages, while investors generate income from their investments. Real estowners earn income by buying and selling property and rental income. Additionally, it's important to differentiate between active and passive income. Active income is earned by directly exchanging time for money, which requires ongoing work and effort. In contrast, passive income is generated without continuous active work, including sources like dividends, interest, rent, and royalties. For example, earning from stock investments relies on recognizing opportunities and making informed judgments.
The second variable is expenditure, which encompasses all the money spent on necessities and luxuries such as food, clothing, and hobbies.
From this framework, it becomes clear that to accumulate wealth, one must spend less than their income. This principle reflects what many call open source and thriftiness. Open source refers to increasing revenue, while thriftiness means limiting consumption. Although increasing income can be challenging, reducing consumption can be initiated anytime.
The first variable is income. According to National Wealth Theory, individuals can be categorized as workers, investors, or real estate owners in economic activities. Workers earn income through wages, while investors generate income from their investments. Real estowners earn income by buying and selling property and rental income. Additionally, it's important to differentiate between active and passive income. Active income is earned by directly exchanging time for money, which requires ongoing work and effort. In contrast, passive income is generated without continuous active work, including sources like dividends, interest, rent, and royalties. For example, earning from stock investments relies on recognizing opportunities and making informed judgments.
The second variable is expenditure, which encompasses all the money spent on necessities and luxuries such as food, clothing, and hobbies.
From this framework, it becomes clear that to accumulate wealth, one must spend less than their income. This principle reflects what many call open source and thriftiness. Open source refers to increasing revenue, while thriftiness means limiting consumption. Although increasing income can be challenging, reducing consumption can be initiated anytime.
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