While most of us are familiar with the word "inflation," few of us actually understand it. When you ask most people to define inflation, they refer to it as being "higher prices." This isn't technically correct. Inflation is actually a devaluation (falling value) of our currency.

Because our currency falls in value, prices rise as a result. Because the people who sell us their goods and services have to pay higher prices due to the falling value of the currency, they transfer their losses to us (by raising prices), and if we have our own businesses, we in turn transfer these losses to our own customers.

It should be obvious that the person who makes the least amount of money in a situation like this will be hurt the most. Even if you make a lot of money, inflation combined with taxes will gradually erode your wealth over time.

While most financial experts would have you believe that you need 401Ks, stocks, bonds, mutual funds, Roth IRAs, and a whole bunch of other financial instruments in order to build wealth, they are wrong. The true secret to becoming wealthy is to keep your finances simple, and combine this simplicity with a large amount of discipline and frugality.

While it is important to invest, true wealth doesn't come from investing in paper assets, or even large companies. It comes from investing in smaller ventures which bring the promise of higher return, but also carry a bit more risk. Most importantly, true wealth comes from saving money, not borrowing.

Next Page: Saving First and Income Second