In 1997 Robert Kiyosaki published a personal finance book called Rich Dad Poor Dad. The book instantly became a phenomenal success and in no time catapulted Kiyosaki to the world of fame. In one of his books he mentions that there is a disparity between being rich and being wealthy and he went on and said something surprising that the rich have lots of money but the wealthy don't worry about money.
And I found this very interesting because I've always thought that the two go hand in glove that if you're rich then you're also wealthy and that if you're wealthy then you're probably living a very comfortable life. But this isn't always true, when I think about someone who's rich, I think about someone with a lot of money and I typically think about someone who's quite showy with their money. They drive fancy cars and live in a fancy house they wear fancy clothes and eat at fancy restaurants.
Growing up I wanted to be rich, I wanted to own a big house, live in a fancy neighbourhood, drive a luxury car and buy expensive clothes, I wanted to sit in the best seats at sporting events and travel the world any time I wished. Heck I wanted to go to Mars and I've got to be honest some of those things still sound good to me now. Kiyosaki said the rich have lots of money but the wealthy don't worry about money.
I thought about this for a while, the wealthy don't worry about money. Growing up I've lived in a relatively financially stable family, we're not rich but we're not poor either we're middle-class if you will. Both my parents work nine to five jobs and they work really hard to provide for me and my siblings somehow they've managed to pay for mine in my siblings tuition while at the same time making sure we have food to eat and a roof over our heads I can't say things have always been rosy there have been months where money was a serious concern and we weren't sure whether they would manage to pay for all our tuition, bills, and expenses.
I watched my parents struggle and I didn't ever want to live a life like that and when I read that statement the wealthy don't worry about money I thought to myself well that must be a really nice thing to have. Imagine never having to ever worry about money, who wouldn't want that? I want to be wealthy and rich so I decided to do a bit of digging to try and find out the difference you see having lots of money is nice and all but I believe not ever having to worry about money is even better.
So after a bit of research this is what I found out and I think this might surprise you a lot. There actually is a difference between being rich and being wealthy. The simple difference between a rich person and a wealthy person is that a wealthy person has sustainable wealth, in other words a wealthy person will always be wealthy.
Whereas someone who is merely rich will only be rich for a short period of time until the money runs out. I'm sure a lot of you have heard stories of rich actors, celebrities, professional athletes and so on who were once living fancy lifestyles with big houses, nice cars, expensive clothes and vacationing all over the world, but are now on the verge of financial bankruptcy because of poor financial skills and trying to sustain this kind of lifestyle for many years. You've heard of the lottery winner who went to bed one night in debt and woke up the next day an instant millionaire, but due to poor financial management, ends back up where they started or in an even worse situation.
So let's use Lucas as an example, Lucas is a surgeon with an annual income of $310,000 most of this income is earned from his work with only 5% coming from some investments a couple of his colleagues enticed him to invest in. By all accounts and standards, Lucas is a rich man, he has a big house, he's living in a good neighborhood, he has two luxury cars, one for himself and the other he bought for his wife. His children go to good private schools and he has membership in the local Country Club.
So clearly Lucas has lots of money at his disposal, so he uses this money to make sure he fits in and looks the part of a respectable surgeon in society, obviously Lucas has expenses, as does every other person, he has a mortgage to pay, he has transportation costs, he has to feed his young family, he has to pay health insurance, he has to pay taxes, he has to put aside money for his kid's college fund and he has to buy another expensive anniversary gift this year. Did I mention the annual vacation he takes with his family? when you subtract these expenditures from his annual income, then remove the savings and the little investments he makes here and there, Lucas is not left with much.
In total Lucas spends about $21,500 every month on expenditures and he has savings amounting to $43,500 in his bank account. And so since wealth is defined as the status of an individual's financial resources to sustain the individual's way of living, for a long period of time even if the individual stops working. In essence, this is money coming in on a consistent basis that's able to sustain your current standard of living for many years.
This means that should Lucas lose his job today together with all the benefits accruing from it, Lucas should be able to feed his family for only two months. After which he'll immediately need to find an alternative source of income. Lucas is rich, he's not wealthy.
Now let's look at an example of a wealthy person. Kiyosaki said that while the rich have lots of money the wealthy don't really have to worry about money. Let's look at Bill Gates.
Bill Gates is one of the richest men in the world he's a business magnate, an investor, a philanthropist, a humanitarian and an author. As of early 2018, Bill Gates was worth a mammoth $97. 4 Billion Dollars.
It's estimated that every second, Bill Gates earns about one hundred and thirty dollars, which translates to around $78,000 every minute. This is to say that in an hour bill makes more money than Lucas earns after a whole year of working, yet Lucas is considered rich. Being wealthy is essentially being financially free.
This means that you don't live paycheck to paycheck and you don't necessarily need to make any more money over a long period of time, because you have enough money saved or passive income flowing in from your assets and investments to maintain your current lifestyle for the rest of your life. Bill Gates doesn't actively work for the $135 that he made this second or the almost $78,000 he will learn by the end of this video. This is passive income that he gets in his sleep when he is playing golf and when he is giving away four billion dollars annually to cause us that he cares about.
Wealth is sustainable richness, basically a rich person who never runs out of money. If Lucas quits his job today, he will most likely get bumped into the middle-class. If Bill Gates decided to retire today and become a sedentary person who eats sleeps and eats again, he could maintain his current lifestyle for the next 213 years.
But you don't necessarily need to have gates kind of money, or own a large business like Microsoft. As long as you have income flowing in that you're not directly working for, such that if you were to stop working today but you can still maintain your current standard of living, then you are considered wealthy. Usually when you think of a rich person, you think of someone who buys both their wants and their needs.
You know the $5,000 suit, the $3,000 watch, a luxury imported car, usually German made. The big house on the beach and so on. Just because someone exhibits these "Rich behaviours" it doesn't mean that they have their personal finances in order, sometimes these people you consider rich are actually living paycheck to paycheck or drowning in debt.
Many people who say I want to be rich aren't actually looking for financial security, what they want is the social status and prestige they associate with a million dollars Club. So now I pose this question to you, do you want to be rich or do you want to be wealthy? and if so how?
Thank you guys so much for watching and I'll see you in the next one.
