Last Updated on December 10, 2019 by Mark Ferguson
There are many definitions for being rich and being wealthy. To me, being rich is about how much money you make or appear to make, while being wealthy is about how much money 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.
There is nothing wrong with being rich and making a lot of money. I also see nothing wrong with buying things that make you happy, whether they are expensive or flashy. However, if you are making a lot of money and buying a lot of things, you also need to have something to show for it. I personally took the route of building wealth before I started to buy expensive things. I also see nothing wrong with building wealth and not spending money if that makes you happy.
What does being rich mean?
For this article, I am defining rich as making a lot of money. Someone who is rich might make $200,000 or $1,000,000 per year, but they make more than average by far. This is the definition of rich I always knew when growing up: someone who makes a lot of money. What I did not understand when I was younger was that making a lot of money does not mean you have a lot of money.
Some people are really good at spending everything they have no matter how much they make. Most people are not able to save money no matter how much money they make. I know there are a lot of people who wish they made more money so that they could save more. However, making more is not the key to saving—saving is the key to saving.
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 the cost of living is so high and everyone else seems to make just as much money. The definition of rich also varies based on your circumstances and attitude.
I remember when I first started my career as a real estate agent and I always thought making $100,000 a year would be awesome. That would mean I had more money than I would ever need and could buy pretty much whatever I wanted. I got to a point where I made $100,000 per year, and it was not that different from when I was making $40,000. I simply spent more money and had little to show for it.
What does it mean to be wealthy?
Wealth is more about assets and money you keep than the money you make. When I started buying rentals, I was keeping much more money than in the past when I was spending it all. Not only did I have to save money to invest in rentals, but each rental also created more wealth because it made me money, I bought it below market value, and it went up in value over time.
Over time, I bought more and more houses, which grew my net worth and the cash flow I had coming in every month. Something else that I realized when I was making a lot of money each year but not saving anything was that it was stressful. I felt pressure to keep making money and worried about what would happen if I suddenly stopped making as much money.
Real estate was a huge stress reliever because I had assets that would still be there if I stopped making money, and they made me money every month. I would still have income coming in even if I stopped working. I had something to show for all the hard work and money I was making.
You do not have to have rentals or real estate to be wealthy, but you do need some kind of asset, preferably one that makes you money!
How much money do you need to be wealthy?
Being wealthy is not all about how much money you make. It’s about what you want out of life. If you are happy traveling around the world living in hostels your entire life, you could feel amazing without having much money. If you have huge aspirations and want to change the world, you may need millions of dollars per month. There is no right answer as we are all different and different things make us happy. That is one of the beautiful things about life. It would be very boring if we were all the same.
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.
To him, the wealth in the United States was amazing. I have worked very hard to get the house and cars that I have now. If I lived in another country, there is a very good chance I would not have close to what I have now. I consider myself to be very fortunate to live in the time I live in and a place like the USA where there is so much opportunity. We also live in one of the safest times in the history of the world no matter what the news tries to make you believe.
How did I become wealthy?
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 as a real estate 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. It seemed like the more money I made, the more money I spent. It was stressful making a lot of money but knowing that I did not have as much to show for it as I thought I should. I did not think I needed fancy cars or houses. Rather, I thought I needed investments. I took a hard look at my life and what I needed to do. I researched the best ways to invest my money, and rental properties were what I decided would be the best avenue for me.
As soon as I bought my first rental, I felt better about my life and money. I knew that I had invested in something. I gained instant equity because I got a great deal on the first rental I bought. I also was making money every month. I knew I had to buy more rentals, and with each one, I was adding passive income, which made me feel much more comfortable about adding expenses. I made it a point to keep saving and investing money before I added new expenses.
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. I realized 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.
I think many would consider me rich because I made a lot of money as an agent, and now, from flipping houses. Making that money did not make me wealthy. Investing that money made me wealthy.
What does being wealthy 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 doesn’t 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.
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 which I bought 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 supercars. 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 however small or big they may be. We all have different expenses in life, so everyone’s financial-freedom number is different. 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.
Many people would say that being truly wealthy is when you can cover all your expenses without having to work.
What if you are a long way from being wealthy?
Many people reading this may not be close to being wealthy or rich. Should you feel bad about yourself or despair? No! I have not achieved everything I want. In fact, I have a long way to go to accomplish everything I want to accomplish out of life. That does not make me unhappy that I have not done it yet. It gets me excited thinking about all the possibilities. I also remind myself that I have had a pretty amazing life up to this point even if I don’t get any further. I have an amazing family, I love going to work, and I am excited about life. You do not have to accomplish everything to be wealthy.
How has real estate created wealth?
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 financially free 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, life is so much more fun.
Not only do I love real estate, but it also creates passive income. My rentals make me money without me doing a thing. 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.
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.
Can you be rich and wealthy?
If we define rich as earning a lot of money and wealth as having assets or passive income, you can do both. I earn a lot of money from my real estate business. I make most of my money flipping houses now. We did 26 last year and 26 the year before that, but I used to make most of my money as a real estate agent. I take the money I make and invest as much of it as I can into rental properties.
I want to earn as much money as I can so that I can invest it so a bigger chunk of my earnings come passively. I can also pass on the assets and cash flow I create to my children. That is another way to define wealth. Can you pass it on easily to someone else, or do you have to be actively involved to make it work?
As you can see, the amount of money you make each year does not make you wealthy—though it may 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 wealthy you are. I think real estate is one of the best ways to build wealth, and it has been amazing for me.