Defining Wealth in Retirement kim kiyosaki

The True Definition of Wealth

You can’t just ‘save’ your way to financial heaven — you need the comfort of cash flow

Many years ago, a friend of mine asked, “What’s your definition of wealth?”

The word wealth has countless definitions. I like to use the definition of wealth that was introduced to me years ago. It comes from a brilliant inventor, philosopher, and humanitarian named R. Buckminster Fuller. His definition goes like this: “Wealth is a person’s ability to survive X number of days forward.”

In financial terms, this translates to the question, “How many days could you survive if you stopped working today? How long could you survive on the amount of money you have?”

This is a sobering question for most people to ask because most people don’t have enough savings and assets to survive for more than a few months. Some may only be a few weeks.

Truly wealthy people, however, those who have achieved financial freedom, have assets that provide cash flow (passive income) month in and month out that cover at their living expenses and often much, much more.

If they so choose, those who are financially free never have to work a day again in their lives. Their assets provide enough cash flow income to cover their expenses. And that, to me, is the very definition of wealth.

The importance of paying yourself first

When we were young, Robert and I committed to meeting with our bookkeeper twice a month. We listed all our expenses (our real ones, not our pie-in-the-sky ones), and the amount of money we were bringing in from our various jobs and from our investments.

At the time, our monthly living expenses equaled around $3,000 per month. Working with our bookkeeper, we set a goal to acquire enough assets to cover our living expenses through cash flow.

After almost a decade, we had $10,000 in cash flow coming in and only $3,000 in expenses.”

This meant that we had to pay ourselves first. We made investing in assets an expense in our budget. It wasn’t easy. There were many times that we had to put off other bills and face creditors to achieve our goal of investing.

But over time, we acquired enough assets to cover our expenses, and then some. After almost a decade, we had $10,000 in cash flow coming in and only $3,000 in expenses. While we hadn’t reached most people’s definition of wealth, we certainly considered ourselves wealthy because we were financially free.

And the best part of achieving wealth? It leads to even more wealth.

Robert and I were never content to “retire” and simply sit around twiddling our thumbs. It gets boring fast! The beauty of attaining financial freedom is that it freed us up to pursue our passions, increase our financial education, and also increase our investments. The hardest part was getting to that point. Now we get to enjoy the fruits of our labor.

Defining wealth for the best retirement

Now, let’s take a look at how wealth translates to your Golden Years — because your wealth going into your retirement will directly affect how it plays out.

A couple years ago, I was meeting some friends at a beachside restaurant in Honolulu. I took a seat at the bar to wait for them and began talking with the gentleman sitting next to me. He and his wife had both recently retired and they were living their dream of retiring on the islands. They bought a house on the island of Kauai and were on their way to their new life in a few days. How exciting!

We had not discussed money, retirement, or the economy, yet out of the blue, this man said to me, “I am just a bit concerned.” Uh oh. That’s not the attitude you should have when starting the next chapter of your life.

I asked him what he was concerned about, and he told me, “My wife and I have looked forward to our dream retirement for many years and now here we are. My worry is that we may not have put aside enough money to last through our retirement. I guess time will tell.” There was sadness in his voice.

This man, after a lifetime of working hard towards his goal of he and his wife living their retiring in Hawaii, was already worried before they had even begun. He was already fearful of running out of money.

That is not a way to live out the years that are supposed to be your reward for a lifetime of hard work.

Two retirement philosophies

There are two ways to think about retirement: the traditional way and the Rich Dad way.

The difference between the Rich Dad philosophy and other financial philosophies and strategies is that most financial planners, experts, spokespeople, and journalists plan on two things happening upon your retirement:

  1. You will have a fixed amount of money to live off of that earns you a small amount of interest, and;

  2. You will have a lower standard of living during retirement than when you were working, due to the loss of a salary or paycheck and rising medical expenses as you age.

The Rich Dad philosophy does not make those assumptions. Instead we assume:

  1. You have passive income coming in every month that equals or exceeds your living expenses… forever. In other words, you never have to worry about running out of money once you retire or stop working, and;

  2. Your standard of living remains the same or, in many cases, increases. That is why we measure wealth in terms of time. I can’t imagine a more horrible money problem than being 70, 80, 90, or 100 years old and knowing you are just about out of money.

Reaching your own financial heaven

Following the traditional thinking on retirement is kind of a financial hell. No one wants to get to retirement and be worried about whether they will have enough money to live the life they want to. That is what happened to the gentleman I met in Hawaii, and it was tragic. It's financial hell to work hard all your life only to have to cut back your standard of living as inflation, taxes, and healthcare costs eat away at your hard-earned retirement money.

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Choose to be rich here

Instead, and based on our definition of wealth, we advocate for planning and reaching your financial heaven. You do this by understanding your infinite wealth goal — what you need to live the life you want without having to worry about money (that is, making enough in cash flow through assets, such as real estate investments, to cover your living expenses as you want them to be, not as they need to be).

Reaching your financial heaven requires determining your infinite wealth goal and aspiring towards your dream, and then acquiring and applying the knowledge to achieve it. Simple? Yes. Easy? Not necessarily. Worth it? More than you can imagine.

How do you define wealth?

Now, take a moment to think about how you define wealth when it comes to your retirement someday. Achieving your financial heaven is not an overnight process. It starts with financial education today and careful planning for tomorrow. It took Robert and me decades to achieve our financial freedom. We never stopped learning, and we never stopped applying our knowledge. When failure came, we learned from it. When successes happened, they were hard earned.

So, the question today is, “What will it take for you to become wealthy?”

If you want to avoid financial hell and instead reach your financial heaven, I encourage you to start learning as much as you can about money and investing. Start with a class or read a book.

Take an eight-module introductory course called Rich Dad’s “Choose to BE RICH System.” From there, get a coach. Start applying your knowledge, and slowly but surely, you'll be building a rock-solid foundation for your retirement.

Original publish date: August 07, 2014