Wealth as defined by Robert Kiyosaki in Cashflow Quadrant is measured in time, or the ability to buy back time. I both like and readily identify with this definition because I have had some experience with it. I see wealth as “more money than you need for your basic needs today”. If I can feed myself, keep the electricity on, keep the payment up on the car, insurance, gasoline; and go about my life without impacting my lifestyle through lack of money, I’ve met my needs. If I then have enough money to also meet my needs for tomorrow while maintaining my lifestyle, then I have collected wealth; more than what I need today. By that definition many people in modern society have some degree of wealth, but we’re not taught to think about money in those terms. In fact, if you were educated by the public school system in the US, you aren’t taught much about money, budgeting, or building wealth at all in the mainstream curriculum!
If then I have enough money to pay my bills for the month and take care of my basic needs to support my current lifestyle, then I am wealthy in terms of that one month. Here is where Kiyosaki’s definition starts to gain traction with most people. If I also have denied myself the excess money in my budget to set it aside and collect it so that I can ensure maintaining my present lifestyle through several months, several years, or even the likely remainder of my years, that’s where most people begin to think about wealth. That’s also why most people never get there.
It’s like the old story of the man, lost on a country road, who stops to ask a farmer standing in his field how to get to where he’s going. What’s the farmer say? “You can’t get there from here…” That’s how most people feel and most importantly think about wealth. In the midst of their current situation they can’t see how to get there from here. Sadly, it’s also not something that has readily been taught as standard curriculum in school, and it’s not a topic that we readily discuss with family or friends. So, the topic may go misunderstood simply for lack of attention. It’s also a characteristic of our culture we need to change if we’re going to have a positive impact on getting our personal and therefore our national economic house in order!
Without a plan to reach some goal, we can’t see getting to a position of having our own wealth because we hadn’t planned for it. I’ve stated this in my writing before, but it’s important and it’s true: “people who have money have planned to have money”. They had set a goal and supported reaching that goal by not spending everything that they earned, taking the portion they set aside, collecting it, protecting it, and sometimes investing it to see it grow. Most people know that strategy commonly as a retirement-plan. Though you do not necessarily have to wait until retirement to build and enjoy your wealth.
If you had a house on a cliff overlooking the sea and a steady supply of coal, you could shovel the coal into the fireplace, heat the house, cook a meal, cook many meals and open a tavern, become a blacksmith, and/or refine metals for the local mine. Or, if you can’t imagine what to do with the extra coal, you can throw the extra coal into the fire, making the house very, very, very warm… or out the open window, down the cliff and into the sea. It is similar to what many people do with money. Their lack of a plan squanders their wealth rather than uses it to support additional goals.
They have enough coal to keep warm, supply their basic needs, but with any extra that they have, they just use it frivolously overheating, so to speak, their wants or throwing it away out the nearest window on whatever makes them happiest at the moment. No plan, no goals, no return on their asset. That is not to say that your excess for the day can’t be used for things that add to your lifestyle. It is, after all, your money and you should enjoy the fruit of your honest labor. Within the structure of a budget, however, you can identify income and expenses, and in identifying money that you wish to use for wealth building and pleasure, you can plan to use an amount of your wealth for what makes you happy while supporting your goals. Bear with me while I restate, “People with money have planned to have money.”
The example out of George Clason’s classic book, The Richest Man in Babylon, is that if you had a basket and went to the hen house to gather eggs, each time retrieving ten eggs, but once you had returned to the farmhouse you only remove 9 of the eggs. What would be the state of your basket after 10 trips? You would have a basket of 10 eggs without making the trip to the hen house. If you could discipline yourself to do this with your paycheck, over 10 pay periods you would have the equivalent of one paycheck all to yourself, with which you could decide to do anything you’d like.
How would you feel knowing you had an extra paycheck in the bank that you could call on in an emergency? Would it give you a sense of accomplishment? Would you feel more financially secure? The question you will have to ask yourself is, would you over heat the house, throw it out the window, or build a bigger fire and sell off the cooking, smithing, or refining that you could do with the heat thereby realizing a profit? Once you have accumulated your own wealth, what will you choose to do with it? This is the difference between people who have money and people who do not. “People with money have planned to have money.”
It is at this point that the wealthy and rich part company. You could be rich in many ways, least of all financially, though it is with money that the word rich is commonly associated. By our earlier definition, having more than what you need for today, everyone with an income can be wealthy. All that is needed is to control our expenses so as not to spend all that we earn and we should have something left over: our own wealth. If we do that again tomorrow, it becomes our own growing wealth as what we have saved today is added to what we saved and did not spend yesterday. Once you have your own wealth, what you choose and plan to do with it will determine the possibilities of ‘riches’ in your future. Simply having money, your own wealth, isn’t what I would call ‘rich’. Simply spending your accumulated capital will have you back where you started (with no accumulated wealth) in a very short time.
In my estimation, financial riches form when there are enough assets in capital and investments producing their own sustainable cash-flow that working for the remainder of my days becomes a choice. At that point, where money comes in to cover my daily expenses whether I work or not, I can do what I please and not feel obligated to work at the same job or in the same way every work day. I’ve been asked what I would do with my time if and when I get to that point. I would spend time enjoying the things that interest me, like music and photography, but I would also spend some time helping people that I know couldn’t afford my help otherwise. It’s when I don’t need the money for my service that I can be most effective in helping others.
If I work today and earn a dollar, the capital investments and returns in the form of profits and dividends from my investments will produce enough income to meet my daily needs. If I’m financially intelligent, I’ll plow a decent amount of those proceeds back into the investment vehicles to continue to grow the capital that makes them work (see the TVM article on What Makes Money Work?). It is an absolute certainty that the forces working against your wealth, taxes and inflation, won’t be taking a vacation anytime soon so it’s important that you continue to grow your capital to maintain your lifestyle-producing income machine. The growth of your wealth and protection from the forces of inflation, taxation, and market risk that will readily take it from you is where I can assist you as a wealth strategist. Do let me know when you are ready to have that conversation.
Until then, warm regards. Look for part II of this article.
Original article and Images © Copyright 2013, David A. Pandone; All Rights Reserved
Revised for 2nd Edition to davidpandone.com © 2017 David A. Pandone, All Rights Reserved
NOTE: As long as I mentioned my interest in photography, you might find it interesting that the images on this page and with part 2 of this article are my own work. I created many of the images on my website and those that are not my images have been credited back to the photographers that made them where that information was available. I hope you enjoy them!