Mind Your Decisions

Why Rich isn’t Rich; Proposing an Alternate Definition

The rich are rich because they focus on the long-term acquisition of assets… assets such as stocks, bonds, businesses and income producing real estate. Many times the rich will forsake meals, a steady pay check, a vacation, or the comfort of a nice home, to build or acquire real assets.

—Robert Kiyosaki, author of Rich Dad, Poor Dad

I remember reading Rich Dad, Poor Dad in high school and feeling awestruck. When I read things from Kiyosaki now, like the passage above, I just shrug. Is that what used to impress me? After seeing how people deal with money, many of the not rich things sound pretty good.

Just to recap, here’s how he distinguishes rich from not rich:

• rich: having lots of long-term assets, such as stocks, bonds, businesses, and income producing real estate
• not rich: giving up opportunity by desiring meals, a steady paycheck, vacations, and a comfortable home

In one sense, Kiyosaki is 100% right. By today’s values, rich is defined as possessing a surplus of value. Billionaires are rich. Mansions are rich. Rolex watches are rich. Cheesecake is rich. The thousand dollar fine china, that never gets used, is rich.

But there’s a catch: perhaps rich is not measuring the right values. After all, many of us do value the items in the not rich category. Some of the happiest people I know have every characteristic of the not rich category. They don’t have money bins to swim in, but I would certainly call them rich.

In my opinion, rich shouldn’t be about accumulating goods but rather about using them. If you don’t have a lot of money, but enjoy life to the fullest, you should be considered rich.

A revised definition

Under this notion anything that maximizes opportunity and allows us to enjoy life to the fullest is rich.

Penniless college students are rich. A cozy home is rich. A functional digital watch is rich. A homemade meal is rich. The bottle opener you got from college, for free, and still use to open wine bottles now, is rich.

I can summarize a new definition in one sentence:

Rich is having a usable surplus of resources, like money, time, or friends.

Some implications

The word usable is very important. It’s the main distinction I make with the mainstream. When you start looking at rich in this light, you immediately see why very average people are having the times of their lives while wealthy people are annoyed every day.

Here is what the definition implies:

1. A person with ten close friends is richer in friends than someone with no close friends but 300 online contacts.

2. A person who runs at a public park is richer in health than someone who never uses a $100 a month gym membership.

3. A college student who parties on a free and torn up couch is richer in assets than a businessman who possesses an Italian leather sofa but spends most nights in hotel rooms.

If you start acquiring usable wealth instead of just wealth, you will be much more efficient at being rich. That’s most of the difference, but there is one more key point.

Adding randomness to the definition

I would add one clarification, based on a discussion in the book Fooled by Randomness. It’s often said that doctors are not as rich as businesspeople. After all, Bill Gates crushes surgeons in net worth.

But what about comparing the average? You might find that the average businessperson lives a nice, but not spectacularly wealthy life compared to doctors who are almost always well-off. Taking into account the expectation, you could argue doctors are richer than businesspeople. And here’s what that definition might look like:

Rich is having a usable surplus of resources, like money, time, or friends, when considering all possible worlds.

Often, people who have incredibly high net worth have made many foolish or risky decisions along the way but happened to win the game of Russian roulette. This is why it might be improper to learn how to be rich only from the rich.

What this means

In the standard definition of rich, a higher paying job, and responsible spending, would automatically make me richer. That’s why people say the formula is as simple as earning more and saving a fixed percentage. Check out most personal finance websites to see this platitude regurgitated.

That thinking misses the tradeoff of it all. Higher paying jobs often require more work and more time at the office. You lose leisure time and family time. In short, you are acquiring the conventional money surplus at the expense of other surpluses. In this view, it becomes incrementally harder to be rich by forcing yourself since work has the potential to destroy the surplus. You break even or lose an average. If you want to try a different path to winning, consider relaxing.

All of the above discussion is why I don’t follow 99% of money articles. Most writers lecture me on what I should do to enjoy my money. They have a mentality that being rich is about doing things they know raise net worth or acquiring assets.

It’s not. In many senses, rich is about using what you have. It’s a pleasant path and one of little resistance.