3 Different Useful Definitions of Wealth in the 21st Century
In the english language a single word can have many meanings, and what a word means to you may be completely different to what it means to me. In no word is this more apparent that the word wealth.
The word wealth means different things to many different people. Just as the word “Father” instills anger in one person and comfort and happiness in another based on their upbringing and life experiences the word wealth can mean many different things to people also.
Believe it or not but which definition of wealth you choose will make a big impact on how financially successful you actually become.
Many of my view of wealth are taken from Robert Kiyosaki who is a best selling personal finance author. His books Rich Dad Poor Dad and The CashFlow Quadrant (as well as the rest of the books in his series) redefined how I viewed wealth and I think there are some powerful lessons we can draw from it.
1. The True Definition of Wealth – Financial Freedom
Robert Kiyosaki defines true wealth as financial freedom. That is, having more passive income coming in each month and you need to pay in expenses.
He defines wealth in terms of months…not dollar figures. If you spend $4,000/month in living expenses and have $8,000 in the bank your wealth is 2 months.
If you spend $5,000/month and have $20,000 in the bank your wealth is 4 months.
If you spend $3,000/month and your investments earn you $4,000 per month in passive income your wealth is infinite (until you die).
Looking at wealth and defining wealth in this way is important if you want to stop trading time for dollars and you want to gain more control over your time and your finances.
2. The Flashy Lifestyle
Another definition of wealth is wealth in material possessions. Wikipedia defines wealth as the abundance of valuable resources or material possessions.
This is the most technically accurate definition of wealth (from an oxford dictionary point of view) but will keep you on the hamster wheel of debt of consumer spending.
Who is wealthier? Someone who earns $1,000,000/year or someone who earns $50,000/year?
Everyone would say the first person who earns more. But what if I told you that the person earning $50,000/year didn’t have to work AT ALL to earn their income (it’s all passive) and the person earning $1,000,000/year works 80 hours a week in a job they hate and never gets to see their friends or family. Not to mention they have constant back pain and flu symptoms due to excessive long term stress.
The $50,000 all of a sudden looks pretty good.
Yes you can accurately define wealth as an abundant lifestyle funded by a high income and no one is going to accuse you for not knowing your dictionary well enough. But will it lead you to a truly fulfilling life? Or just one with a lot of toys but not a lot of time to play with them.
3. Having Lots of Money in The Bank
You’ve got $500,000 in the bank and I have $100,000 in the bank. For people with net worth as their definition of wealth you are much wealthier than me.
But your $1,000,000 earns you 5% interest per year (or $25,000/year) and you hardly have enough money to get by, let alone do anything fun. Where as my $100,000 earns me $100,000/year…oh and I live in Chang Mai, Thailand so that $100,000 means I live in a mansion on the water, have 3 house maids and a personal masseuse.
A dollar is a dollar is a dollar isn’t really true in today’s society and while technically you may acquire more money than me it doesn’t mean you are any happier or any wealthier.
No definition of wealth is right or wrong. But the different definitions you have will determine the wealth you achieve in your life.
Why Your Definition of Wealth Is So Important
Our minds are trained to be heat seeking missiles. You likely drive your car everyday and hardly pay attention to the other cars on the road. But if I told you to look out for red cars then all of a sudden your mind starts seeing red cars everywhere.
Previously you wouldn’t have paid any attention to it but now you see them everywhere. This is the focus of your mind in action.
You will also notice that you didn’t notice how many blue, green, silver or black cars there were while doing this example. Only red cars. This is because your mind is focused on red so it removes everything that isn’t important for your search.
The same goes for wealth. You mind will be trained to look for wealth as you know it and will ignore everything else.
If you have the wrong definition of wealth your mind will focus on the wrong opportunities and you won’t gain true wealth. However, if your definition of wealth is one of passive income then over time you train yourself to see and act on passive income opportunities.