How Rich Are You?

If you are to answer such a question honestly, what would it be?

Would you answer “I own 3 houses, 2 cars, a few stock investments, etc”, or “I am worth Php 1,000,000”, or “I earn Php 50,000 a month” etc. We often think of wealth as a money figure, whether in pesos or in personal assets.

One of the key concepts that I learned from the book “Rich Dad Poor Dad” was to think of wealth in terms of time. In other words, if you were to stop working today completely, how many months into the future can you (and your dependents) survive at your current lifestyle? Obviously, the higher this figure, the wealthier you are.

This is the formula:

Wealth = How long we can continue and maintain our lifestyle without working?

Here’s how it works. Let’s look at three different people and see who you would rather be.

  • Aileen has a Php 10000 in savings. She has Php 10000 in monthly expenses, but no passive income. If she quits working today, she’d be broke in 1 month.
  • Mary has Php 25000 in savings, Php 15000 in monthly expenses and Php 14000 in monthly passive income, money that comes in every month whether she works or not. If she quits working today, her expenses would be covered for over 2 years.
  • Tina has Php 5000 in savings, Php 30000 in monthly expenses and Php 32000 in passive income. She doesn’t have to work at all and she is fine.

So who is financially free? Who is really wealthy?

Obviously, Tina is the wealthy one here. You’ll notice that we didn’t care to see what she owns.

The key is not to focus on the pesos in the bank, but to look at the difference in your passive income compared with your expenses. The functional word in that sentence is PASSIVE. Money that comes in that you DON’T have to work for. The higher our passive income, the wealthier we are.

Two other important factors that determine how wealthy you are include your expenses (the lower the wealthier we are) and savings (the higher the wealthier we are).

Hope you’ve learned something. Here’s to your wealth!

photo credit: Mega Mall, Mandaluyong, Metro Manila via photopin (license)

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