Wealth

What is wealth?

We often define wealth by the income we earn or the things we own. However, real wealth is an extension of financial health: it’s about how much security and freedom your money gives you. Therefore, no matter what you earn, it’s only the money you keep that can make you wealthy.

While income is the amount of money you receive on a regular basis, wealth can be seen as the length of time you can sustain your lifestyle using only income from your savings and investments (your assets). The longer this is, the wealthier you are and the more financial security and freedom you have.

By this definition, there’s no specific number that makes a person wealthy. Someone with high living expenses will need more money to achieve ‘wealth’ than someone with lower living expenses. Similarly, a person who earns a lot but saves very little won’t build as much wealth as someone who earns less but manages to save more.

Wealth = a high net worth relative to your lifestyle costs.

Wealth is also about more than just finances. It’s about the time you have available to spend with your kids, family and loved ones. It’s about doing the things you love and living out your passions. We often chase a life we can’t really afford, that is filled with debt and financial stress, where a simpler, stress-free life could make us much happier.

That’s why it’s so important to focus on your own finances and financial future, to build your net worth and increase your wealth, and to not compare yourself to those around you. So forget about the Joneses and start making decisions that will help you live better and improve YOUR financial health.

Building wealth example

Meet Thato

Thato is wealthy, yet he’s never earned a high income. 

After finishing school, he earned a fairly low salary, but focused on living well below his means. He adjusted his lifestyle so he could save 10% of his income, and avoided bad debt. 

Thato worked hard and received several salary increases. With each salary increase, he made sure to improve his lifestyle only slightly, and saved and invested the rest. He therefore still rewarded himself for his hard work but didn’t increase his expenses by buying things he didn’t really need – focusing on increasing his net worth instead. 

Thato and his family kept on living uncomplicated lives, never buying expensive cars, accessories or clothing, and staying in the same 3-bedroom house in a middle-class neighbourhood. This helped Thato and his wife to pay off their home loan as soon as possible, and they paid the last instalment 7 years after buying their home. 

Thato and his wife taught their children how to be financially healthy from a very young age, and motivated them to work during holidays to earn their own pocket money. 

From the start, their children saved 10% of everything they earned, and to this day have never touched that money. They used a portion of the remaining money to save towards personal financial goals and were able to buy themselves an affordable first car once they graduated from school using their savings, and not credit.

True wealth often isn’t flashy

Thato and his family may not live a lavish life, but they live very comfortably in a home that’s paid off. They drive middle-class cars bought with cash, go on a 3-week family camping holiday every year, have very little financial stress, emergency savings that can last them for 6 months and are debt-free. 

At the age of 50, after 25 years of investing and growing his net worth, Thato has an investment portfolio that can sustain him and his family for more than 30 years. He never has to work again. He is wealthy and financially independent.