Monday, June 16th, 2014
The measure of your wealth is the difference between the value of your assets and the amount of money you owe to others. Wealth is generally accumulated over your working life, reaching a peak around the time you retire, and then diminishing through retirement. Of course, for some people, it is not quite as simple as this and life events such as divorce, redundancy, illness, or windfalls such as lottery wins or inheritances can create sudden changes in wealth in a positive or negative way.
During your working life, the focus is on building wealth and it helps to have a clear target of where you want to be by retirement age. The target you set will help determine the strategy for achieving it. It is important not to leave it too late to set your target. Building wealth takes time, and the danger is that if you wait until near the end of your working life to decide what your target is, you may not have enough time to get there.
Your target level of wealth will have three broad categories: your house, the possessions you own in order to enjoy life (such as your car and the contents of your house) and your investments. These three categories need to be in balance. Reaching retirement with all your wealth in your house and possessions and with few investments implies a lifestyle where you will be living in physical comfort but too poor to go anywhere! The house you live in is unlikely to produce as great a return on your money as other investments. This means that during your working life, as a general rule, the less wealth you have in your house and possessions and the more wealth you have in investments, the faster your wealth will grow.
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