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The Number One Reason For Wealth Today

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Do you know someone that’s extremely wealthy? Did they win the lottery? Did they receive a large inheritance? Or, maybe they acquire funds through a lawsuit? While these ways may be popular in the movies, I would be very surprised if your wealthy friend became wealthy through any of these mediums. Typically, wealth comes to those that think differently and go against the grain of society.

What is Wealth?

Simply defined, wealth is often explained as someone’s total assets minus their total debts. Sure, this is a bit simplistic, but for the most part, it’s right on the money (hehehe, I just couldn’t help myself….).

So, let’s say someone owns a $350,000 house, a $50,000 car, and a $100,000 yacht. Are they wealthy? Well, it depends. If they are $450,000 in debt and only own these assets that are worth $500,000, then I’d say no, they are most certainly not wealthy.

If, however, this another individual owned all of these items with no loans whatsoever and they had a few investments that earned a passive income, I’d say they are much closer to wealth than the first example.

Don’t Think Like The Poor

Sometimes it’s difficult to know if someone is poor or rich in our world today. By utilizing credit, one could borrow enough to own that $350,000 house, the $50,000 car, and the $100,000 yacht. All they have to do is make the payments!

With this “payment” mindset, the poor are programmed to think in terms of the weekly paycheck. If they take home $500 a week, they know that they’ll need to eat and pay some bills, which might equate to about $300 a week. So that means that they have $200 left! About $110 goes toward a house payment, $60 for a car payment, and $30 a week for a boat.

Notice that this “poor thinker” has all of the assets of someone that might appear wealthy, but they have absolutely no extra cash at the end of the week! Plus, 2 of their “assets” are depreciating as each day passes by.

It’s true that a monthly income is important, but if you’re trying to live the high life on debt, I’m telling you right now that you’ll be poor forever.

Think Like The Wealthy

Rather than thinking in terms of a weekly paycheck. The wealthy think in terms of net worth. This is the key factor that separates the wealthy from the poor. Let me illustrate this with an example.

When searching for a vehicle, the poor mindset is looking for the “most car they afford”, which basically means that the bank will give them X amount of dollars, so they are looking at vehicles in that range because they can make the payments.

Now, since the wealthy probably have the cash to afford a vehicle, they just find themselves a sweet ride, lay down a brick of hundreds, and drive it away no questions asked, right? Wrong.

The wealthy did not build up their bank account by frivilously buying depreciating assets. They know that a brand new car will lose 60% of its value within the first four years, which means that this “asset” could have been worth $20,000 brand new, but is soon valued at just $8,000. And, since the asset is depreciating, so it their net worth, which goes against the grain of the wealthy mind.

If you know someone that is truly wealthy, you know that they aren’t purchasing brand new cars that are worth $50,000. They will look for a good deal on a 4-5 year old car from a private party.

Your Focus For Wealth: Net Worth

If you can wrap your head around this simple concept, there’s no doubt in my mind that you will soon be considered wealthy as well. My wife and I are doing our best to implement this key principle, and we can tell that it’s starting to pay off big time! The value of our assets are increasing, and our liabilities are decreasing.

What are you doing to improve your net worth? Are you on your way to becoming wealthy?

Money

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

26 Comments

  1. My wife and I sort of live by this concept as well. We don’t have much at the moment because we’re still starting out but we plan on buying properties that would turn out as assets, and not liabilities.

    • Yep. When you start out, it feels like you have nothing because your net worth might actually be negative (with school loans)! But, just keep paying down debt and increasing your assets and watch that net worth number increase!

  2. I’m focused on building multiple streams of income and a sustainable online business to increase my net worth.

    I think more freedom and time is what really increases one’s true value.

    • Multiple streams of income will get you closer to your net worth goals as well! I think we’re all ready to have a bit more freedom in our lives to do what we please.

  3. Well said Sam. I am building passive income along with multiple ways of doing so. I want more free time doing the things I love to do.

    • Passive income is not always so easy to make, but if you can figure it out and live within your means, building that net worth will be a piece of cake! 🙂

  4. I learned this wealth secret from my parents. The only debt they had was a mortgage on their first house. They owned a second home and cars free and clear. They never had a credit card. I used debt to buy rental property and let my tenants pay my mortgage.

    Now I want to add to income without debt as I near retirement.

    • That’s a great lesson to learn from your parents! I think my parents taught this to me too, but they might have done it unintentionally. They were just trying to put some money away while raising 5 kids.

  5. I find it funny that there’s not a direct correlation between income and wealth. I see a lot of high earners that have nothing saved and low earners that could retire tomorrow. It’s fun to see.
    Much like you, I am always looking for ways to increase my income and diversify my income sources …along with no spending ridiculously.

    • Crazy isn’t it? Some people just spend money like it’s water and never hold onto any, whereas other people realize the importance of it and invest it wisely. Those that understand the importance of net worth often retire quite wealthy!

  6. I had a post that explains net worth handbills agree with your thoughts. I have been trying to save and invest to get my net worth up but when I get married a ton of money is going to go toward paying down my girlfriend’s student loans.

    • Yeah, when I got married, my wife incurred MY debt. Now that it’s all gone, our relationship has just gotten 100% better. 🙂 You’ll get there.

  7. Hi Derek! I am actually really impressed with this post you have shared here for us.. Thank you and keep it up!

    • I hope you learned something from it! It’s taken me quite a few years to truly understand what it takes to be wealthy. Now it’s just a matter of staying disciplined and doing it!

  8. Great post! I learned how to think wealthy indirectly from my parents. Although they both make a reasonable amount of money, they have a bill every month for the house and credit cards. I always told myself i did not want to live paycheck to paycheck and just kind of self taught myself to think like the wealthy!

    • Wow Ryan. You are pretty impressive! Most kids unknowingly model their parents’ lifestyle. Congrats for taking the wealthy road!

  9. Great Post I really enjoyed this one. It expresses how everyone should look at assets with a different mindset. I will add this one to my weekly carnival of posts.

    • Glad you liked it. There’s more where that came from! 🙂

  10. I consider net worth but I know myself to know I will not incur debt and that my net worth will only increase. I think of my wealth more as my investments and how much income my portfolio can produce. That is what will truly determine when I am financially independent and that is when I will finally think of myself as wealthy.

    • It sounds like everything you do though is increasing your net worth. Sure, your income can go up, but if you decide to keep buying depreciating assets with that income, then you’ll never experience wealth. I do get your point, but just make sure that net worth number keeps going up!

  11. For me, it’s less about wealth than it is about net worth. I started tracking net worth a few months ago as a motivator. And finally, this month, for the first time ever, we’re in the black. It is a *fantastic* feeling.

    We still have debt and we’re aggressively paying it down (my student loans will be gone in just a couple weeks – less than 8 months after they entered repayment and a full 2 months ahead of the early payoff schedule I had set), and we’re also investing for our future at the same time – attacking from both angles is the method that we’re most comfortable with. I find that looking at the monthly trends on debt reduction and net worth increasing are incredibly motivating. Creating wealth as we go is an added bonus.

    • I remember when we were back in the black when it came to net worth! It WAS amazing. Then, you’ll have an even better feeling when you’re completely out of debt! Sounds like you’re doing a great job. Keep up the good work!


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