Monday, June 8, 2009

Money, Money, Money - Wealth

A bit of a different one for me, I can feel a series coming on plus a shameless plug.

"Rich Dad, Poor Dad" by Robert Kiyosaki and Sharon Lechter. Buy it, read it, get Cashflow the game and play it.

This is not because I've just read it and think it's great. This is not because I know anything at all about economics. This is because I read it many years ago and I've been following it ever since. I gave a copy to DH, who never ever reads, and he now has the whole series. He has bought them as presents for lots of friends, and especially his sons. And just say that DH and I are in a far better financial position than your average teachers, including allowing me to be a SAHM with an extremely expensive hobby (nappy businesses don't make money!).

So bearing in mind that all of this is just my paraphrasing and the things I've taken from his message, I'm going to start talking about the bits that have had an impact on me.
  1. The definition of wealth

Apparently this is from Buckminster Fuller, who is fascinating in his own right. It's extremely simple and precise and makes a lot of sense. Basically, think of all your expenses. Wealth is when you can cover all your expenses from passive income. In other words, if you lost your job tomorrow, how long would it be before your expenses eat you alive? How long until you would run out of money? If the answer is never, then you are wealthy.

The philosophical reason I love this definition is because it discounts work. As I've said in previous blogs I think we put far too much emphasis on work, to the detriment of our health, happiness and families. This definition states upfront that the aim of the game is to do away with work. Or at least the need for work. If you have something you love and want to keep doing, fantastic. But I think we would all love to have the option of stopping for a while and the freedom to set our own direction.

The practical reason I love this definition is because it then becomes so simple to see what you have to do to achieve wealth. You either need to decrease your expenses, and/or increase your passive income. Decreasing expenses only works so far - we all need to eat. And there's not much point in not needing to work if you have to sit at home all day. So ideally there will be a bit of both.

What's passive income? Obviously, given I'm talking about not working, it's income you don't have to work for. So royalties, rent, dividends, interest payments, income from a business and things like that. It's the things that will still be there, paying your expenses, when you get back from your 3 month world tour. I'm discounting welfare, because that is income you have no control over. I don't think we can call it wealth if it depends on the whim of the government.

So how long could you live? (And no, we're not there yet, darn it.)

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