Two Things You Must Know To Build Wealth

Photo by Elena Mozhvilo / Unsplash

So you have read the books, and you are convinced that building your asset base is the right thing to do. It builds security in your life and helps on the step to building out toward your financial goals, financial independence and financial freedom. Unfortunately, the language used in the financial sector can be confusing, and the path to building wealth can often be unclear. The background to understanding this can often be noisy, and internet searches can often feel like people shouting at each other in a room, with the person shouting loudest winning the race.

The other key issue is that often people will argue the importance of assets and asset building wealth from their perspective. Either because they have their own bias (usually because it has done well for them) or they are trying to sell you one of the specific asset classes (e.g. dividend-paying stocks, index funds, exchange-traded funds, real estate investment trusts, other assets, owning property).

Understanding the difference between asset classes and liabilities and how to use them all comes down to financial education. Understanding when to use them and how to use them depends on many factors (life stage, living expenses, existing assets, your ability to earn money etc.).