One trick that can help you save more money is to think of buying a good investment as purchasing dividends, interest, or rents.  That is, if you buy $ 10,000 worth of Coca-Cola, you are really paying for $ 300 in annual dividend income.  Likewise, if you buy a $ 100,000 rental property and expect to earn 10%, you are paying for $ 10,000 per annum in additional household income. When you invest, you are buying more household income.

Looking at your investments through this lens makes the entire process of building wealth easier because, ultimately, wealth only consists of the cash that flows through your hands that can be 1.) spent, 2.) reinvested, 3.) given to charity.  If it can’t be used, it doesn’t have value to you.

In the old days, this was the British method of measuring wealth, where someone discussed the level of private income; e.g., you might say that old John Smith had a private income of £100,000 per year instead of attempting to estimate his net worth.  I think it is a much better approach.  When you try and calculate net worth, it can get complex quickly as you discuss discount rates and expected growth rates.  With the private income approach focusing on dividends, interest, and rent, you can tell exactly how much cash you have to spend each year, once you’ve deducted the taxes that must be paid.

To explore the concept further, read Dividends, Interest, and Rents Are the Key to Building Wealth …

Think Of Investing as Buying Dividends, Interest, and Rents originally appeared on About.com Investing for Beginners on Wednesday, November 30th, 2011 at 05:19:33.