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Money Monday: How Do You Define Wealth?

Dave Ramsey

What pops into your head when you hear the word wealth? Italian sports cars? Fine dining in luxurious seaside resorts? An executive rushing from a board meeting to an appointment with a client?

Like many things in life, looks can be deceiving. Just because people have an appearance of wealth doesn’t mean they truly are wealthy, or that their lives are rich and purposeful. In fact, according to a recent research study conducted by Ramsey Solutions, most millionaires live in modest neighborhoods and drive car brands like Toyota and Honda.

So, what is wealth? And what does it mean to be wealthy? Let’s take a closer look.

What Is Wealth?

Wealth is the sum total of assets (things that you own) that give you financial security. The word wealth carries the idea of abundance and security.

Wealth is a combination of cash plus assets that you can liquidate. Let’s break this down for using the board game Monopoly. You can tell a player is “wealthy” by how much cash they have and their resources: the real estate they own, the utility cards, and even those bonus cards like “Get out of jail free.” All of those assets give “wealthy” players negotiating power in the game. If they get in a pinch, they could sell one of their little plastic houses and get cash from the bank (or in other words, they could liquidize an asset!)

The Definition of Wealth Is Relative

The definition of wealth changes depending on what time in history and what part of the world we’re dealing with. Today, in the United States, most people talk about wealth in terms of dollars, real estate, cars and stock that we own—to name a few. But if you’d been born a couple hundred years ago when the economy was more centered around agriculture, you’d probably measure wealth in terms of the commodities you own—coal, sugar, livestock and so on.

When we zoom out globally, wealth becomes even more subjective. Do you want to know something crazy? According to the World Bank, about 10% of the world’s population (that’s 734 million people!) live on less than $1.90 a day.1 What we consider normal standards of living in western, developed countries is far from the norm for dozens of other countries. For millions of people around the world, a 2004 Toyota Camry is a dream car—even if it’s being held together by duct tape! The very fact that you are reading this article is something to be thankful for, because 1.3 billion people around the world experience multidimensional poverty—meaning they don’t have adequate access to education, healthcare and decent living standards.2

We don’t say this to send us all on a guilt trip. Wealth is a good thing, and the more you have, the more good you can do with it! But being wealthy is all about our mindset—how we perceive our own well-being. You can wear yourself out by trying to keep up with the Joneses, or you can practice contentment. As the saying goes, it’s hard to be hateful when you’re grateful!

Building Wealth vs. Getting Rich

There’s an important distinction to make here: Building wealth versus becoming rich. Becoming rich happens when you experience a financial windfall, or a sudden influx of money. A tech company having an IPO, receiving an inheritance, or a pro athlete signing a deal are all examples of financial windfalls.

Sadly, though, you can blow through lots of money in the blink of an eye! That’s because the good habits that allow people to build wealth (generosity, planning, discipline and consistency) are the same habits that help people stay wealthy. No one becomes wealthy by accident. You must set a goal to work hard, grow your money, and show up day after day to make that dream a reality.

Using Net Worth to Measure Wealth

The most common way to measure wealth by today’s standards is net worth: a simple calculation of what you own (your assets) minus what you owe (your liabilities). Take everything you have on hand that’s worth money—cash in savings and checking, the equity in your home, 401(k)s and IRAs—and subtract from that number all of the debt you still have. Then, boom! You’ve got your net worth.

It’s important for you to know your number, because calculating your net worth helps you track your progress. Think of net worth as a scoreboard—a tool that tells you whether you’re winning the game or falling behind. Net worth shows you where you are and where you need to go to hit your overall wealth-building goals.

What Does It Mean to Be Wealthy?

Being wealthy goes much deeper than driving a BMW, owning a vacation home in the Bahamas, and wearing designer clothes. True wealth is about three things: making an impact through giving, leaving a legacy, and having options for how you live your life.

Being wealthy allows you to give.

After you’ve taken care of your own basic needs, you can be outrageously generous—and giving is the most fun you’ll ever have with money! The truth is, we are blessed to be a blessing. When your cup is full, let it overflow onto others. By working hard and building wealth, you’re giving yourself an opportunity to help others around you.

Being wealthy helps you leave a legacy.

