Learn how to measure wealth according to Rich dad Poor Dad book.

Hi Friends,

I am reading Rich Dad Poor Dad book. Here I found about How the author measures wealth. It is very simple to follow. You can do it too after learning it.

Way for measuring- 

“The problem with simply working harder is that each of these three levels take a greater share of your increased efforts. You need to learn how to have your increased efforts benefit you and your family directly.”

 “Once you have decided to concentrate on minding your own business- focusing your efforts on acquiring assets instead of a bigger paycheck- how do you set your goals? Most people must keep their job and rely on their wages to fund their acquisition of assets.”

So the main question is,

“As their assets grow, how do they measure the extent of their success? When does someone know that they are rich, that they have wealth?”

 “As well as having my own definitions for assets and liabilities, I also have my own definition for wealth. Actually, I borrowed it from a man named R. Buckminster Fuller. Some call him a quack, and others call him a genius. Years ago he got architects buzzing because he applied for a patent for something called a geodesic dome. But in the application, Fuller also said something about wealth.“

It was pretty confusing at first, but after reading it, it began to make some sense:

Wealth is a person’s ability to survive so many number of days forward—or, if I stopped working today, how long could I survive?

“Unlike net worth—which is the difference between your assets and liabilities, and is often filled with a person’s expensive junk and opinions of what things are worth— this definition creates the possibility for developing a truly accurate measurement. I could now measure and know where I was in terms of my goal to become financially independent.”

"Although net worth often includes non-cash-producing assets, like stuff you bought that now sits in your garage, wealth measures how much money your money is making and, therefore, your financial survivability. “

Wealth is the measure of the cash flow from the asset column compared with the expense column. 

Let’s use an example. Let's say I have cash flow from my asset column of $1,000 a month. And I have monthly expenses of $2,000. 

What is my wealth?

Let’s go back to Buckminster Fuller's definition. Using his definition, how many days forward can I survive? Assuming a 30-day month, I have enough cash flow for half a month.

"When I achieve $2,000 a month cash flow from my assets, then I will be wealthy.

So while I'm not yet rich, I am wealthy.

I now have income generated from assets each month that fully cover my monthly expenses. If I want to increase my expenses, I first must increase my cash flow to maintain this level of wealth. Also note that it is at this point that I’m no longer dependent on my wages. I have focused on and been successful in building an asset column that has made me financially independent. If I quit my job today, I would be able to cover my monthly expenses with cashflow from my assets. 

My takeaways: 

I learned how Robert measures his wealth from this section and to be honest this way of measuring wealth is comparatively updated than the way that I learned from ‘The Richest man in Babylon’ book. Still that way of measuring wealth is not bad either and can be used for this day and age. It’s just that we have to learn how to make money work for us.

If you want to learn “How to measure wealth according to the Richest Man In Babylon Book, then you can click the link below to learn about that.

On a side note: 

If you want to know how to make money work for you, you can subscribe to my newsletter as in the near future I may be uploading how you can do it too after I learn it myself. I will be sharing those. Click the link and join my newsletter and you can tell your friends to join it so they can become financially literate like you.

So let’s get back to the takeaways that I have. 

First of all if I want to know if I have wealth at all, I need to calculate how many days I can survive with the cash flow that I have. Like the quote states that, 

“Wealth is a person’s ability to survive so many number of days forward—or, if I stopped working today, how long could I survive?”

Now, the question is, “If I stopped working, how would I earn money and pay for the needs and food?” This is where cash flow from passive income is needed because the cash coming from the passive income goes directly into my income. In basic words, passive income is my income. And if I have ways that generate passive income I do not need to work. 

The things to keep in mind is, Wealth measures how much money your money is making and, therefore, your financial survivability. 

(By, ‘How much money your money is making’ I think ‘your money’ here indicates investments that you are making that will give you passive income.)

The example that is above clearly explains it all. 

Let’s take the example again.

Let’s use an example. Let's say I have cash flow from my asset column of $1,000 a month. And I have monthly expenses of $2,000. 

What is my wealth?

Let’s go back to Buckminster Fuller's definition. Using his definition, how many days forward can I survive? Assuming a 30-day month, I have enough cash flow for half a month.

Here, I don’t have wealth as I cannot cover my full month’s expenditure with my passive income.

       Passive Income      Monthly Expenditure

Here, $1000       <      $2000

"When I achieve $2,000 a month cash flow from my assets, then I will be wealthy.”

(Here, ‘assets’ means the things that are generating the passive income.)

Now I am wealthy. I can pay my expenses with my passive income only and I don’t need to work. I can survive without needing to work till the point where my monthly expenses do not increase.

Here, 

         Passive income        Monthly Expenditure

          $2000           =      $2000

If I want to have wealth by following this I have to create ways where I have passive income and then ensure that the amount of passive income is more than my monthly expenses. And then that will be my wealth. Though I am not rich, I am wealthy. 

Bonus:

If I were to be wealthy using Robert’s way, I would have to-

1. Invest my money in places where I will have cash flow coming to me. That will be my passive income. 

2. Then I would have to increase my passive income so that one day it would gather more money to cover my monthly expenses. Then I will not have to do a job.

3. Then I have to invest in many other things where additional passive income is added so that I can get more wealthy and ensure that I can survive more days without needing to work because if my monthly expenses increase I can pay with the additional income that was later added. 

And that money that I receive from my investments each month is my wealth. 

There were many words that made no sense at all, like ‘Assets’ and ‘Liabilities’ and a lot more.

Now the thing is that you can search them on google but there’s a catch. In the book, Robert mentions that the meaning of the word ‘Asset’ is very confusing and it makes no sense at all. And there will be some which may have the same thing. So, to watch out for those and to save your precious time, you can check the link below. If you want to learn about the words then check this newsletter where you will find definitions of the words that are used and that will be used on the other newsletters.

You can read more on:

Why a house is a liability-

Why a house was considered a “Profitable Investment.”

The Five Laws of Gold according to the Richest Man in Babylon

( Some of the lines here are Collected)

(And the rest of the work is mine)

Disclaimer: There are lines in the newsletter that are collected from the book and there are lines which are mine too. By any means I am taking ownership of the content that I am providing here and also by no means I am claiming the teachings that are presented over here as mine. I am just sharing the teachings of Robert and helping people become financially literate. The takeaways that I provide are mine, but the teachings belong to their respective authorities.