In the present day world, the term “wealth” is often used interchangeably with “earnings”. The difference between these two is just as big as the gap between being poor and rich. Wealthy is not necessarily about being rich. True wealth is not necessarily accumulated wealth but the ability to acquire more wealth. It is not about having the means to accumulate more wealth rather it is about having the ability to transform the bare bones assets we have into assets that may be transformed into wealth.
Earning wealth is not the same as wealthy. What one earns in a month does not make one wealthy. What one has in value that may be converted into assets, are the possessions we have that can easily be turned into cash. These assets could be in the form of cash, savings, bank accounts, real estate and the list goes on. The fact is, the list could go on endlessly.
To be wealthy, does not necessarily mean you have more assets than your fellows and hence more worth. The worth of an asset is relative to how much other people are willing to pay for it. If you have a lot of assets, then you are wealthy. The relative worth will therefore be high compared to those individuals with a very limited amount of assets. This is why some people call themselves wealthy, but really are not, while others have little or no wealth and hence are considered as poor.
The reason why some people consider themselves wealthy is because they have made great investments and have seen the returns. On the other hand, poor people tend to invest almost nothing and their money remains relatively the same even though they have made a great deal of profits. Poor people’s assets are almost certainly lower than the returns on their investments. Therefore, poor people do not become wealthy unless they have something to pass down to their children. Rich people on the other hand invest a great deal and hence they become wealthy.
Now, there are many ways by which one can define wealth, and one of them is through the net worth. A person who makes a lot of money in their career will be wealthy. Likewise, a person who has built up a great business will be wealthy. However, this is where the financial firm factor comes into play.
Net worth is derived from the value of all the assets minus the total liabilities, such as home mortgages, student loans, credit card debts and so on. Assets minus liabilities become zero. However, this cannot be measured at a single glance. For one to be wealthy, one must have either high net worth or a high net worth and still be paying off debts. In this regard, it is clear that there are many people who do not meet both criteria.
It is very interesting to note that there are many rich people who are extremely poor in finances. On the other hand, it is also true that there are very few wealthy people who have extremely high net worth. Therefore, a person who has a great net worth but is bankrupt is not necessarily a wealthy person.
The point is that, no matter how rich you are, if you do not have the right mindset, you will never become wealthy. Wealthy people have the right mindset. They invest and they save a lot. They are not scared of risk and they do not mind paying off some debt. All these things play a vital role in becoming debt-free and wealthy.