Last week we talked about Rich. Most people would consider wealthy and rich to be the same. Robert Kiyosaki, in his book Cash Flow Quadrant, defines wealth as the number of days you can survive without actively working for income. I like this definition. This ties together having the thinking to manage your resources as well has having the resources to meet your needs.
So, for instance, if you had $20,000 in savings and you spend $5,000 a month, your wealth would be 4 months. Now if you had some passive income, say a royalty or some other form of income that does not require your active participation, you can stretch that $20,000 even further. Let's say you had $1,000 a month passive income, then you'd be 5 months wealthy.
If the median household net worth in the United States is around $120,000 and most people have the majority of their net worth tied up in real estate (their home), how wealthy is the average American? I've heard it said that most people are 90 days from bankruptcy. In other words, if they were unable to actively provide for their income, they would be bankrupt after 3 months.
There are three ways you can increase your wealth. You can spend less (although there is a limit to that), you can make more and you can build up more passive income. I'd recommend doing all three. Imagine if you could get a year's worth of expenses in savings (by decreasing what you spend and increasing what you earn). How much freedom would that give you? How would that affect your daily decisions? That would make you "rich," however, you would be 1 year wealth. Now imagine if you created enough passive income to cover your expenses each month. What would that do for you. The difference is that now you would be infinitely wealthy.
Now, most people can figure out a way to turn infinite wealthy into a smaller number (increase spending), but that wouldn't be any fun.
wealthyadj \ˈwel-thē also ˈwelt-thē\
Definition of WEALTHY
wealthnoun \ˈwelth also ˈweltth\
Definition of WEALTH
: abundance of valuable material possessions or resources
: abundant supply : profusion
a : all property that has a money value or an exchangeable valueb : all material objects that have economic utility; especially: the stock of useful goods having economic value in existence at any one time <national wealth>