No matter your income, everyone can leave a legacy. But being wealthy allows you to make a bigger impact beyond yourself and your family. If you manage your wealth right, you can create a big splash that will have ripple effects throughout your entire community—maybe even the whole world! That’s what the Bible calls good stewardship: managing what God has entrusted to you to bless others and bring him honor.

The idea of legacy extends beyond generosity because it transcends time. Building a legacy is about creating something that will outlive you and transform the lives of people you may never even meet.

Being wealthy gives you options. 

When you’re wealthy, you have more freedom to create a life you want to live, not a life you have to live. When you’re not enslaved to a work schedule, you’re able to decide how you spend your most valuable currency: time. A new world opens up for you to explore and to influence. You get to be more available to the people in your life that you care about. You can spend more time on hobbies or business ideas that you never could before because you’ve got a built-in safety net of wealth to catch you if you fall.

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How to Become Wealthy

The only way to become wealthy is to set goals to grow your money, then consistently do the hard work to make it a reality. It’s similar to getting fit: You don’t lose weight and gain muscle by accident. You must show up at the gym and work hard if you want to achieve results.

If you want to become wealthy, follow these four proven steps:

  1. Work and earn an income.

Your income is your greatest wealth-building tool. Work hard and increase your income whenever possible—get promoted at work, start a side hustle, cut back on your budget, and be intentional about your lifestyle.

  1. Grow your money.

What do we mean by “grow your money?” Simply put, you must invest your money in order for it to experience compound growth and outpace inflation. But there’s a right way and a wrong way to invest in the stock market. Spread your money evenly across four types of mutual funds in order to diversify your portfolio and not take on too much risk in one category.

Always invest first in a tax-advantaged account like a 401(k) or 403(b) at work. But if you don’t have a retirement account through work, you can open up an IRA (I always recommend the Roth option) so you can get the same tax benefits as a traditional 401(k).

  1. Stay allergic to debt.

You can send your wealth-building goals up in flames with one swipe of your credit card. As you work hard and invest your money, beware of lifestyle creep or impulsive buying decisions. Make a budget each month and plan for every single expense. Don’t let your desire to impress others derail your long-term goals.

In our study of millionaires, we found approximately 86% of the general population believes that wealthy people use debt in their favor to make more money. But the truth is just the opposite! Millionaires carefully avoid debt throughout their lives. For example, only 6% of the millionaires we surveyed carried credit card debt, as opposed to 40% of the general population. And only 10% of net-worth millionaires have ever taken out a business loan.

This isn’t an accident! Debt isn’t your friend—it’s your enemy. It steals your number one wealth-building tool: your income. Interest that you pay (on debt) is a penalty, and interest that you earn (through investments) is a reward. Think like a millionaire and avoid debt like the plague.

  1. Have a long-term mindset.

Have you ever heard the kids’ story about the tortoise and the hare? Most people would put their money on the hare to win in a race against the tortoise. But the hare gets easily distracted and makes some impulsive decisions—plus, he’s a bit arrogant, thinking he’s got the race in the bag. Before you know it, he’s off course taking a nap. Meanwhile, the tortoise keeps plodding along—deliberately, consistently, step after step.

When it comes to investing, be the tortoise. Be wise, patient and steady. Don’t withdraw from your retirement accounts, no matter how tempting it is. Don’t live above your means. Look for compound growth to work its magic over the long haul, and before you know it, you’ll be enjoying the fruit of your wealth-building years!

Get Help from the Pros

You don’t need an ivy league education or a six-figure salary to build wealth. Anyone, on any income, can become a millionaire. In fact, in our national study of millionaires, we discovered that the top three professions of millionaires are engineer, accountant and teacher! Building wealth is a mindset, not a numbers game.

If you’re willing to dig deep, learn and apply what you learn, you can and will hit your goals. For help creating an overall financial plan, we recommend working with an investing professional like our SmartVestor Pros. You don’t have to go it alone!

Want to learn more? Dave’s new book, Baby Steps Millionaires, will show you the proven path that millions of Americans have taken to become millionaires–and how you can become one too! Pre-order your copy today to learn how to bust through the barriers preventing you from becoming a millionaire.



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