Do you know the difference between being rich and being wealthy?
The trouble with the word rich is, rich is a comparison to something else. How much do you need to feel rich? Someone is always richer than you and you are always going to be richer than someone else. Does a high salary make you rich? Does having a lot of money in the bank make you feel rich?
School teachers, nurses, secretaries, truck drivers, bus drivers, postal employees, many others earn salaries that can support a family, but they do not consider themselves rich. They make roughly $35,000 a year. To them, if you earn $100,000 you are rich. Yeah you earn 3x the teacher’s salary. However, in some places, that salary would leave you feeling impoverished – hint New York, Hong Kong, and San Francisco to name a few places
Being rich is not enough
Anyone can become accidentally rich
The second problem with being rich is you can do it without trying. Dumb people get rich and some people get rich by accident. Think about lottery winners, the person who got burned by the hot coffee at McDonald or someone who inherited their money. A lot of rich people are not wealthy. By saying not all rich people are wealthy, I mean to say that the riches will not last.
In fact, many people who were once rich, end up broke a few years later. Do a search for broke Hollywood stars and lottery winners. Many lottery winners say winning the lottery was the worst thing that happened to them.
Your challenge is not to be rich, but to define how much you need to be happy. Do you know how much you need already? If not, check out my exclusive Needs Analysis spreadsheet.
I would never trade being wealthy for being rich. But I will take both.
What is wealth?
Being wealth on the other hand, is something different. I consider someone wealthy when they can stop working and maintain their current standard of living indefinitely. That means they have sufficient income to pay all expenses and some left over without needing to work.
This is based on a theme from the book The Millionaire Next Door. While the book is a couple years old, many of the concepts are still valid. You are truly wealthy if you can maintain your standard of living without the need to work. The wealthy do not trade their time for money.
Is my lawyer wealthy?
Without knowing the lawyer’s personal situation, I cannot say for sure. But do not be fooled into believing that the lawyer with the $1,000 suit driving the Mercedes, living in the Penthouse apartment and earning a huge corporate salary is wealthy just because he appears rich. In fact many people are rich, but are not wealthy.
If he stopped working tomorrow, how long could your lawyer keep making payments on the Mercedes and the Penthouse apartment? Does is income come from a job or investments? As they say in Texas, “Big hat, no cattle.”
Wealth is freedom
There are many people who invested wisely and now make most of their money without needing to work any longer. You will not see their names on the Forbes top 100 richest people list. Many of the people I know and partner with in my investments were common everyday people. In fact, few were executive level. The education background, the work background, the salary and jobs are all varied across my partners. However, they are all own many multi-family apartment buildings and no longer work for anyone else.
This group of people are late 20s to mid 40s and some are now in the 50s. Through investing, they became wealthy enough to stop working and live their lives on thier own terms. You can too!
The key is not to build a pool of money and then to drink from the pool. Drinking from your pool of money only reduces your wealth and leaves little behind for anyone else. Instead the truly wealthy, live off the income the investments produce without ever reducing the value of the investments themselves.
The goose that lays golden eggs
Think if you were a farmer and had a goose that laid golden eggs. Would you eat the goose or the eggs? If you said the eggs, keep reading. If you ate the goose, there is not much I can do to further help you.
How to become wealthy
If any idiot can be rich, how do you build wealth? How can you build enough wealth to pay you indefinitely with out needing you to continue to work for it? Actually this is not too hard, but it is hidden. Frankly, it is hidden in plain site. To do this, you need to increase your passive income.
Cash flow quadrant
The cash flow quadrant below is the way to become wealthy. You need to move from an employee or self-employed person (an active wage earner) to a passive income earner.
You become a passive income earner through building a business or being an investor. The Investor is the easier route.
Cash flow quadrant is how to build wealth and financial freedom
To be an investor, you need to find the right things to invest in. Real Estate is the only asset that lets me sleep well at night, provides continuous tax advantaged cash flow on a monthly basis, and fulfills my P.A.I.D methodology.
To be an investor, you need to buy assets that pay you to own them!
If you are not sure what an asset is, then I suggest you read a book that started it all for me and millions of other wealthy people: Robert Kiyosaki’s Rich Dad, Poor Dad.
Why real estate is the key to wealth
Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.
Andrew Carnegie
I personally invest in Commercial Scale Real Estate (Multi family apartment investing). This class of Real Estate pays me in multiple way through what I call the P.A.I.D method.
I like this asset class because it is tax favored. Taxes are the single largest expense all of us have. So minimizing your taxes will increase your wealth dramatically. Check out my article on tax impacts to wealth.
It is not speculation – meaning that I buy low and hope to sell high. No! Rather, this type of investment real estate pays me a strong monthly after fully paying all expenses.
Ready to be wealthy and rich?
If you want to know more about how to be wealthy, be financially free and how to get P.A.I.D via Real Estate, then read my e-book and the P.A.I.D with Real Estate post.