I recently started answering questions on a site called Quora. There are many questions about money and what it takes to be rich as well as what is considered rich. Most of the questions center around how much money someone needs to make each year to be rich. I think being rich is not about how much money you make per year, but instead it’s a question of how much financial freedom you have. I know people who make $500,000 per year but have little to show for it because they spend it all. Others make less than $100,000 per year but have saved and invested their money and have hundreds of rental properties.
What is financial freedom?
In today’s society, there is a lot of talk about being frugal and a lot of talk about lifestyle. On the frugal side, sites like Mr. Money Mustache encourage you to spend as little money as possible in every facet of life. On the other side, you have guys driving around in a Rolls Royce or Lamborghini talking about lifestyle and entrepreneurship. I have a Lamborghini as well, but I bought it not from massive yearly earned income, but rather from passive income. Some people may be happy living as frugally as possible, while others might want 100 super cars. I am not trying to say one is better than the other because we are all different and like different things.
Financial freedom to me means creating enough passive income to cover your expenses. We all have different expenses in life, so everyone’s financial-freedom number is different. That is why it is so hard to answer the question “how much money do you need to be rich?” I like expensive cars, which makes my number pretty high. Others may have a much lower number and be perfectly happy. If you can cover all of your expenses with passive income (money coming in without having to work for it), I think you have attained financial freedom.
What does being rich mean?
There is also a different meaning of rich for all of us. What we each think rich means is based on what expenses we have and our own personal beliefs. If you live in a third-world country and are used to not having any running water, you might think anyone in the United States who is not living on the streets is rich. If you live in San Francisco and make $500,000 per year, you may feel like you are barely getting by because of the costs of living and the amount of money others have in the area.
Being rich is not all about how much money you make. It’s about where you live and what you want out of life. If you are happy traveling around the world living in hostels your entire life, you could feel rich without having much money. If you have huge aspirations and want to change the world, you may need millions of dollars per month to be rich. If you want to be rich, the first thing you must do is figure out what rich means to you. I can tell you it has constantly changed for me.
My wife and I were taking an Uber home one night, and the driver pulled up to our house. He looked at the house and said, “You don’t live in a house; you live in a castle!” He was from a foreign country where there is not nearly as much wealth as there is in the United States. We have a nice house, but I would not call it a castle.
What does being rich mean to me?
When I was just out of college, I joined my dad’s real estate team. I was single, had a 1991 Ford Mustang Convertible that was paid off, and I lived in an apartment that was super cheap because I was the on-site manager for the building. My expenses were low, and I thought making a $100,000 per year would be incredible. It took me a while, but I eventually made $100,000 thanks to being an REO agent. By the time I made $100,000, I had a house, a serious girlfriend, a dog, and a car payment. Suddenly, $100,000 didn’t go as far as it would have before I had those things.
I kept setting bigger goals and adding more expenses to my life. However, along the way, I was also adding passive income, which made me feel much more comfortable with adding expenses. I also made it a point to keep saving and investing money before I added new expenses. Still, the number I had in my head to be “rich” kept getting higher.
Things not only changed for me financially but with my attitude as well. When I was younger, I never thought I would have a Lamborghini. I realized I was sabotaging my success by telling myself I should not want nice things because I never believed I would get them. I realized it was okay to want nice things if it was something I really wanted. Along the way, it is also very important to be happy and enjoy my life, even if I don’t have everything I want. I have enough passive income with my rentals and from my books to live very comfortably the rest of my life. However, I don’t want to just be comfortable. I want to live life as much as I can, and because of that, my financial freedom number is pretty high! For me, I don’t just want $100,000 per year in earned income. I want $100,000 per month in passive income.
What does being rich mean for you?
The great thing about this world is we are all different. One thing that bothers me about sites that say we should all be frugal all the time is they assume we all want the same things in life. We want to retire early, not have to worry about working, and live modestly the rest of our lives. I love cars, especially rare and exotic cars that are usually expensive. That makes my number pretty high, but someone who does not care about cars may be happy with a much smaller number. Some people might be happy living the frugal movement, but not everyone. One of the things that really opened my eyes to the world was when I stopped letting society tell me what I should want. I like expensive cars, but I don’t like everything expensive. I wear shorts and a t-shirt to work. I think spending $20,000 on furniture is crazy, and I get $20 haircuts. I know what makes me happy and what to focus on. If others like fancy haircuts and furniture, awesome—go for it. But it is not for me.
If you want to know what it takes to be rich, figure out what you love and figure out how much it will cost, and that will give you an idea of what you need to be rich.
How I have built passive income to help me become rich
I talked about financial freedom earlier in this article. Financial freedom to me is when all of your expenses are covered and you can spend your time doing whatever you want. I am not quite rich by that definition because there are many things I want to do that cost more money than I make passively. Another way to become rich faster is to do what you love. I love real estate and going to work every day. If I was making one million dollars per month, I would still go to work. If you do what you love, you may not have to make as much money in life to be rich. If you can set up a business that would run without you working, it would be the same thing as creating passive income.
Even if you love work, you still need to build passive income. People get sick; people get burned out; people have accidents. If something happens and you cannot work, you need to have passive income coming in, especially if you support a family.
I built passive income by buying rental properties. Here are some articles with more information on rentals:
- How much money can you make with rentals
- How much money is needed to buy rentals
- Why are rentals a better investment than the stock market?
- How I bought 14 rentals none of my own money
I also started this blog, which generates passive income as well. Yes I keep writing and tweaking things on the site, but my books and other income would keep coming in even if I stopped writing.
- Build a Rental Property Empire: the no-nonsense book on finding deals, financing the right way, and managing wisely.
- How to Buy a House: What Everyone Should Know Before They Buy or Sell a Home.
- How to Change Your Mindset to Achieve Huge Success: Why your attitude and daily habits have more to do with making more money and having more freedom than anything else.
- Fix and Flip Your Way to Financial Freedom Finding, Financing, Repairing and Selling Investment Properties.
- The Book on Negotiating Real Estate: Expert Strategies for Getting the Best Deals When Buying & Selling Investment Property
- How to Make it Big as a Real Estate Agent: The right systems and approaches to cut years off your learning curve and become successful in real estate.
There are many ways to build passive income, but I love real estate. It has provided me with close to $20,000 in passive income per month from rentals and the blog. I have also built a fix and flip business that could mostly run without me if needed.
As you can see, the amount of money you make each year does not make you rich. How you make your money, what you love in life, how much you save and invest, and how much passive income you have all affect how rich you are…not to mention how happy you are with your life. If you have $100,000 per month coming in but hate your life, are you really rich? I like to think of what rich means for me, not what others think. If you are only worried about looking rich, this strategy is not for you.
If you want to check out Quora, it is a pretty cool site. You can see my profile and all of the questions I have answered here:
You can follow me and up-vote any posts you like as well.