The value of our wealth or assets is more important than monthly income, because monthly income can be high, but it can be spent quickly. Getting rich means that we can accumulate wealth, that is, it means not spending all the money we receive from our monthly income, but saving and investing / accumulating part of the income. If we receive 5000 euros every month, but we have 5000 euros spent, then your income will not be richer than when you received only 1000 euros and spent 1000 euros.
Our wealth is the result of the difference between our assets (that is, the assets that we own) and our debt (that is, our debt). When we say someone is a millionaire, it means that the difference between their assets and liabilities is more than 1 million euros, that is, after deducting debts, the value of the assets owned by that person exceeds 1 million euros. EUR. What is an asset? Assets refer to assets that we own, for example, own and permanent housing, currency, bank deposits, pension funds and any type of investment in which we have invested funds, such as rental properties, investment in the stock exchange, etc. . What is debt? Debt is debt to others. This includes loans for our own permanent home (if any), credit card debt and others.
Being rich means increasing the difference between our assets and liabilities or increasing the difference between our income and our expenses. If we increase our income, and this increases expenses, but does not increase savings, it means that increasing income does not effectively promote wealth. It is important to note that not all wealth is the same, especially its impact on your personal life. This is an example that reflects the type of wealth you should be looking for.
Wealth of person A: 200,000
House owned by assets = 600,000; Cash / Cash = 20,000; Pension fund = 60,000 Home loan = 500,000; credit card debt = 20,000
Wealth of person B: 200,000
Own house with assets = 200,000; 2 sets of houses for rent = 300,000; investment of the index fund = 60,000; retirement fund = 60,000 Home loan on liabilities = 150,000; home rental loan = 250,000; credit card debt = 20,000
Person A must have a dream home and perhaps lead a comfortable life. On the other hand, person B's housing is precarious, but the monthly income generated by the assets. He invested in two rental houses and index funds, these investments can make money every month, almost no work. In other words, part of Person B's monthly expenses must be paid for with his investment, while Person A cannot use any assets to pay his expenses, because his main asset is his (expensive) home.
Both are equally wealthy, with a fortune of 200,000 euros. However, I prefer to be a B person, because I have part of the investment expenses, which makes me stop relying only on my work. Also, did you know that after moving to a better home, one of the biggest satisfaction surveys found that people's satisfaction with the home can never reflect their satisfaction with life in general? In other words, moving to a better home may slightly increase your satisfaction with the home, but it will not increase your satisfaction with life. Well, is it worth it to spend so much time and money on commercial housing, but doesn't it actually help us improve our well-being?
I hope this article provides you with the tools you need to calculate wealth. The important thing is that you must do this to understand where you are, so that you can develop strategies to improve the situation based on that. Many people start with negative wealth, that is, mainly in the first days of work, they have more debts than assets, but with a clear motivation and strategy, they managed to reverse the situation. The first step to change is to understand our true situation. Just as you go to the nutritionist to lose weight, you must also weigh your own state. Measuring wealth is essential to improving your financial life.