Have you ever asked yourself the question, “Am I wealthy?”
If you’re living paycheck to paycheck and have tens of thousands of dollars in debt…then the answer is pretty simple. No, you’re not wealthy. In fact, you’re a financial disaster waiting to happen. I’d seriously be scared if I were you.
But, if you’ve been reading this blog for a few years, have gotten yourself out of debt, and actually have a nice buffer of cash, well maybe you’re finally one of the wealthy ones….but how can you know for sure?
How to Know If You’re Wealthy
If you watch too much TV or get a little too caught up in the lives of the rich and famous, you might think that wealth has to do with:
- What you drive
- What you wear, or
- Where you live
At this point, I think we pretty much all know that flashy cars and monster houses mean nothing about your actual wealth. Heck, you could drive a $40,000 BMW and live in a $500,000 home, but if you’re $600,000 in debt, then you’re actually worth less than a 7-year-old child! And you know what? You’re definitely not wealthy!
What you drive, what you wear, and where you live has absolutely nothing to do with your wealth. So what does?
I bet I know your next guess. About 70% of you out there probably think that wealth has everything to do with how much money you earn.
Also not true.
Doctors, lawyers, and corporate executives might earn a ton, but if they spend everything they earn (and many of them do, just to keep up with the Joneses) then they still aren’t anywhere close to wealthy.
Having a monster income can certainly help improve wealth, but it’s not the deciding factor.
How to Know If You’re Wealthy – The One Question
If I want to know if you’re wealthy, I’m not going to ask where you live or what you drive, and I won’t even ask about your job or your income.
All I have to do is ask this one simple question:
“If you lost your job tomorrow, how long could you survive?”
Oh and by the way…you can’t use your retirement savings or the sale of your house. I’m talking about true wealth here – which means I want to know how long you could survive without doing anything drastic!
So before I interrogate you and force you to answer this question (this comes at the end of the article), what does the answer actually tell me about you?
1) Your Expenses
If you can live for quite a long time without your regular income, this tells me that you spend less than you earn on a consistent basis. If, on the other hand, your time-frame is quite short, you likely have debt and would quickly get behind on your bills in the even of a job loss.
2) Your Nest Egg
Can you survive for quite some time without that consistent paycheck hitting your bank account? That’s probably because you’ve set aside a healthy emergency fund – one that you can pull from in the event of an emergency such as this. Well done. If not…it’s probably because you tend to save very little for that inevitable rainy day. Sure, there’s no rain in sight, but even in the desert it pours from time to time…
3) Your Assets
For some of you, your answer to my simple question is, “Forever”. But how could that be? How is it that some people could survive for decades without their main source of income?
The answer: Assets — income producing assets to be exact.
When you own shares of stock, rental properties, or maybe even a flourishing side-business, even though you lost your day job, your other sources of income don’t stop. And with that income, you could just keep on living like nothing ever happened. Now THAT’s what I call wealthy.
How to Know If You’re Wealthy – In Summary
Alright, so there’s obviously opposite ends of the spectrum – some wouldn’t last 8 seconds while others could survive for centuries – but what’s the gauge for wealth? How long do you have to last to be considered wealthy?
(Remember, you can’t use your retirement savings or your house!!)
Lucky for you all (or unluckily…depending on where you’re at with your finances), I developed a wealth meter. Check it out and let me know where you land! Are you wealthy? Or do you still have a ton of work to do?
So what about you, where do you land? Are you broke? Are you teetering on the verge of broke? Unless you’re wealthy, I’d say that you have some more work to do financially.
Enter your results in the poll below and let’s see where we all stand!
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.