Like mastering any profession, building wealth requires focus, passion, and a certain set of skills. It’s not for everyone. Still, in America more people have the opportunity to build wealth than to become major league sports players, movie stars, or Broadway actors.
Knowing when you’ve reached your goal is obvious in sports or acting. It’s less clear if your goal is becoming rich.
I would not consider a retired couple who have saved all their lives and have a net worth of around two million dollars as rich. What I would consider them is wise, hard-working, or frugal. They have built up enough net worth to take care of themselves so they won’t be a burden on their children or their fellow taxpayers.
Others might suggest just having the ability to pay your own way without government assistance qualifies you as rich. They would see financial independence—defined as being able, not just to do what you want, but to easily shoulder the responsibility of taking care of yourself—as being rich.
Whatever you choose for your definition of rich, achieving financial independence seems to me to be the socially conscious thing to do. While being financially independent is a good thing for the individual, I would suggests it pays even greater rewards to your community and nation as a whole. Every person who is financially self-sufficient is one more person sending revenue to the government rather than depending on government support.
To become financially independent there are two skills you will need to master—living on less than you earn and learning how to save, invest, and prudently use the resources you do have.
What isn’t necessary for financial independence—though it can certainly help—is earning a high income. I know one person who has earned $1 million a year for decades and only has a large home with a large mortgage to show for it. Conversely, I know many people who’ve never earned more than $100,000 a year and who have acquired a net worth of two to four million dollars.
Income, careers, and investment choices have less to do with building wealth than most people realize. Here are a few ways to look at the potentially rich.
• High earners who are spending more than they earn are “should be rich but aren’t.”
• Those with little education or resources, working two low-wage jobs, are “unlikely to be rich” but could potentially be.
• Those with inherited wealth are “born rich;” they aren’t necessarily guaranteed to stay that way.
• Those who have limited financial resources but have ability and education are “potentially rich.”
• Those who own businesses and make a middle-class living, but the business is worth several million dollars if they sell it, are “future rich.”
• Those with middle-class incomes who are saving for retirement are “future financially independent.”
Part of defining wealth is whether it supports your lifestyle. A net worth tied up in a ranch or other business isn’t necessarily wealth in terms of supporting a richer lifestyle or increasing your cash flow. Accessing the wealth would require selling the business, which may be your passion. Selling it too early could also result in prematurely killing the goose before it gets a chance to lay enough golden eggs.
The bottom line is that, individually and as a nation, we would do well to reject attempts by politicians or anyone else to lump “the rich” into one category. Like assuming major league baseball players are interchangeable with Broadway starlets, it just doesn’t work.