A friend of mine recently asked me if I was rich... To which I asked it, almost immediately: "What exactly do you call being rich?" And said person answered me simply, "well, being rich is having a lot of money available to spend."
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The misconception of wealth
The response of the friend that I just mentioned left me stunned, because it showed me that it has a bad conception (or a wrong concept) about economic wealth; which, of course, is something very common but serious, because it prevents you from effectively acquiring wealth in your life, by not understanding exactly what it is.
I began to explain to it that I am not rich (yet), and that what it calls wealth is nothing more than purchasing power or spending power. And it told me: "But don't the rich have great purchasing power and spending capacity, too? So... that's wealth."
I took a deep breath and began my explanation again, making it clear to it that the rich certainly have great purchasing power and spending power, but that was not what made them rich, and that it was confusing cause with effect.
The rich truly have great purchasing power and great spending capacity, but that is not what makes them rich, nor what measures the size of their wealth; that is only a consequence derived from being rich and to be doing things right in all aspects where it really matters.
Is the money you have the real measure of your financial wealth?
All that has been said allows us to glimpse that the money we really have is not the true measure of our economic wealth; nor can it be used to measure it as such, because what truly defines our level of economic wealth is Our ability to produce or earn more money.
Therefore, a person who has 5 million dollars, but is not concerned with creating the means to multiply that capital, and only dedicates itself to spending it, is literally a person who has a certain purchasing power; which over time will go dwindling until run out of money.
But interestingly enough, someone who has as little as $150,000 in cash, but has other forms of income that generate regular and constant profits over time, can be considered rich, and even richer than someone who has five million dollars; but it hasn't ways to make more money than it already have.
It is truly something curious, but true; and as you can see, it is something very relative, and sometimes difficult for most people to understand. How do you explain to people that a person with $150,000 can be richer than someone with $5 million? Quite difficult in most cases, really.
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But the key here is to understand that the ability to generate money is what really defines the level of economic wealth, and that money and purchasing power are only a consequence derived from knowing how to produce it. In other words, you can have a lot of money, and not be rich at all; and on the other hand, you may not have much money now, but have multiple ways of getting it (multiple businesses) that will generate income for you in the future and because of this you would be richer than someone who has more purchasing power, right now.
Obviously, having a lot of money, you would not be poor either, in the full sense of the word, but rich as such, you would not be either, because as soon as your money ran out, having no other forms of income, you would be left without purchasing power and without way to generate money. And this, what we are talking about here, can be reliably seen when we see that someone inherits a fortune, or in cases where the lottery is won.
That person who gets a huge amount of money is not gaining wealth, but purchasing power; and that must be very clear; for if he does not possess the intelligence and will to realize that fact and only dedicates himself to squandering said money that he has, he will invariably be bankrupt at any moment in the future.
When money is used to generate money, then it becomes a generator of wealth
Now, suppose that for some reason someone got a certain amount of money (say, through the lottery, an inheritance, etc.), and instead of thinking they are rich and starting spend as if there were no tomorrow; that person start creating companies and projects of various kinds, so what will happen?
Well, it will happens that person will really become rich, because although it is not rich for the simple fact of having a lot of money at a given moment; it will be rich in the future for having the vision and the wisdom to use the money it has to generate means to get more money. And this is so because in such a case, said person is using the money to generate wealth. That is to say, money is not wealth, but rather, it is a resource that well used can be transformed into a wealth generator.
Of course, the consequence will be that by doing so, it will have more and more money. And since most people do not understand the difference between having money and being rich, they will think that that person is rich just because it have money, and therefore, that anyone who has a lot of money is rich.
But now we know the truth. Wealth is one thing, and money is another; and you have to understand it and mentalize it very well, because although they are very related, as we have seen, they are not, and will never be synonymous.
What do you think about the topic discussed? Please comment.
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