What Is Wealth?
The key measure of wealth is determined by taking the total market value of all your assets owned, then subtracting all your debts. This is called your “net worth”. This is worth repeating. Your net worth is the key measure of your wealth.
This was the absolute, #1, revelation that started my wealth journey over thirty-five (35) years ago. I learned that this was a key metrics that banks and financial institutions considered when determining if they are willing to risk loaning money to individuals or businesses.
This was an eye-opening experience for me. I like to call it my “light bulb moment.” This was when the lights came on and illuminated my path to building wealth. It shifted my mindset and limited belief of believing that banks didn’t want to loan money to people due to the color of their skin. I came to the realization that banks, simply, did not want to loan money to individuals or businesses that did not have adequate, or no, net worth, and who was deemed risky. This does not negate the fact that systemic racism exists, but the point that I want to make is, when I shifted my focus to learning more about how the financial system works, to obtain financial wealth, it created a monumental shift in my perception in moving forward. As a result, I began to make choices that led to success in my personal and business life.
This newfound knowledge gave me the starting point of growing my net worth from “0” to a number that still amazes me, today. I can honestly say, “the gaining of information and knowledge literally changed the trajectory of my life.”
Before we explore further, what wealth is, let’s examine what wealth is not, and what keeps us from acquiring wealth and financial freedom.
Like many of us, we think expensive sports cars, the huge, gated mansion, designer clothes, lavish vacations, fine dining, excessive spending determines one’s wealth. There is nothing further from the truth. There is this saying, “all that glitters is not gold.” Just because one looks successful, doesn’t mean it’s so. Due to a lack of information about that person’s total finances, i.e., what’s own (assets) minus what’s owe (liabilities/debt), that individual could very well be poor, lacking financial freedom and education.
To drive this point further, below, I have provided a simple illustration of a poor net worth vs. a positive net worth/financial freedom.
Example #1 - Poor Net Worth
Assets
Liabilities
$310,000.00
$40,000.00
$88,000.00
$80,000.00
$40,000.00
$45,000.00
$603,000.00
Example #1 - Poor Net Worth
Assets
Liabilities
$310,000.00
$40,000.00
$88,000.00
$80,000.00
$40,000.00
$45,000.00
$603,000.00
Example #2 - Positive Net Worth/Financial Freedom
Assets
Liabilities
$180,000.00
$4,000.00
$29,000.00
$90,000.00
$8,000.00
$40,000.00
$5,000.00
Estimated Net Worth (Asset Minus Liabilities): ($362,000)
Both individuals’ net income is the same, but due to their different spending habits, Example #2 will reach true wealth status, when Example #1 only appears to be wealthy and obviously lacks financial freedom due to poor financial management.
So, from this point forward, please, do not assume one is wealthy by their material possessions. Instead, focus on your bottom-line number, because knowing your net worth helps you track your progress, as you move toward improving your financial position.
Example #2 - Positive Net Worth/Financial Freedom
Assets
$4,000.00
Liabilities
$180,000.00
$29,000.00
$90,000.00
$8,000.00
$40,000.00
$5,000.00
Estimated Net Worth (Asset Minus Liabilities): $362,000
Note: Both individuals’ net income is the same, but due to their different spending habits, Example #2 will reach true wealth status, when Example #1 only appears to be wealthy and obviously lacks financial freedom due to poor financial management.
So, from this point forward, please, do not assume one is wealthy by their material possessions. Instead, focus on your bottom-line number, because knowing your net worth helps you track your progress, as you move toward improving your financial position.
Now, let’s explore what true wealth is.
There are many other factors involved in the wealth building process, which I have listed below, and go into greater detail in my book “Your Guide to Personal Financial Freedom/Workbook.” It is a process of learning, implementing the strategic action steps, self-discipline, and determination to staying the course.
Other Key Elements to how wealth is measured:
- Total cashflow (net income vs. expense)
- Having immediate access to cash
- Borrowing capacity
- Time Management
- Financial Independence
- Relationship building
- Total cashflow (net income vs. expense)
- Having immediate access to cash
- Borrowing capacity
- Time Managemen
- Financial Independence
- Relationship building
The ultimate meaning to being wealthy:
- Leaving a legacy
- Allows you to give and have an impact on others
- Gives you options in life
It is my heart’s desire that you reach financial independence. That is why I am dedicating my time and energy today, to assist you on your financial journey.