What is wealth, anyway, and how do we get it? When is someone actually considered wealthy? The word “wealth” often conjures images of celebrities, CEOs, nice cars, and luxury items (caviar!). The common conception is that once you have a certain amount of money, or start living a certain lifestyle you’ve become wealthy, but that isn’t always the case. Read on to find out more.
Wealth is a not a destination. It is a state of equilibrium that has little to do with fancy stuff or some predetermined number. Wealth can be thought of as a system or an infrastructure, like a group of machines in a factory. Each piece performs a specific task and they are all tuned to work together to produce a specific product.
I like to think that the amount of money someone has is irrelevant to how wealthy they are. The amount of money is just a number, but wealth is something different. My view of wealth is a practical one – a view that several financial writers share, but it is more a picture of subdued and measured sufficiency than the popular picture of glitz and excess. I know it’s not as exciting, and it doesn’t make good advertising, but it is not only much more accurate, but much more attainable.
Wealth is achieved when a person’s income is greater than that person’s expenses. Let’s take this a step further and say that the income must be automatically generated, meaning you don’t have to work to get it – it just comes in, whether you work or not. At the moment that your money is working harder to produce income than you are, you are wealthy. My dad always says “independently wealthy,” and he is on to something. Because once your money is producing enough income to cover your bills, then you can be as independent as you wish – you’re no longer tied to a set job at a set schedule at a set salary to make ends meet.
“Wait a minute! Why use such boring words like “sufficiency” and “enough” – I thought wealth was all about bathing in money like Scrooge McDuck and making it rain!”
Sorry, that just makes for good TV, not real life for most people. Using the definition above, wealth is a lock with two keys: income and expenses. Financial counseling techniques show us that the only way to build equity in yourself and get closer to wealth are:
- Decrease expenses, or
- Increase income
This means that wealth is on a sliding scale. It is not something reserved only for people with six or more zeros at the end of their bank account balance. Which is great news! That means that YOU can become wealthy, and so can I, even if we’re not cut out to run a Fortune 100 company, play professional sports, or star in a blockbuster film.
Going back to the factory analogy, your machines can be large and complicated or small and simple, and your product can be plain or elaborate, but as long as they work together and the product is made correctly, the outcome is the same – you’re wealthy. The thing is, you have to choose the kind of product that you want to make (your lifestyle outcome based on your expenses), then work on building the right machines (your invested assets that generate your income) that will make that product possible.
The sliding scale of wealth means that if your passive income is high enough, OR your expenses are low enough, wealth is not too far away.
We’ll take a closer look at these two variables in upcoming posts.
Until next time,
Do Brave Deeds and Endure
– Ben at Debt Freeks