Wealth is a person’s ability to survive so many number of days forward—or, if I stopped working today, how long could I survive?
Unlike net worth—the difference between your assets and liabilities,
which is often filled with a person’s expensive junk and opinions of what
things are worth—this definition creates the possibility for developing
a truly accurate measurement. I could now measure and know where I was in terms of my goal to become financially independent.
Although net worth often includes non-cash-producing assets, like stuff you bought that now sits in your garage, wealth measures how much money your money is making and, therefore, your financial survivability.
Wealth is the measure of the cash flow from the asset column compared with the expense column.
Let’s use an example. Let’s say I have cash flow from my asset column of $1,000 a month. And I have monthly expenses of $2,000. What is my wealth?
Let’s go back to Buckminster Fuller’s definition. Using his definition, how many days forward can I survive? Assuming a 30-day month, I have enough cash flow for half a month.
When I achieve $2,000 a month cash flow from my assets, then I will be wealthy.
My next goal would be to have the excess cash flow from my assets reinvested into the asset column. The more money that goes into my asset column, the more my asset column grows. The more my assets grow, the more my cash flow grows. And as long as I keep my expenses less than the cash flow from these assets, I grow richer with more and more income from sources other than my physical labor.
As this reinvestment process continues, I am well on my way to becoming rich. Just remember this simple observation:
- The rich buy assets
- The poor buy expenses
- The middle class buy liabilities they think are assets