There is a huge difference between being rich and being wealthy.  A rich person may earn a high salary, live in a mansion, drive an expensive car, have extravagant holidays… But what happens when they can no longer work?  Being rich is about earning a high income (more than what you need) at a given point in time.  But it does not mean it will last.  Some people inherit a lot of money and spend it all.  They are rich for a while and then it is all gone.

Wealth is about knowing how to make money and how to keep it, hopefully for many generations.  To be wealthy, your income producing assets must increase over time and your expenses must become less and less in proportion.  Wealth is often expressed as the number of months or years you can maintain your current standard of living without having to work.  You can also calculate a wealth ratio which you should check on a regular basis to make sure you grow your wealth.

For example:

A rich person may live in a mansion which produce no income, just a lot of expenses (maintenance, insurance etc.).  It may look impressive, but it is not really helping.  Say for argument sake the mansion is worth 5 million and his total monthly expenses are 20 000.  His wealth is zero (assuming he has no other income producing assets and he covers his monthly expenses by his salary)

A wealthy person may instead decide to live in a 1 mil house and buy 4 more house which is rented out.  let’s say his total monthly expenses are still 20 000 (unlikely) but he gets an additional income (over and above his salary) of 28 000.  His wealth can now be calculated as the total monthly income produced by his assets (excludes salary) divided by his total monthly expenditure.  So, his wealth is 28000/20000 = 1.4.  This means he can only maintain his current standard of living for 1.4 months.  OK, OK… so he is not wealthy yet, but if he keeps this up, he will be.

There is an old classic worth reading.  It is called The richest man in Babylon written by George S. Clason.  Follow the link to read it.  The English can be a bit of a challenge.  For those who want the short version, I will summarize.

George Clason wrote a series of pamphlets during the early 1900s about financial success.  The purpose was to provide insight to those with ambitions to be financially successful.   These pamphlets were distributed in large quantities by banks.  It inspired people and taught them how to be wealthy.

The book starts with a historical sketch of Babylon.  Babylon was one of the richest cities in the world… not because of its natural resources, but because they understood how to make money, how to keep it and how to make it work for them.

One day two hardworking but poor men looked at the wealth around them.  They felt truly discouraged.  Just like all of us they desired gold. They suddenly realized that there may be a secret to it and decided to ask Arkad for advice.  He was said to be the richest man in Babylon and he was always willing to share is knowledge and insights.

For a while Babylon was prosperous.  The king was building temples and the great irrigation system.  When the projects were done, things changed.  Suddenly people were unemployed and hungry.  The merchants could no longer sell their products because the people could not afford it.  When the king realized that all the money he paid for the projects where now in the hands of only a few wealthy people, he decided to once again call on Arkad for help.  He must teach the poor people so that they can also be wealthy. Arkad taught them the Seven cures for a lean purse.

The people of Babylon also had to learn how to attract the attention from the goddess of good luck.

Arkad taught his son the the five laws of gold

Marthon the gold lender of Babylon gave Rodan guidelines on how to make sure his treasure returns with interest.

Because of the wealth of Babylon there were always armies of men who attacked it in an attempt to take its treasures for themselves.  The Walls of Babylon and the bronzed gates where built to protect the citizens and treasures.  We cannot afford to be without adequate protection.

References

George S. Clason, The Richest Man in Babylon, First Published in 1926.  Free eBook distributed by BizBuildersUSA.org