Yesterday, I took a deeper look into what I consider to be what defines someone as being “rich”. The debate could go on for a long time of course as each person would probably have a slightly different criteria. I personally tended to define it as being able to generate enough passive income to account for all of my expenses. That could vary quite a lot depending on a number of different questions so I thought I would answer a few of those:
How much passive income do I need?
I guess this question would be very different for each person but personally I would consider 7000$-8,000$ per month to be more than enough for most of my needs, both in terms of housing, activities but also making nice trips, enjoying time off, being able to give to charity and much more.
How to get it done?
There are many different ways to make such a dream come true but here are the main ways that individuals generally become “rich”:
Inherit: It is perhaps the best known and without any doubt the one that requires the less effort. Of course it usually happens later in life and requires having the right types of connections. Can you count on it to become rich? Obviously not. In fact, the traditional measures of being rich measure that only 16% of those that make it get there through inheritance.
Business: This is the #1 way how individuals become rich, they start a company and become successful. Of course, the truth is that the vast majority of those that try end up failing and among those that succeed, few are able to delegate enough to call their income “passive”. It’s not very passive if you have to be at work every day and the number of hours that you work has a direct correlation with your companies revenues right? If you look at the richest men in the world, almost all of them managed to get there thanks to their own business.
Systematic investing: It’s not the most exciting way to get it done but many books and experts have discussed becoming a millionaire. Saving in a systematic way and putting that money to work can mean getting out of the rat race while others keep working as hard for their dollars 40-50 years later. Starting early is obviously a key but it’s virtually never too late. We discussed how you could start a dividend portfolio with as little as $5000 and it’s very much true.
Going “all in”: I was going to end my post there but then a friend of mine talked about less traditional ways of becoming rich. Crime, the lottery, taking huge risks, etc. These are all different ways and I guess they work in some cases but you would probably agree that the odds are fairly small in such a case…
So my question is… how will you get it done?