What is Wealth?

I know very few people who don't aspire to be wealthy. But wealth is a concept that spans a broad spectrum, and I'm not talking about being rich in soul. I'm talking about possessing actual assets.

For some people, wealth means having multiple properties, luxurious cars, and traveling in private jets. For others, it could be as simple as owning a house and having enough passive income to support a middle-class livelihood.

The difference between one type of wealth and another one is Lifestyle. And Lifestyle is how much you must spend monthly to maintain status. For most people, USD 50k is more than a year's budget. For others, $50k barely covers their social commitments and the expenses to keep their household operations ... every month!

In any case, the path to becoming wealthy is a demanding process that requires hard work, discipline, persistence, and a bit of good fortune. But when it comes to money, it is as essential to know how to spend it, as it is hard to earn it. And even more important, to understand how to grow it.

In the end, increasing wealth depends on a straightforward formula:

Income: All activities or assets that generate revenue repeatedly.

It's not as simple as receiving a paycheck every couple of weeks or collecting an invoice now and then. Apart from revenue from inherited assets, earning money usually implies many hard sweats and stressful days. Making money means hard and smart work. It comes from creating or doing something of value and collecting cash for it. But it also means being smart about how to receive that money. There are factors like payment terms, taxes, banking fees, and others. The difference in the number of dollars in our bank accounts over a year can be significantly more if we are intelligent, diligent, and strategic.

Expenses: All activities that require cash to be taken out of our assets.

Cash in our hands is like chocolate. We might resist the temptation to eat it for some time. Eventually, it will make its way into our mouths. The human brain is creative in finding reasons to spend liquid assets, especially cash or cash-equivalents (money in the bank, credit cards). Spending money is a necessary part of life, but it's essential to do it wisely. When making purchasing decisions, it's critical to consider the long-term value of the item rather than just the short-term pleasure it may bring. It's easy to get caught up with expenses, especially those made with a credit card. But no household can tolerate too long ignoring our spending habits or debts. Although no budgeting method is perfect, any budgeting method is better than none.

Growth: Where our cash excedents are put to grow without our daily supervision.

Money is all about opportunity cost. When we choose to do something with it, such as invest it, we also choose not to do something else, such as spend it. It's always helpful to think of future selves when making an investment decision: "What will 20 years into the future me think of this decision?" If we don't have our lives or major expenses guaranteed for a few years or decades, investing in something that can become liquid in that time frame might be wiser. If in doubt, choose to put your money where it can grow and out of temptation.

Under the previous formula and concepts, to eventually be wealthy, there are two rules of thumb:

1. Consistently earn more than you spend
2. Consistently keep your growth exponent over 1

Wealth is a subjective concept that can mean different things to different people. Regardless of what it means to you, accumulating wealth requires hard work, persistence, and intelligent financial decisions.

It's not just about earning money but also about being strategic with how you receive it, wise with how you spend it and savvy with how you grow it.

You can eventually accumulate wealth by consistently earning more than you spend and keeping your growth exponent over 1. While the road to wealth is not easy, it is achievable with discipline and a long-term mindset.

Whatever type of "wealthy" you want, make sure it's your version and not a picture sold to you by a movie or, worse, an influencer. Ultimately, wealth is not about how much money you have but how you use it to live a fulfilling life.