## Wednesday, February 27, 2008

### Accumulation of Wealth

What does it take to become wealthy? What does one need to feel wealthy? Encarta Dictionary suggests a characterization of abundance, “enjoying an abundance or great quantity of something”. The next logical question lies in how one would define the term “abundance”. Is it more objectively adaptable or subjectively determined?

Some would describe abundance in the manner of possessing an “endless supply of money”. With the way reserve banks keep creating money supply, the illusion of a bottomless money filled pit becomes easily accepted. Notwithstanding acts of reserve banks, every single individual holds a discrete finite amount of monetary value. In other words, nobody carries “” for net worth.

We can conclude that all of us play the same game. Roughly 98% of us must accumulate monetary wealth from the ground up. Then how is it that some people seem to never run out of money, and some struggle just to make ends meet?

Anyone can create the impression of having an abundance of wealth. The key lies in a simple mathematical concept.

Spend less than your income, and let the surplus grow. I.e. if you make \$1,000 a week, don’t spend more than \$1,000 within every 7 days and invest the remainder in something.

It is that easy. With a positive net-income/time, having the surplus invested and grown, money related stress becomes a thing of the past.

Exempli Gratia:

If one manages to save \$100 each week and put in a New Zealand bank saving’s account of 7%/annum, the following growth would transpire via the annuity formula.

S=R[(1+i)^n-1]/i

R= \$100 (amount invested each deposit period)

n= number of deposit periods

r= 0.07 or 7% (annual interest rate)

m= 52 (52 weeks or deposit periods in a year)

i= r/m = 0.07/52 0.001346 or 0.1346% (periodic interest rate)

S(n)= Future Value after n deposit periods

After 6 months-

S(26)= \$2,644.21

After 2 years-

S(104)= \$11,155.06

With this scheme, one’s wealth would only grow with respect to time. This is how wealth becomes accumulated, and it grows at an accelerated rate. Yes it may appear tedious and tiresome at first having to keep a record of expenses, income, and investments, the reward becomes well worth the effort. In time it becomes an effortless part of a financially secure life style.

Manage the spending. Exploit investments. Grow rich. It’s not that hard right?