Creating Wealth Tip – You Don’t Have to be a Millionaire to be Wealthy
When it comes to creating wealth, it’s helpful to understand:
What is a millionaire?
Seems like a pretty simple, straight forward question, right?
Turns out its not. The black and white definition of the word – having one million units of a currency – doesn’t do it justice.
In this country at least, “millionaire” has a special connotation, a special meaning. It is not just a word or a certain amount of money. A millionaire is a status, a symbol, even a class of its own – an exclusive club reserved for seemingly only the smartest and most talented (or some would believe “luckiest”) among us…
How silly is that?
Why do we put the accomplishment of millionaire, the attainment of $1 million so high on the pedestal; why do we admire and give so much respect for people who achieve this level of financial success?
First of all, a million dollars isn’t as big a deal as it used to be years ago, prior to our fiat dollar being so highly inflated (along with all the other currencies of the world as well). When you could buy gas for 25 cents a gallon, a million dollars went a long way, meaning that you if you had a million dollars you could pretty much do as you please and live how you wanted to. That is a lot of the reason why the term millionaire has become such a synonym today for financial success – because of what it afforded you (in the past, anyway).
Back then, a million dollars was enough money to buy someone financial freedom. According to Wikipedia, a millionaire back in 1959 is the equivalent of $7.3 million today (and with inflation that number increases by the second). So when most people only lived a few years beyond retirement years ago, and if they had $7.3 million (in today’s money), you could see how most would be willing to work their whole lives thinking that if they could just make a million dollars – become a millionaire – they would no longer have to work and would be able to live the rest of their life in style!
Does being a millionaire mean you’re wealthy?
But fast forward to 2011, when gas is approaching or has already exceeded $4 a gallon in some areas, and it doesn’t take a genius to figure out that even with this simple comparison that a million dollars won’t go as far today. Looking forward, if we were to experience hyper-inflation like they did in Weimar Germany and many other countries over the years, and $1 million becomes just enough to buy a car or worse groceries, a millionaire would be thought of as poor!
It’s important when talking about money to know the full story, and the numbers are what tell the story. Your income – the million dollars – is only one part of the story. There’s another equally important part of the story that’s missing from the equation…
What’s missing from the equation here are expenses. Everyone just wants to focus on the amount of money only – the $1 million. But focusing your energies on becoming a millionaire is misleading at best, as illustrated by the examples above. Someone who became a millionaire through stocks or by selling their company lets say, might have a million dollars but how long would that money last? As I alluded to earlier, $1 million today is not enough to retire on if you plan on living for more than a couple of years.
For this reason, it is a much better idea to focus on creating wealth, which takes into consideration both income and expenses, not just your net worth today (which in an inflationary period really means nothing anyway).
What is creating wealth?
Creating wealth is the process whereby the goal is to develop assets that produce more (passive) income on a regular recurring basis than your recurring expenses. When you are producing this monthly net or positive cash flow, you are infinitely wealthy! As I referenced in a prior article on creating wealth, wealth is not measured in dollars and cents (or Euros, Yuan, Yen, Pesos, Globos, Amigos or any other currency, or gold or silver for that matter)…
Wealth is measured in time.
So applying this definition of creating wealth to being a millionaire or having $1 million dollars for example, you could determine how wealthy you were by how many months forward you could survive on that $1 million before needing to go out and find some source of income. It might be 3 years, maybe 6 years, or maybe only 6 months. You must take into consideration your expenses when trying to determine how wealthy you are.
This however is where the biggest problems lie. Most people have never been taught or learned what creating wealth is, how to achieve it, how to keep it. There are many reasons for this, but the reality is our country as a whole, from Joe Sixpack and Larry Lawnmower all the way up to our state and federal governments, has a major spending problem.
Everyone wants to focus on the income: “If I could only make more money…”
However, the answer to most people’s money problems is not more money; more money only accelerates or accentuates your current money or financial problems. In most cases, more money would only make the problem worse (just think of all the lottery winners and highly paid athletes who are even worse off a years after the money stops than they were prior to getting all that money…).
More focus needs be on expenses. No one wants to hear this, but it’s the truth.
