The Wealth Formula

What is Wealth?

Wikipedia states that Wealth is the abundance of valuable resources or material possessions. 

What does this mean? Some people refer to it as being "rich" or financially independent. Being wealthy can be interpreted as not having to worry about paying bills, being able to go on vacations, buying the latest gadgets, etc. In my opinion, I refer to being wealthy as having adequate income /savings to support your lifestyle - what ever that may be.

Lets take a look at the figure on the left provided my WFG:

Money + Time +/- Rate of Return - Inflation - Taxes =
WEALTH!

Money = Savings, Assets, etc
Time = Length of Time you can invest your money
Rate of Return = interest rate
Inflation = Current Inflation rate
Taxes = the good old taxes we pay to the government


Example: You have $5000 that you are able to invest for 1 year in a Mutual Fund TFSA savings account that returns at an annual rate of 6% . The inflation rate is currently at 1%.

Money = $5000 | Time = 1 year | Rate of Return = 6% | Inflation = 1% | Taxes = 0% (No taxes in a TFSA)

5000 * 1.06 = $5300
5300 / 1.01 =  $5247

Approximate value of your money after one year at a 6% rate of return and  1% inflation totals:

--------------------- >> $5247 << ---------------------

This is general understanding of how your money accumulates. Depending on the institution and investment account you may be subject to fees and costs that could reduce the total outcome.