Once you understand what wealth actually is, the game changes.
What does it mean to be wealthy?
This one of those words in the English language that is as common as mud, but everybody hasn’t a different understanding of what the word actually means.
We all know it’s a good thing. We all want to be it. But most people have a hard time of articulating what it really is.
There was a study a little while back that asked Americans to define the term ‘wealthy’.
Most agreed that it was the ability to live comfortable without concern about finances. After that it was “feeling financially secure”. But even then, less than half of the survey agreed with that.
11% said it was owning an investment property. 10% it was owning shares. 9% said it was driving a luxury vehicle.
All of this misses the point.
And it matters. The way we define wealth defines the object of the game. If you think it means a fancy car, then that’s what you’re shooting for. If you think it means a comfortable state of mind, then that’s what you’re shooting for.
But the best definition of wealth that I know of is about time.
Your wealth is defined by how long you can live without having to work.
What’s your answer to that question? For some people it might be a few years. For some a few months. For some people, they’re living on the edge and if they get sick they’re in trouble, because they need to work this week or they’re in financial trouble.
Now the reason why I like this definition is that it gives us a very clear target. Ideally, we want to never have to work again. If we think we’ve got 50 years left on the clock, then if we can last 50 years without working, then we’re sorted.
I also like it because it centres the solution.
If we’re trying to go 50 years without having to work, that can happen one of two ways. Either we can amass that much in savings, and then steadily run those savings down.
Or we can create income-generating assets (investment properties, shares, business), that give us the income we need each year.
I do also like it because it centres our living expenses. If you’re getting by on $50,000 a year now, then you only need $50,000 a year from your investments.
That’s not going to have you rocking around in a gold-plated limousine, but that never comes into it. If you don’t have to work again, then you’re wealthy. Period.
You can be living in a fibro shack eating fresh-caught fish and driving around in a beat-up Datsun, and still be functionally wealthier than a brain surgeon driving around Sydney’s northern suburbs in a Porsche.
Why? Because the brain surgeon still needs to work. Unless they’ve built up their assets, their flashy lifestyle is built on their showing to the surgery every day.
You can be rich and not wealthy.
So this is the definition of wealth we need to be primarily interested in. It’s about time. It’s about freedom.
After we’re free, we can start improving the material comfort of that freedom. Earn a little more, buy some nicer stuff.
But don’t put the cart before the horse. Nice stuff is only worth so much if you’re not free.
Freedom has to come first.
DB.