masterinvestor’s Newsletter
Posts
The Difference Between Rich and Wealthy

The Difference Between Rich and Wealthy

There is a big difference between being rich and wealthy. Ultimately, our goal is to become wealthy so figure out our wealth number today.

Master Investor
May 19, 2024

Summary:

Most individuals are unaware of the distinction between rich and wealthy.
We can tell if we are wealthy or not by looking at our Wealth Number.
Our retirement may be made or broken by our route to wealth.

The distinction between wealth and riches

People sometimes confuse being wealthy and being rich, believing that they are interchangeable terms.

Let’s learn today the distinction between wealth and rich.

A lot of people mistakenly believe that having money and being wealthy are synonymous. However, there is a distinction between the two: the wealthy don't worry about money, while the rich have a lot of it.

What we are saying is that although having a lot of money does not guarantee that we won't have many expenses that keep us up at night. These could include costs for credit cards, private school tuition, mortgages, auto payments, and more. To put it briefly, rich people (high paying employees and self-employed people) frequently attempt to stay in the Rat Race. The purpose of community here at masterinvestor, is to assist anyone escape the terrible world that is refer as the Rat Race. Rich people typically have high-paying jobs that require daily commuting in order to pay for the Rat Race. It's likely that they also worry about losing their job or being laid off.

Having money relieves us of these concerns. Why? What makes a difference?

The majority of people are unaware of what it takes to be truly wealthy. Actually, a lot of people mistake being wealthy for being rich, meaning that being rich means having a lot of money to spend but not truly being financially free.

What constitutes wealth

The term "wealth" can be defined in a myriad of ways. Wealth is a person's ability to thrive X number of days forward without working for earned income to sustain the ideal lifestyle.

This correlates to the following questions in terms of money: "How many days could we subsist if we stopped working today? With the money we have, how long could we last?

Most people don't have enough assets or resources to last more than a few months, so these are tough questions for people to ask. It might only be a few weeks for some.

However, those who are truly wealthy and those who have attained financial freedom we can simply see proved that they have assets that generate positive cash flow, or also known as passive income, on a monthly basis that often exceeds our living expenses by a large margin.

Those who are financially free can opt to never work a day in their life. Our cash flow income from assets is sufficient to pay our bills and wants. And that sums up wealth in its purest form.

To determine how much money we need to be financially free, use time rather than money

Wealth is measured in time, and rich is measured in money. The majority of people prioritize becoming rich over obtaining true wealth.

It is preferable to quantify our wealth in terms of time, or what we refer to as the Wealth Number, as opposed to monetary values.

The dual inquiry to ascertain our Wealth Number

There are two key components to answering the question, "If we (or you and your partner/spouse) stopped working today, how long could we survive financially?" in order to determine our Wealth Number.

Should a person cease to work now:It implies that we will no longer be receiving paychecks. We are no longer able to work for a company or a job, thus there is no revenue flowing in from those sources for whatever reason.
How much longer could we make ends meet?:We are talking about surviving at our existing level of living, not about selling our car and taking the bus, selling our house, cutting back on eating out, or anything else. How long would our money last, considering the amount we currently spend

The road to financial success: figuring out our wealth number

How does one go about becoming wealthy? This is how our Wealth Number is defined.

Term definitions

For the purposes of determining our Wealth Number, our money can include everything that can be turned into cash right now, such as savings, CDs, retirement accounts, liquid stocks (stocks we could sell today), and actual gold and silver that we own. It excludes things like selling our second car, furnishings, jewelry, and other items that might reduce our existing quality of living. It does contain dividend income flow as well as revenue from real estate rentals and other investments that generate income on their own.

Finding out what our monthly expenses are will also be necessary. Note: It's simple to deceive ourselves about how much we truly spend each month on expenses, so get out our credit card and bank statements and compare the average prices of all our purchases for the previous three months. Make sure to account for all of our expenses because the goal is to increase our income to support the lifestyle we choose, not to live below it.

Here at masterinvestor we pride ourselves of living above our means mindset rather than shrinking when attempting to build wealth.

However, perform this formula or computation once more, even if we have already completed it for ourselves. Why? Our finances are dynamic, meaning they are always evolving. What might think of a response that is comparable, or we might be taken aback by what we discover.

Perform the calculations

We can calculate our wealth by dividing our total amount of money available by our total monthly expenses when we know our total monthly expenses and our total amount of money available. This is the equation:

Our wealth number is equal to our monthly expenses / our available funds.

Our wealth figure can be found by doing the arithmetic and dividing your available funds by our monthly expenses. What is meant by that? The unit of measurement for our wealth number is time, in this example, months.

