What is Wealth?
Wealth is the abundance of valuable resources or valuable material possessions and it is measured in time (for example; days, months, and years).
Formula: Wealth in years = net worth / annual expenditures
Using this measure, a millionaire worth $2 million, leading an extravagant lifestyle costing $1 million a year, only has 2 years of financial independence. The person worth $150,000, who only needs $6,000 a year to satisfy his/her lifestyle, has 25 years of financial independence. This person might never need to work again. On a side note, if you have assets that generate monthly income exceeding your monthly expenses, then you could theoretically live forever on your wealth.
The secret to becoming wealthy is that you must know the difference between an asset and a liability, and buy assets.
- An asset puts money in your pocket.
- A liability takes money out of your pocket.