by Devrie Paradowski

Created on: August 26, 2010

Before you anchor yourself to the goal of becoming wealthy, you should have a clear definition of the term wealth. At the most basic, wealth means having an abundance of something; however, an abundance of "something," can be a truly relative concept. Financially speaking, if your concept of wealth is owning a large home and having more than one new car, you may need to carefully calculate how much income you will need to achieve that goal. For others, the notion of not having to work, regardless of income, is good enough to constitute wealth. In fact, a family receiving a passive income of $25,000 a year may consider themselves wealthy.

Passive Income

Income can be relative. Consider the difference between working 40 hours a week for $50,000 and staying home and managing a few investments for a few hours a week to make the same annual income. Working for a regular paycheck is not perpetual. You cannot fully project what circumstances may come that can affect your ability to work, nor whether you can maintain employment at a certain pay rate. Employment ensures that the only way to get more money is for you to work for money. Passive income; however, is income garnered through the work your money is doing for you, such as investments in real estate, royalties, annuities, or stock options.

Working for money is important, because unless you inherit money with which to launch an initial investment, you will need to get money in some way. Low-income people will find it most difficult to work toward earning a passive income, but having a passive-income goal will help them to accumulate wealth over the years. Putting money into savings accounts to earn interest, investing in employer-matched 401(k) s, and buying small cash certificates and bonds may be a good way to begin investing small amounts of a small income.

Once those savings accounts start building, investors can take those amounts and invest in the more risky, yet higher yield options. A low-income investor might not want to invest his entire portfolio (which may only amount to a few thousand dollars) in a risky stock market, but can begin investing with a portion of that money as diversified into different investments to decrease risk.

Each step of the investment process should include increased, yet guarded risk options. The higher the risk, the higher the potential payout.

Decrease Expenses

Decreasing expenses is almost as powerful as earning passive income. Getting out of credit card debt, paying off

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