“I ain’t talkin’ ‘bout rich. I’m talkin’ about wealth. Wealth is passed down from generation to generation. You can’t get rid of wealth. Rich is some shit you could lose in a crazy summer with a drug habit.”
Chris Rock said that. And that’s something that stuck with me for a long time because he said that 10 years ago. It’s an especially germane topic nowadays because the difference between being rich and being wealthy has widened with each passing year.
My definition of rich is making a lot of money from your job. You could be a pro athlete, CEO, famous actor, and rake in millions of dollars every year by working. But if you’re making your money by working, you’re rich. You’re not wealthy. Wealth is when you make money just by sitting on your ass and watching other people work. Wealth is stuff like stocks, bonds, businesses, any asset you own that can produce money is wealth.
Now, it’s possible for rich people to become wealthy. But they have to take the crucial step of converting their riches (the money they make from their job) into wealth. And that takes a tremendous amount of discipline. It’s why 78% of former NFL players go broke 2 years after retirement. They made a lot of money, but they spent it on things like cars, jewelry, bottle service, and lavish primary residences.
None of those things generate money. And most of them will depreciate over time. Wealth is something that is supposed to become more valuable as time goes by. But because the initial returns can be so paltry, many people would prefer to spend the money now rather than investing it and getting an income stream.
One million dollars sounds like a lot of money, right? Well, if you wanted to buy a relatively safe income stream with it, you’d invest into an investment grade corporate bond fund. The current yield on such an asset? About 3.5%. That means every year, your 1 million dollar investment will cut you a check worth 35,000 dollars. And it’ll do that every year as long as you hold onto it.
And 35k per year isn’t a lot of money compared to spending 1 million in a year. But the difference is that 35k will be there, year in and year out, without you doing anything. That’s what wealth is. It’s passive income that doesn’t depend on you lifting a finger to make money.
I write software for a living. And it’s a good living, but my livelihood could easily be. My company could go bankrupt. An incredibly robust, easy-to-use software framework could obviate the need for my position. I could suffer a debilitating head injury that turns me into a mental invalid. My job isn’t safe by any means. I could lose it in a million different ways, none of which are under my control.
My wealth, on the other hand, is a hell of a lot safer because it’s based on the output of the US economy, which is the largest, most prosperous economy in the world. The only way for my wealth to go away is if the US economy goes away. And I’m not sure I’d want to live in a world where the US economy has completely collapsed (think Walking Dead, not fall 2008).
Labor is what you get from your body. And human bodies are so fragile. It doesn’t take much to permanently disable somebody. That is why it’s so important to convert your labor into wealth. Because wealth is made off the backs of other people. If one cog in the machine breaks down, it’s no biggie. Replace the cog and everything is fine.
But if you’re the cog, it’s nothing short of catastrophic. Never make the mistake of believing that everything will work out or that you’re invincible. Fate helps those who help themselves. And you can help your future and your children’s future by saving and investing the money you make from your labor. It’s not enough to be rich in today’s economy. You have to be wealthy.
There is a small group of Americans who already understand that. You might have heard of them. They’re called the 1%. But they’re not the only ones who can build wealth. Anybody can. It takes a little bit of knowledge and a tremendous amount of discipline.
If you have questions on how to begin, just ask in the comments below and I’ll point you in the right direction.