Wealth Building - Better to be Wealthy than Rich!?

From the desk of: Keelan Cunningham
Date: February 07, 2012
Re: Wealth Building...

If you strive to build wealth rather than just get rich you’re basically giving yourself the keys to the vault!

There’s a massive difference between being wealthy and being rich. Not all rich people can be wealthy but all wealthy people can be rich. Confused!?...let me explain.

Article:

If you are a millionaire, are you by default wealthy? Ahmm, not necessarily so. A millionaire by definition is someone whose net worth (asset value minus debt) exceeds a millionaire dollars/euros etc. However, if a person did have 1 million in assets but theses assets were not generating income then that person by my definition is rich but not wealthy.

Why Making Money Won’t Make You Rich

You can make a lot of money and still be broke. I know many people who have made millions of dollars in the course of their life but are now neither rich nor wealthy. Why is this? Well, not all people are blessed with naturally good money management and investment skills. Some people can be more interested in living a certain lifestyle now rather than planning and building an asset base that will enable them to live the lifestyle they want for the remainder of their lives.

It’s not how much money you make that matters, but how much money you keep.

How Rich is Rich?

We often say so-and-so is rich because he or she has a high-income corporate job, buys brand new luxurious cars, dresses in fancy clothes and so on. Although these are outward demonstrations of ‘rich’, crucially, that does not mean these people are wealthy (they might very well be of course but it’s not a given).

It’s actual quite hard to define in a dollar amount what rich is. It can be subjective and mean different things to different people. In addition, it can depend on where you live and the cost of living in that place. In 2003 Gallup poll of Americans the public's median definition of "rich" was an income of $120,000 - or assets of $1 million. But if you ask someone who already has $1 in assets they are likely to say being rich would be to have $5 or $10 million in assets. Some people are never happy!?

Is “Rich” a Feeling?

So the less money you have, the less money you think you'll need to become rich. And the wealthier you are I suspect the more money it takes to make you ‘feel’ rich.

Wealth is Best Measured in Time

If there was one defining difference between being rich and being wealthy it’s this: rich people can generate money now, wealthy people can generate income always. The best definition I know of for being wealthy is if the passive income from all your assets is greater than all your liabilities then you’re essentially wealthy.

The key here is the time it takes to manage your money. If you are working 60-80hr weeks just to make enough money to pay all your expenses, even though you could be making more than say €200,000 per year; then you are not wealthy.

Wealth is best measured in time, not dollars. The longer your money or assets work for you the wealthier you are. The longer you can live without having to work and still pay all your expenses and maintain your standard of living the wealthier you are. So, for example, if your expenses are $2,000 a month and you have $10,000 in savings/liquid assets then your wealth is equal to 5 months.

The moral of the story is this: if you are rich, don’t be fooled into thinking you’re wealthy. If you’re not already rich, don’t worry about it, focus on being wealthy and you will be rich anyway. Whilst it may be difficult to know if you are truly “rich”, you’ll definitely know if you’re truly wealthy and for how long!

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