Tag Archives: define rich

What’s The Definition Of Rich?

On the flipside of most people being broke and deep in payment debt, there are rich people out there – a lot of them. They don’t have debts or monthly payments. That’s the only way to build wealth: Pay yourself, instead of paying everyone else.

But what’s the actually definition of being rich? Start by asking your kids or grandkids. When you’re out for a drive or a walk, ask them if they’d think that someone living in that huge, beautiful house would be rich? Would it be the person in that super-huge, new SUV that probably cost over $100,000? I’ll guarantee you that every kid will vote that those are the rich people. The bad news: That’ll likely be their attitude for a lifetime of how society measures them. That’s a recipe for debts and being broke and it’s set before they become teenagers. The good news: It’s a great teaching opportunity if you ask a bunch of follow-up questions such as: how do you know they don’t have $700 payments on that vehicle? How do you know how much they owe on their house? How can you tell by walking by the house if they have a huge savings account? If nothing else, it gets them thinking.

What makes a person rich, financially, is just as hard for us adults to define. I’ll always remember an email SOS from a California doctor who had eight rental houses when the US housing market crashed. He lost all eight as well as his primary residence. But you’d surely have thought he was rich. Well, it was all borrowed money and leveraged to the hit – he was never rich – he was living an illusion.

Wealth, real wealth, isn’t something you can ever see. Nobody posts their RRSP statements, or the free and clear title to their home on the front door. The majority of the time, what you see isn’t wealth – it’s consumption and toys. Warren Buffett drives a four-year old vehicle and lives in the same house he bought decades ago for under $40,000. He’s worth billions, but you can’t see any of it by walking by his house.

Unfortunately, your kids, probably as much as us adults, judge the definition by the cars, toys, clothes, gadgets and homes. But, behind the facade, there’s usually a ton of debts, a huge mortgage, the credit card balances and that line of credit which has been around so long it’s treated like a family member.