Press Release Summary: Perhaps there is no other important subject concerning economics, which is as important as managing wealth.
Press Release Body: Managing one's own resources is one of the Herculean tasks n individual will take. Considering the resources are limited and the consumption and expenditure goes beyond its threshold, individual has to manage on how to maintain to break even and at the same time increase its resources for future expenditures. Maintaining to break even means to wisely allocating resources of its use to avoid any wastage which would eventually result to shortage. At the same time, increasing resources means finding some other ways to make the utilized resources multiply by itself.
In the ancient world, resources are equated to cattle and farms. The word capital is derived from the Latin word, caput or head. At that time, wealth is measured according to the number of heads of cattle a certain individual had. Cattle is the most important possession because it is the source of fodder as well as it can also replicate itself. People transact with each other by means of barter trade like exchanging a certain number of heads of cattle with grain and vice versa. When the time came barter became an inconvenience, a certain unit of measurement must replace the regular barter trade. Here, gold and silver coins replace the primitive barter trade and became the mode of exchange. However, in ancient China, money notes are first introduce instead of gold coins. The advantage of money notes is that it is more convenient and easier to carry than the gold and silver coins. During the time Middle Ages in Europe, a new mode of exchange is introduced by the Order of the Knights Templar. This is the mode of check. A certain pilgrim who would be traveling to Holy Land, in order to avoid the burden of carrying valuables with him, deposit his valuables into a certain place the Order. The Order would then issue a note. In the other end of the route to the Holy Land, the pilgrim can get the same value he deposited. And thus, modern financing evolve not only as a way of storing wealth safely, but also by making profit in the form of interest.
In the modern business world, the art of wealth management is known as financing. Financing is the management of any forms of resources usually in monetary form to minimize and control expenditure and at the same time increase the resources by properly investing in to income generating assets. To illustrate, financing is like a torque wherein the goal is to keep the generation of income at high level while keeping expenditures and risk at low level.
Abundance of resources can result to accumulation of wealth. This accumulation of wealth would result into a better living of an individual. In corporate setting, abundance of resources would translate into getting more hold into assets which would be beneficial in the existence of this complex organization. Assets are things needed for the generation of resources or income. A corporation must need to grow by spending more on the advancement of its technology or by exploring new potential market.
Considering the dynamic nature of economic activity as well as the degradation of asset which would eventually lost its real value over time, what can be income considered income generating would eventually be a liability or something which will eat up cost. Take for example a machine. When it is new, profit is generated on it. However as time passes by, the machine will eventually needs more cost in maintenance and at the same time new machines are released which might yield more than the old machine. Once the cost of maintaining the machine becomes lesser than the income it generated, the machine will turn into liability. Proper finance management extends into evaluation of the depreciation of the profitability of a certain item so as to let it retire before it becomes a liability. Likewise, the same principle is applied above wherein expenditures must be kept in a low level.
Income generation is the key factor of growth of personal wealth as well as corporate also. There are various methods of income generation like, investing on income generating-asset, engaging in profit-generating business, and lastly in the form of interest. As discussed above, income generating asset is one of the key towards getting more profit when it produces profitable goods. However, asset management in the form of right depreciation must be done in order for the asset not to become a liability.
The next step is engaging in profit-generating business. One of the most vivid example on this is the investment in stock market. Investors tend to buy stocks which has a potential of raising its price in the future. When the stock rises, because of its consistent performance on profitability, an investor is willing to trade his stocks to a higher amount which is the profit. However, the potential of losing the profitability comes into picture. Unlike in investing in asset, investing in stock always involved high risk.
The last way of expanding one's resources is through interest. Interest is considered as the rent at which the owner of the resources gets when somebody else uses his resources for the benefit of the latter. Interest rates depends on the amount the lender intends to bore to the borrower over a period of time. Unlike investment in asset, investment through interest is increasing over the period of time because of its compounding effect. Compounding effect means that when a certain profit is added to the capital, the new capital will eventually become the base of the interest rate, thus increasing over a period of time. Comparing investment into interest rate over investment in profitable business like stock market, interest rate is more secure and stable. However, interest rate continues at its own projected route while investment in stock market may increase dramatically depending on the corporation's performance. Likewise, it is the resource owners' discretion as to which form of income generation he must take into account to lessen the expenditures and risk and to heighten his income.
To conclude, the ancient Chinese Philosopher Sun Tzu once said that in order to win battle, one must know his enemy and himself. One's enemy consist of expenditures and risk which an individual must made known. In order to over come it, he must also examine if he has the capacity or the resources to combat this enemy thus furthering his goal of resource profitability.
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