How To Define Wealth

How To Define Wealth And Ways To Accumulate It?

Trish Davies looks at how to define wealth, how to accumulate it and the difference between being rich and being wealthy.

Hey, Trish here and the topic for today can sometimes become contentious. I want to look at wealth but specifically how to define wealth to give you clarity on what makes a person wealthy. There is also a clear difference between someone who is rich and someone who is wealthy. Therefore, I want to shed some light on that at the same time.

The general definition for wealth is the abundance of valuable possessions or money. The definition of being rich is having a great deal of money or assets. Now these two definitions sound very similar but there are clear differences.

The main difference is knowledge and experience. This means that wealthy people know how to make money but then they know how to make it work for them. Rich people only look at money at face value and make a lot of money through their jobs. This means that they measure their results by the monthly paycheque because money is their only motivating factor.

A wealthy person ensures that their money is working for them 24 hours a day through systems and investments. A rich person will invariably have a very well-paid job but when they finish their working day, they stop making money. Their income stream only reactivates when they go to work the next morning.

Rich Today, Poor Tomorrow? 

If you had access to lots of money at any one time you could class yourself as rich. Unfortunately, not having the mindset of a wealthy person can put you in unchartered waters. You can always face the risk of losing it and becoming poor again through the decisions that you make.

There have been many stories of people all around the world who suddenly become rich overnight. It could come from an inheritance or more likely from good fortune of winning a lottery. Suddenly they have a huge pot to dip into but simply don’t have a clue on how to manage it.

There is nothing wrong with having a spending spree and enjoying the finer things in life. The impulse is to buy expensive cars, maybe have exotic holidays, and having the latest gadgets and gizmos. Then there comes a point where the money starts to run out and they revert to the level they once were.

The things they have bought have either disappeared or depreciated in value and become liabilities.

How To Define Wealth Is Looking At Your Assets 

Wealth is created by acquiring assets and this is what wealthy people do. An asset would be something that you invest in which is going to then yield favourable returns on that investment. The most common asset would be property and is a long-term strategy which is what I have done for the last 5 years. Wealth can be yielded on many fronts when acquiring properties to become assets.  

Property can go up in value, but it could also go down in a recession. A person with a wealth mindset can spot an opportunity of buying at the right price. Over time they will see their initial investment grow both on the balance sheet and the bricks and mortar they own.

They can also rent out the property to give them a passive monthly income stream, or streams if they have multiple properties.  The key word here is passive meaning they are not having to do any work to generate the revenue.

For sure they will have costs to consider. Things like maintenance, insurances, and legalities. For this they would employ a property management team to handle this especially if they are far away from their assets. This is what I have in place because I live in Australia and have my property portfolio in the USA.

This strategy can work in both the residential and commercial sectors but the point to make is this. The asset is always there and working to generate even more wealth. Then if the time is right there is always the possibility to cash in and reinvest into something else.

A Wealthy Person Can Spot Potential 

There is a saying that you can’t buy experience. Experience takes time and is based upon the knowledge that you build up over that time. Wealthy people can spot opportunities and potential which is perfectly highlighted in business acquisition.

Unfortunately, there are always businesses that fall into hard times and there can be many reasons for that. Possibly mismanagement, not adapting the latest trends, recessions, and pandemics like where are going through now.

Wealthy people with the business acumen can spot these exciting opportunities and capitalise on them. They buy the acquisition for pennies on the dollar and use their experience to turn things around. Some people may see this as a risk but in many ways the greater the risk means a higher reward.

Once they have turned the fortunes of these businesses, they then scaleup. Once they reach a certain level, they then can sell a now healthy business and make extensive profits. They then go onto the next project and it becomes a rinse and repeat process which always adds to their wealth.

Higher risk strategies can bring in even higher rewards while building assets along the way. Here I am talking about stocks, shares, commodities, and currencies. These are markets that require detailed knowledge of when to buy and when to sell.

You can become wealthy if you know your limitations and don’t gamble. Wealthy people employ hedge fund and asset fund managers to control their investments. This is not a playing field you should enter if you don’t know the rules and regulations. You can though increase your wealth through such practices and then invest the money into things you know more about.

Playing The Long Game 

Another aspect of creating wealth is playing the long game and getting in at the right time. Look at Bitcoin for example which I know has a lot of bad press but there are people who have made a lot of money.

When Bitcoin emerged over a decade ago it started trading at around $0.50 for one Bitcoin. Today it is trading at around $9500.00 for one Bitcoin. The point I want to make is if you see potential in something new then wealth creation happens if you jump on at an early stage.

Facebook is another great example because when their IPO happened in May 2012 their share price was $38.00 Today their share price is just over $232.00. Finally let’s look at the Gold market.

In 2000 the price of gold was around $280.00 per ounce and today it is trading at over $1500.00per ounce. I am not going to work out the exact yield on each of these, but I am sure you can see the point.

Long term wealth doesn’t happen overnight so you must adopt this mindset. Look at investing money int things that have potential to yield more in the future. Some investments may be more volatile than others, so it is down to how comfortable you are at the time.

How To Define Wealth Is Having Assets And Not Liabilities 

Wealthy people don’t buy liabilities that are going to cost them money and depreciate over time. I have given you the example of expensive cars and other material things.

Buying a large house could be an investment but, in some ways, it is a liability. This is because it takes more money to maintain and it is reducing their wealth. This is because they are spending their own money to maintain it, so it is a liability.

Rather than go through many more examples the perfect way to illustrate this principle is Rich Dad Poor Dad. This is a book from Robert Kiyosaki where he compares the mindset of his dad and the mindset of his friend’s dad.

He catalogues the mindset of both men and the way they each viewed money. One made money through his job and the other made his money work for him to create more money. Get yourself a copy and I am sure that how to define wealth will become more clearer for you.

What Path Will You Follow? 

So what path are you going to go down? I recommend that you make your money work for you, so it gives you some real purpose in life.

Wealth can also be what you do with your life and have no monetary value. Giving back to society and helping people who are less fortunate than yourself is hugely rewarding.

The knowledge and experience you already have makes you a wealthy person. Maybe consider becoming a mentor to others as it is a perfect way to show how valuable you are. It is a different interpretation of wealth.

I hope that this article on how to define wealth and give you some clarity on wealth in general. Also, hopefully you now have a strategy in your mind to create your won wealth. Please leave me your feedback in the comment box below.

A life of freedom and choice

Trish Davies

Trish Davies International