For instance, we would divide $25,000 by $5,000, or five, if our entire monthly costs were $5,000 and our total income was $25,000. Our Wealth Number is this.

It implies that, without working, a person might get by on the money he or she now has for five months.

Therefore, 24 months is what it signifies if our Wealth Number is 24. Six months is what we get if our number is 6. This calculator will therefore provide the precise number of months we might live if the person quits their job today, or if they and their partner did.

What's our number, then?

Embracing reality

This calculation is depressing for most people. It puts our money and us face to face. It is the clearest and most accurate representation of our current financial situation.

Many people have a Wealth Number of three or lower. This implies that they could only last three months or fewer without receiving a paycheck. They essentially exist from paycheck to paycheck. Some have negative numbers, meaning they are actually spending more money each month than they are earning.

Honestly, it makes no difference what our number is. Just like that, it's our number. We don't have to worry about it all the time or try to make it right or wrong. That's just the way things are. Clearly.

We now possess knowledge that the majority of people will never bother to learn. Most importantly, now that we are aware, we may act to alter and improve it if we choose to become free.

Recognizing the two approaches to retirement

Now, make sure our retirement plans take into account our Wealth Number.

Retirement can be thought of in two ways: the conventional method and the Master Investor’s approach.

After it comes to financial philosophies and methods, masterinvestor’s approach differs from others in the industry in that the majority of financial planners, specialists, fake financial teachers, spokespeople, and journalists anticipate two things happening after we retire:

Due to the absence of a job and increased medical costs as we become older and,
The employee or self employed standard of living will be lower in retirement than it was while they were actively working. We will have a set amount of money to live on that pays us a little interest.

These presumptions are not part of the masterinvestor’s ideology. Rather, we presume:

Every month, we receive passive income that either matches or surpasses our living expenses—forever.
Put another way, once we retire or stop working, we never have to worry about running out of money, and our level of living either stays the same or often rises. We compute the Wealth Number for this reason. Imagine knowing we are almost out of money when we are 70, 80, 90, or 100 years old is awful.

What does wealth mean to us?

Look at our finances now. Do we have a lot of money?

If the number in front of us makes us unpleasant, or even angry and depressed, that's excellent. Better still if it causes us anxiety regarding future retirement.

That simply indicates that action must be taken. To understand how to create long-term income flow streams, think about signing up for a free education program. We may also look into some free tools that might help us become more financially literate. It's never too late to start implementing improvements for our financial future.

Being alive and not mastering money through investing is like a race car driver without a car, when would he or she win a race if there is no car available to win? Never. Therefore, money is like the car we need to a coomplish our dreams and goals in the life. So let’s put the subject of money as number one in order to master it and have excess of cash flow from sound assets that our companies control.

To improve our wealth number simply focus on what the wealthy focus on

The ultra wealthy focuses on acquiring sound assets with companies. Then, using the surplus of the businesses to invest into acquiring more assets that produce positive cash flow and capital gains income.

Rule #1 in our community here at masterinvestor is that we focus on working to build passive income and making money multiple through sound investing.

Once we shift our mindset regarding money and equip ourselves with the right context and content then we create total freedom.

Today we are living in the best times of history due to the ability to communicate with the entire world at the same time.

Take a look at the diagram below, to understand rule number one. We focus on the assets’ column rather than a high paying job.

Invest for Passive Income (Positive Cash Flow) Like The Wealth Do

Also, the wealthy ensure that investing and financial education is a priority when it comes to our expenses regardless of the financial situation we are currently facing. Investing and financial education are expenses that create wealth for us which means total freedom.

Now take look at the wealthy mindset and way of operating:

Now think about the way awe move forward from here, so that we act more to the person we wish to become. Everything starts with patterns. Focus on putting more value in our why we do things, instead of the money alone. When we have a strong enough why, usually we persevere through the “difficult” times. Once we start developing our minds with the tools to beat this game of life, which in order to be able to do so, we must master money through business and investing.

Building wealth is not about shrinking, cutting expenses, saving money and living below our means, it is the very opposite of that poor mindset. Building wealth requires spending money (investing), acquiring more expenses, more liabilities and expanding our assets’ column with real assets that generate passive income and capital gains income for us. To the point that those assets help us reach Infinite Return on Investment.

That is when we are receiving money for nothing literally. The assets recoup our capital that we invest it and we still collect passive income from the asset even though we have no money of ours in the business or investment. Now we know that wealth is not measured only with money but also with time. Many people with money in their bank account but they are not free. What is our wealth number today? Let’s answer that important question daily and improve that number constantly.