What is wealth, really?
Some people think it is having a large income. Others may think it is cash in the bank. Or it may look like a nice car or a big house.
A Definition of Wealth
But let me give you a better definition: wealth in its purest form is an abundance of resources that one accumulates over time.
A Breakdown of Wealth
Resources. The word resources doesn’t only apply to money. It could also mean items of value like cars, electronics, jewelry, house, etc. These things are called assets, things of value that can be sold. Things that are not assets, for example, are academic degrees or work experience. You can’t sell these things on eBay. For my fellow Brooklyn folks, I heard someone was trying to sell Williamsburg air. And eBay proceeded to deactivate that person’s account.
Accumulation. Wealthy people accumulate resources over time. For these people, the amount of resources tend to build over time while their debt or expenses stays stagnant. Accumulation of resources occurs when one’s income outpaces spending on a consistent basis. Note that this has nothing to do with the level of income. You can have a high level of income but be broke. Or you can have a low level of income and be a millionaire. How is this possible? It is called living below one’s means (which I will explore in a future post).
Abundance. Abundance means that you have more than enough resources to take care of immediate needs. It is to the point that you have extra of stuff and money stocked up somewhere. As a result, wealthy people don’t live paycheck to paycheck because they have enough cash saved up in the case of an emergency. They operate consistently in surplus.
As I think through these things, I realize that most of us are not even close to being considered “wealthy”. Notice that I did not include any numbers so far. The reason? Because wealth is a moving target. Consider this: we make up the 1% in terms of household income from a global perspective. Also, consider if you have an annual salary of $34K with no increases, you could make $1.3M over a 40 year career. My point is this: we currently live in a society where our actual wealth is high and our relative wealth is low. Wealth is relative.
Actual Wealth vs. Relative Wealth
Actual Wealth pertains to the actual worth of one’s assets, while relative wealth is looking at wealth relative to those around you. Let’s see how this plays out. Take the following example: let’s say you have $10K in assets in your possession, with no debt. Looks like you are doing well. As you survey majority people in your neighborhood, you discover that they only have $5K in assets and $5K in debt. Now you are doing really well in comparison to them! But then you go to your corporate job downtown, and happen to find out that most of your co-workers have $100K in assets and no debt. Now, when you look back at your measly $10K, you feel broke!
Reframe your perception of wealth by focusing on Actual Wealth
Wealth is contextual, so it is best to look at your own context before setting any benchmarks for wealth. The reality of your financial life is this: there will always be someone poorer than you, and there will always be someone wealthier than you regardless of where you are at financially. Once you get this, you will immediately remove some of the burdens of “keeping up with the Jones”. It frees you up to focus on yourself instead of what other people or society determines as wealthy.
“The definition of wealth is being able to survive [a significant amount of time] without physically working (or anyone in your household physically working) and still maintain your standard of living”
Robert Kiyosak, author of “Rich Dad, Poor Dad”, is referring to what many finance bloggers call “financial independence”. In other words, wealthy people are not dependent on their jobs or businesses to the pay the bills. They don’t owe anyone; not people, banks or credit card companies.
Wealth looks different for everyone depending on where one lives and how one lives. I wish I could give you a number, but I can’t. For example, a $50K salary can take you a lot further in Wisconsin than in New York City. Check out this cost-of-living calculator if you don’t believe me.
The conclusion is that you define what wealth looks like.
“If I ask a homeless man what wealth is, he may say it’s having a pair of shoes, a warm coat, and a place to sleep indoors for the night. A millionaire business woman might say that to her, wealth is about having several properties and a private jet; for her it might mean sending her children to the best Ivy League schools. A single mom might tell you that wealth is a comfortable home and enough money to feed her children and buy their school supplies.”
What Wealth Means to Me
I was debt free when I got married, thanks to my parents. Unfortunately, my wife wasn’t, but we pushed through it. We live in NYC, which is arguably one of the most expensive cities in the world to live in. It took us about 4 years to clear through $40K in student loans and we finally became debt free earlier this year. And somehow we did it on a single income (with a baby to take of) for most of that time.
I live in Brooklyn. The thing about Brooklyn in 2017 is that there are wide swings of wealth depending on the block or the neighborhood. At any moment, I could be the wealthest person on the subway or the poorest person. But that is the beauty of New York. You see everything here. All this to say, the culture of NYC has definitely influenced my perspective of wealth.
Over the years, I have tried not to define myself based on what everyone else is doing. This same principle holds true with my understanding of wealth. My vision of wealth is that I will have enough resources that I am not tied to a paycheck every two weeks. Wealth for me means that I am financially secure enough that a medical emergency or job loss won’t sink my finances. My hope is that I approach work or side projects (like this blog) from a place of joy and not anxiety. I know too many people who are working to pay bills instead of looking for ways to add value and make a difference for their companies or clients.
What does wealth look like for you?
As you consider what wealth looks like in your own life, I would challenge you to take an assessment of your current level of wealth (or lack there of). In another post, I discussed Net Worth, the measurement of wealth, and how to go about calculating your own net worth.