What is Wealthy?
When I talk about money, and my goals, becoming wealthy is right up there. But what is wealthy? Is it having a million dollars? It it having a billion dollars? How will we know when we have acheived it? Let’s think about this some.
It certainly used to be that you had arrived when you could lay claim to the title millionaire, that was enough money so that you could live the rest of your life in style and not worry about running out. When a nice house cost $20,000, a million was a lot of money. But with more and more homes selling for a million dollars, I don’t think having a million dollars in the bank automatically puts you in the wealthy club anymore.
A billion dollars certainly puts you in an elite class. I can’t imagine how I’d ever go through a billion dollars. Heck at a 4% rate of return that billion dollars throws off 40 million dollars a year. Even in Uncle Sam takes half I couldn’t spend money that fast. On the other hand, I can’t see how I’ll ever be worth a billion dollars unless I live to be about 500 years old, which seems unlikely somehow. So while a billion dollars is certainly wealthy, I don’t think you have to get close to that to be wealthy.
I don’t think that being wealthy is a specific number. Robert Kiyosaki had one of the best definitions for wealth that I have seen, he says that you are wealthy when your passive income covers your expenses. For those of you unfamiliar with these terms your expenses are all your money out, everything you currently spend money on. Your passive income is the income your assets produce for you. Of course, most assets do not produce a steady revenue stream, but will vary depending on market conditions. When you can reliably count on the passive income from your assets to produce enough money each month to cover all your expenses you no longer need to work to support yourself. When you have acheived such a state at a level of spending that you are comfortable with, then in my book, you are wealthy.
To me this is the reason to manage your money well, because being wealthy depends not only on your income, but also on your spending. My goal is to become wealthy enough to do what I want with my time, and let my assets produce enough income to support me and my family. I’m getting closer every day, in good years my passive income now exceeds my spending, but in bad years it’s not even close. After 19 years of work I’m on the right side of the power curve headed down hill and hope to acheive that goal in the next 5-10 years. My hope is that by reading this blog you too will become inspired to start yourself on the road to joining the ranks of the wealthy.
April 30th, 2007 at 2:35 pm
[…] If you truly want to be wealthy you need to buy good assets. Those items that put money in your pocket over time. A good asset will be worth much more over time than you originally spent on it, as well as any costs you spend to maintain it. Most good assets aren’t much fun while you own them. You can’t water ski behind them, you can’t show them off to the neighbors. They don’t make your life much easier today. But the income or capital gains that they generate over time will grow your net worth making life much easier down the road. In general buying good assets means putting off your gratification until another day. Instead of buying that PS3 you buy 3 shares of Goldman Sachs. Instead of buying that new living room sofa you purchase 100 shares of Cisco Systems. It won’t be very comfortable to sit on while watching TV, but it will grow your net worth over time instead of just filling up your house. […]
May 2nd, 2007 at 12:19 pm
[…] If you want to be wealthy you have to get rid of most of your financial baggage. This baggage includes most loans such as credit card, student and auto loans. Paying off your Home Mortgage might be a good 30 year goal, but until all those others are gone don’t worry about your home. […]