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If you make $1 million a year from a job, you could lose your job any day. If you make the same $1 million from owning hotels, or businesses, no one can take that from you. Having a high income alone does not mean financial independence. Photo Credit: Robin Bartholick, Getty Images
Most people believe the key to wealth is a high-paying job. Yes, it's easier to amass assets if you have more money coming in each month, but the true secret to increasing your net worth is to spend less than you make. It is a cliche; but it is the fundamental, absolute, non-negotiable reality of money. To escape this trap, you need to understand that income is not wealth.
What is wealth? My personal definition: Wealth is the part of your net worth (assets minus liabilities) that generates capital gains, income, and dividends without your labor.
If you are a Doctor or Lawyer, you need to put in long hours after years of specialty training and higher education to get a paycheck. On the other hand, if you have a portfolio of private businesses, car washes, parking garages, stocks, bonds, mutual funds, real estate, patents, trademarks, and other cash generators, you could sit by the pool. The real value, of course, is that you could maintain your lifestyle even if you were disabled or unable to continue working at your primary occupation. Better yet, unlike a salaried employee, wealth can't fire you - you have to squander it. It's far easier to lose a job that wipe out a well-constructed portfolio.
The level of your wealth should be measured by the length of time you could maintain your standard of living without an additional paycheck. In other words, if you had to stop working right now, how long could you keep up your purchasing pattern for cars, clothing, music lessons, college tuition, video games, etc.? The average person isn't educated in this truth, which is why the more and more they earn, they are left wondering why financial independence and security continue to allude them, always seemingly just out of grasp.
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