Making money versus building wealth?
I'll keep this post short, because I'm still reading Rich Dad, Poor Dad, and it's late.
One more critical realization I've had is the difference between making money and building wealth.
Making money usually happens when you work hourly, and you stop getting money when you stop working.
Building wealth happens when you invest the money you made from hourly labor, and when you've built wealth you keep getting money even when you stop working.
How R. Buckminster Fuller defines wealth
The biggest brain-exploding moment I had today was reading about how R. Buckminster Fuller defines wealth:
“Wealth is a measure of a person’s ability to survive so many days forward [without working].”
To be honest, this concept nothing new – I'm familiar with the concept from the FIRE movement and Mr. Money Mustache. But it neatly codifies the vague mental image I've been holding in my mind of success.
I am successful – I am wealthy – when I can survive more days without working than I can survive until I die.
This is my goal. And as the FIRE movement says, I can do this in two ways: reducing my spending, and increasing my passive income, until my spending is lower than my passive income.
Passive income established is time earned
By looking at these two numbers, I can calculate exactly how much freedom I earn with every dollar of passive income I establish.
Assuming an annual burn rate of $100,000, every dollar I add in yearly passive income (personal annually recurring revenue – PARR?) will get me:
annual_burn_rate = $100,000 monthly_burn_rate = $8,300 daily_burn_rate = $274 minute_burn_rate = $0.19 dollar_time_value = 5.26 minutes, 0.08hrs
Therefore, every dollar I add in PARR generates just over five minutes of freedom per year. Multiplied by the 66 more years I'm expected to live, that single dollar turns into 5.5 hours of freedom total.
Of course, that dollar in PARR costs many dollars of non-recurring revenue, and that exact ratio depends on what the return of my investments is, which in turn depends on the type of investments I make.
Anyway, that's all for now. I'm back to reading Rich Dad, Poor Dad... and maybe getting some sleep.