Another terrible misconception that many people have is the idea of that income and wealth are synonymous. I'm here to tell you they aren't, and they never have been.
Income is defined as "an opportunity for consumption which is provided within a certain period of time, expressed by some set monetary amount." If you compare this to the definition of wealth , you can clearly see that the two are not the same. Yet, you would be surprised by the number of people, even those who make hundreds of thousands or millions per year, who think the two are the same.
If you hold this view, and you're not very wealthy, you should now know why. Your understanding of finance is flawed. You have a view of finance which isn't based on economics, or even common sense. However, don't feel ashamed of this, because it is very likely that there are people who make more money than you who are in the same boat.
The difference is, by reading and following the advice in this article, you'll get ahead in life, while they won't if they continue down the path they're currently on.
Now that you know the difference between wealth and income, it should be obvious to you where your ultimate priorities should lie: in building "true" wealth. True wealth doesn't lie in paper money, stocks, bonds, or anything which is based on paper. Paper is worthless, it has always been, and it will always be unless paper suddenly becomes rare, which I doubt will happen any time soon. The only reason why those of us with lots of paper money seem wealthy is because our society accepts paper in exchange of goods.
If our society accepts paper money, how can it be worthless?
If you read a bit of economics, you will eventually run across a phenomenon which is called "Intrinsic Value." Intrinsic value is defined as the "true" value of an object or service. The Intrinsic Value of an object will always be based on the object itself, and will typically involve the labor or time which was necessary to produce that object.
Therefore, based on this theory(which came from the great economist Adam Smith by the way), the most expensive things should always be things which took the most time and labor to produce.
This basically means that the typical skyscraper will always be more valuable than a bus, and gold and silver will always be more valuable than paper. The simple reason for this is because in both cases, it takes more time and men to build a skyscraper than it does a bus, and it takes more time and men to mine gold than it does to print paper dollars out on a machine. Therefore, it is logical to say that those who are truly wealthy are those who own things which have a high "intrinsic value."
Just the same, those who are not very wealthy tend to be those who own things which do not have a very high intrinsic value. This means that a man who has $1 million dollars in the bank is not as wealthy as a man who has $1 million dollars "worth of gold" in the bank.
The first man could easily lose his entire fortune if the dollar suddenly collapsed, and due to inflation, his money is guaranteed to lose its value over time. Because the second man owns gold, a real commodity with a real intrinsic value, his wealth would stand the test of time, avoiding inflation.
Money Saving Tips is dedicated to helping people become financially literate. Many people today are seriously lacking when it comes to being financially prudent. We named the site "Stop Stupid Stuff" because many Americans face financial hardships, and these hardships are a result of Stupid Financial Decisions, mistakes that could have easily avoided.
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