Personally, I struggled with this for YEARS. I’ve mentioned this in my story, but from day 1 in college I was racking up (bad) debt on my credit cards, thinking I was living the American Dream (and that was before the days when politicians would tell us we just need to spend our way into prosperity or recovery or whatever B.S. they come up with)! I had to keep working harder and harder just to stay afloat because my expenses continually increased – “Oh, I gotta have that computer…I need that new phone…I can’t be successful without that car…”
I was a brilliant rationalizer, let me tell you – I could out rationalize anyone and I frequently did, unfortunately! Thankfully, my girlfriend was able to eventually talk some sense into me, to get me to realize the poor financial path I was choosing – I would never be wealthy without good money habits. It was difficult to do – I can totally relate to Robert Kiyosaki when, after closing a big deal, he would find himself down at the Ferrari dealership thinking about how he’s going to spend the money he had just made only moments earlier!
So, the big question on creating wealth is, how can you be wealthy and yet not a millionaire?
By simply receiving more in income each month (passively – ie, through real estate investments, portfolio income, a residual income business, etc) than you spend on expenses, you are by definition wealthy!
That could mean you receive $5 million a month and spend $3 million a month (regardless of your net worth). But that could also mean making $10,000 a month and spending $9,000 of it a month. Or it could be making as little as $4,000 a month if your expenses are less than $4,000 a month. Any of these scenarios would allow you to begin creating wealth.
The key is the income must be residual or passive in nature (versus earned income), meaning the money comes in whether you work or not and can grow over time whether you work or not. If you have to work to create that money – like at a job or even if you own a small business that requires your presence in order to function – you won’t be creating wealth (that is unless you start a residual income business or start investing on the side to create a passive stream of income).
+Hans Schoff
... +Hans Schoff knew from an early age that he wanted something different. At 18, upon discovery of an entirely different model based on achieving freedom (not security), he dropped out of college and started his first (home-based) business with borrowed funds (credit card) and began his study on the secrets for creating wealth. That first business expanded into a multitude of others over the years (see ABOUT page), enabling him to focus his time today on developing new assets & increasing cash flow (read: multiple streams of income) to best position himself for the many challenges we'll face in the near future. He now shares his accumulated experiences and knowledge - his secrets for creating wealth and what he's doing now - with his loyal subscribers so they too can create success to soon achieve freedom for themselves and be prepared for what lies ahead. To learn how you can discover these wealth secrets and transform your situation for a brighter future, to begin to turn your circumstances into wealth that grows and grows regardless of your background or experience or what lies ahead, simply fill in the red form down below...
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Nice post.Really brought a completely new perspective of this issue.I liked your idea of passive stream income.
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Ray, glad you like it. Thanks for stopping by!
This blog “You Don’t Have to be a Millionaire to be Wealthy – Tips for Creating Wealth” is so very nice. It really helps for those people who really need this idea or opinion on what are the tips for creating wealth.
Hi,
I really like the site,it’s look quite interesting.Thanks for sharing Hans!
Thanks for your comments Charlotte and for stopping by
Very Nice idea. I learned a lot about this message. How to be wealthy is a very nice idea that people needs to explore their minds on how to do to become wealthy.
Me? Ohh god , I want to become a millionaire. thanks for a useful ,and simple tips to become wealthy..thank you so much.
Hey Hubert, glad I could help. Good luck on your quest, let me know if I can help.
This is really a good post, it’s very informative and i got to learn somethings. It also left me thinking. But i agree that one needs to keep track of their income and expenses so they would know how much they earn and how much they spend. Also to see if they spend more than what they earn.. 🙂
Hey Peter, it’s simple stuff but often the simple stuff that gets overlooked leads to big problems. Until you know exactly how much you make and how much you spend, you have no idea how much you actually keep. And the amount you keep is the most important part of the equation. Thanks for your comment!
I have never been a good financial manager, personal or business. So that’s why I’m here on your site. I will return often to get as much from your expertise as possible. Thanks.
Hey Dan, let me know how I can help, that’s what this site is for. Hopefully I can help point you in the right direction because managing finances can be one of the most important skills you’ll ever need, especially given this new era, the information age. Thanks for stopping by.
