What Does Being Rich Really Mean To You?

Almost everybody dreams about being rich at some time or another.

The trouble is, the term ‘rich’ is very ambiguous, and it means a lot of different things to different people.

One of the biggest sources of this ambiguity stems from the fact that most people confuse income with wealth.

There is an assumption that high income earners are wealthy. This is not always true because income is NOT wealth. I know a number of people who earn a lot of money but are living from paycheck to paycheck.

If you earn a high income and you are a big spender, you cannot accumulate wealth.

Interestingly, if you go to the Forbes website, you will notice that the world’s most powerful celebrities are ranked by pay while the richest people in America are ranked by net worth.

Your perception of what being rich means to you will have a direct impact on how you will go about pursuing wealth.

In this article we are going to look at 3 different phases of wealth and how knowing the salient features of these phases can have a profound impact on your financial plan.

Freedom from debt

The first milestone to accumulating wealth is being free from consumer debt. This is because debt has a financial cost (interest) that represents an income leakage for you, especially if your personal debts are as a result of buying consumer goods on credit.

You can read more about getting out of debt here. Once you are free of consumer debt, you can focus better on getting to the next stage of wealth.

Financial freedom

Not having to work for money yet you control assets that support your lifestyle. Your personal skills can only support you for so long.

At some point in your life, you have to decide whether you are going to keep working for money all your life, or start accumulating assets that will generate cash to replace your working income.

Financial freedom is achieved when income from your investments is enough to support your lifestyle and you don’t have to work for money. If you live a simple life, you will be able to get there faster.

Affluent

Your wealth is more a factor of what you do with your earnings as opposed to how much you earn. At this stage, you clearly have more income than you can spend.

You never have to work another day in your life, but you keep working because you are getting some form of satisfaction from what you do.

The starting point of wealth accumulation is having the right mindset. It is possible to go through these phases at one go and lottery winners do it all the time.

However, if you do not have the mental preparation to handle the responsibility that comes with wealth, it is only a matter of time before you end up right back where you started.