We all hear the term wealth or wealthy. But have you ever wondered what the term actually means?
It’s often used as a synonym for rich, but rich and wealthy are two very different things to me.
Here is what wealth means to me.
As I go around asking people about what wealth means to them, they often have a set amount of money that defines wealth. It’s typically a range between $1 and $10 million.
Dictionary defines wealth as “an abundance of valuable possessions or money”. Now, if you have a clear understanding of the word abundance, you’re good to go. If you don’t, dig deeper.
Abundance in my world means that money, since that’s the focus here, exceeds the expenses AND is growing at a faster pace than the expenses.
Wealth then, means that there is an unlimited supply of money, that will not disappear because it is structured in such a way that it continuously grows and at a faster pace than what’s being spent.
Folks come up with the above numbers, when asked what wealthy means, because they of the belief that they will have sufficient amount of cash to live off of and not run out.
But what ends up happening for most is that they are, well human. And human by nature ends up increasing their level of living with the income they end up getting.
If you look at the individuals who win a lottery or high-income individuals who make that high income on short-term basis, like an athlete, you will often (not always) find that within a short time period they run out of money, often finding themselves in the worst position than before.
This forces them to continue (or return) to trading time for income, yet again. And it forces them to continuously look for ways to increase income to keep up with their ever-expanding expenses.
But is it possible to be wealthy without millions of dollars stashed somewhere?
Now this is the questions that what I call Wealthionaires ask themselves. These are the folks that Tim Ferris refers to as the “new rich” in his book “4 Hour Work Week”.
These are the folks that focus on creating a wealth by focusing on the cash flow, not the actual amount of money as the end result.
Who is a Wealthionaire?
Wealthionaire is the person who has sufficient income coming their way to cover their living expenses without having to trade their time to earn that income. The individuals who focus on creating a passive income, income derived through their assets.
These folks understand that focusing on particular amount of money is not the solution because it takes many things out of the equation that is rather important: expenses and time.
Expenses are a crucial point in the wealth success formula. Focusing on income alone is like driving a car with gas pedal only. It removes, at times, annoying, yet rather important brake pedal.
Wealthionaires understand the importance of income as it relates to expenses and is truly focused on ensuring that income is generated through proper investing strategies that provides passive income.
How do I become a Wealthionaire?
Instead of focusing on income alone, take a look at your expenses on a monthly basis.
By focusing on the expenses, you have a better understanding of the amount of money you need to generate on monthly basis to cover those.
Once you have sufficient income to cover your expenses (and hopefully more), you become a Wealthionaire. You become wealthy.
How is wealth measured?
Wealth then is not calculated by the amount of money you have stashed somewhere. But rather it’s calculated in the amount of time your money will last without you having to work for it.
For example, focusing on the money available, one formula to calculate how wealthy you are would follow: if you have $20,000 and your expenses are $2,000 per month, you are exactly 10 months wealthy.
$20,000 / $2,000 = 10
However, if you focus on the investment strategy that provides you with free cash flow which consistently gives you $2,000 (or more) on monthly basis and your expenses are $2,000 per month, you are indefinitely wealthy. And that is the strategy that we recommend you follow.
So, how wealthy are you?