Hi Hans,
It is another informative post by you.Thanks for giving such a useful tips to create wealth.I really like your advice and you well explained this topic.
Thanks for your comments!
Evan, great point. Titles are very much overrated. As I alluded to, a millionaire doesn’t have anything to do with how hard you worked, the dedication you might have had, how smart you are or rather your level of financial intelligence. Creating wealth is a discipline on the other hand, something you must learn, skills you must develop in order to be able to earn more income than your expenses without having to work any longer. Big difference! Thanks for your comments Evan!
Hi Hans!!For me having a million is not a reason to give respect to people but their attitude…It does’t matter who you are as long as you deserve the respect, we will give it to you…
You’ve got me thinking again ! If someone wanted to retire at 55, thinking a million dollars would be more than adequate, not factoring in inflation or interest, they could live for 20 years at $5000 a month. Many live much longer than 75 years old and their million would be gone. Then what?
If the average person works for 40 years, they would have to SAVE $25,000 dollars each and every year (or just over $2,000 a month). If they are saving 10% of their income, every year they would have to make over $20,000/mo. x 12 months = $240,000./year to save a million dollars over that 40 years.
What a drastic drop in lifestyle at retirement ! ($20,000/mo. down to $5,000/mo.)
We need to speak to more people and invite them to take a look at owning their own business (with residual income). The reality is far too harsh otherwise.
Thanks for the spark !
Joyce Penner
Hey Joyce, you’re right on, thanks for taking the time to go into all that detail and math. The other thing that would drastically affect those numbers – in addition to rising costs and inflation – would be income taxes. Just more evidence of the benefits and need for creating passive income (with a residual income business for example)! Thanks again.
Some really wise advice here Hans! I can certainly relate to the issue of managing expenses – not fun, but necessary. It’s probably easier for me than it is for most people simply because I spent most of my life managing mega-budgets as a marketing manager. When I started managing my own expenses I set up the same type of tracking and spreadsheet system and it’s worked very well for me.
Marty, the point you bring is a great one. I don’t think there is any ONE way that is necessarily better than another when it comes to tracking your income and expenses (depends on the person) but the point is it needs to be tracked – you’ve got to know what your income and expenses are each month.
Find a system (or create one as you have) that works. Balancing a checkbook is a start, but most people do not record their income and all their debit or credit card purchases with their checkbook. So it needs to be a little more complete. A simple excel spreadsheet can be as simple and easy as it needs to be to tackle this important discipline for creating wealth. Thanks for the great comment Marty, as usual!
I think being a “millionaire” shows commitment and dedication. However, someone can still be wealthy and NOT a millionaire. I believe that makes a person “wealthy”, is having the ability to cover the necessities like bills and food, plus have the additional funds to enjoy life. However, my question is- Does wealth bring happiness?
Hey Uri, you’re right in the sense that not everyone can or will become a millionaire – it does take commitment and dedication. However, when $1 million today equals some $9 million a few decades ago, you come to realize it doesn’t take all that much anymore to become a millionaire today. The point is it’s more important to become wealthy because true wealth lasts forever. You become wealthy once you have more income coming in PASSIVELY than you have expenses. Then go out and become a liquid millionaire and you can spend that million dollars however you like knowing that your expenses are already taken care of by your passive income. Thanks for the comment!
It is said that once we make the first million it is not difficult to multiply, after making the first million there is no looking back. In order to play big one ought to have something to invest. I also agree that there is a big difference between the million we make through stock and the money we earned the hard way.
Hey George, I think Donald Trump is quoted as saying that your first billion is also the easiest (or maybe that was Warren Buffet?)… It’s not that you can’t play big without something to invest with, it’s just that you have more to lose (because everything is on the line). Some would argue that makes it easier. I think for most people, Jim Rohn’s philosophy of work your day job to make a living, and your work at night to make a fortune. I think the all or nothing approach has destroyed many people’s lives and really is unnecessary considering how quickly someone today levering the internet and a home business can start creating profits, for example. Thanks for your comments!