The Velocity of Wealth Creation


 

What’s the difference between speed and velocity? Speed has only a magnitude, while velocity has a magnitude and a direction. In other words, it’s a “vector” physical/mathematical quantity.

What does velocity have to do with wealth? A lot!

Like it or not, time is an essential variable in the wealth equation. We’ve seen in several places how we could use time to our advantage, as intelligent investors. For example, once you find a “wonderful business”, you don’t pay the “sticker price”. You “wait” till the share price of that business drops low enough to give you a Margin Of Safety (MOS). Please review the first few articles.

The velocity of wealth is the pace and direction at which you move towards achieving your wealth objectives.

There are several factors that affect that pace. Your age, the stage of life you’re currently at (a student, an employee, a family man  a retired person, etc), the geopolitical environment you happen to be in, the influence of your family, friends, co-workers, your upbringing, the level of your self-esteem, the amount and quality of the financial knowledge you have.

At some stages, it’s wise to focus a considerable portion of your time and energy on wealth creation. This would give you the freedom to slow down at other stages, and focus on other priorities.

So your wealth creation velocity changes speed, and sometimes direction, as you move from one stage to another, or as you change any of the factors mentioned above (the list is not inclusive, you could come up with other factors relevant to you).

You could also derive from the above that your financial wealth creation, is but one of your priorities. Hence, it’s essential to have a vision of your life that encompasses all your priorities, values and roles. And a mission statement, which maps out the distribution of all of these elements across your life.

A question may arise here: Can one increase or decrease his/her wealth creation velocity, without negatively affecting other areas of their lives?

Yes they can, but not randomly or abruptly. For example, when your family responsibilities are at their minimum, you can dedicate yourself much more to wealth building (instead of wasting your resources on meaningless activities). This would pay dividends later on, when you don’t have the same amount of free time.

As a rule of thumb, the earlier you start the better. I know people who started investing in their teens. Don’t wait till before retirement to think about your financial future. It would be late, but not impossible. There are always ways to start all over again, and as the saying goes: It’s never too late!

The Wealth Maker

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s