“Get Rich or Die Trying”
— Curtis James Jackson III
The McLaren, the Lamborghini, the Rolex, designer goods, the first class travel and exotic beach holidays in the Seychelles?
Most of the time these ‘Doodats’ (Rich Dad Poor Dad) are what the outside world sees as Rich via your Instagram stories. But only your bank manager or financial advisor knows the truth.
What would you rather be? Rich or Wealthy and what is the difference? This is not a dictionary correct definition but it is commonly quoted in Business and Personal Finance book.
Consider this question…
Who is Wealthier?
A – Someone earning £1m a year on a salaried job with £1M of expenses and no assets over 10 years. Lets ignore taxation and inflation for a second.
B – Someone earning £50k on a salaried job with £20k expenses and £30k invested over 10 years.
- Person A could be classed as having a Rich lifestyle but would have zero assets or cash after the 10 years. Once the money stops flowing, they will not be able to continue in any fashion and will need to look to the state to help them (if you are lucky enough to live in a Welfare State)
- Person B would have at the minimum (assuming Cash or near Cash investments) £300k invested after the 10 years. This will last them 15 years at the same expense rate (ignore inflation for a second). But what if they were to invest into higher growth assets like Stocks or income producing assets like Property?
Wealth is actually a measure of financial freedom. It answers the question, “How long can I survive without earning an income where I exchange my time for money?”
So a £1M+ income may be considered Rich. But if they are spending £1M on expenses with no other savings, they might as well be poor. They are entirely dependent on exchanging their time and abillities for a pay cheque to survive. The day they leave that job or cannot exchange their time (sickness, injury) anymore, they may not be able to afford their expenses and could quickly jump out of the Rich category into Poor. Many highly paid sports personalities (especially in the Premier League, NFL and NBA) have ended up bankrupt because of poor financial decisions like this.
Whereas a Wealthy person could survive without a pay cheque for an extended period of time as long as they have enough money invested to cover their expenses. And those who are smart enough (like you – reading this), could amass enough growth and income producing assets to live without a pay cheque for the rest of their adult lives – a.k.a Financial Independence!
“Be Frugal, Increase your income, Invest the difference.”
If you haven’t done so already read about my FatFIRE journey and our FatFIRE number.
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