How To Change Your Wealth Ratio
How to change your wealth ratio is something I believe every person should learn and be aware of in their life. Wealth and wanting to be wealthy is often seen as a ‘dirty’ ambition but being part of the worlds Top Rich List won’t just change your life. It will also open doors to opportunities that didn’t exist to you previously, and depending on how you use your wealth it can impact the world for the better (think Bill Gate’s working to rid the world of malaria and fight against AIDS and tuberculosis).
Because you are here reading this article it is clear that you want to know how to get from where you are financially at the moment, to joining the worlds wealthiest and richest people. I’m not going to lie to you – it isn’t easy. You’ll have to work hard, understand very clearly your own financial position and develop skills and habits around money that most don’t follow.
Let’s start with the definition of rich and wealthy.
Rich and Wealthy
The definition of rich and wealthy are often thought to be the same thing however as your wealth grows you’ll soon discover that the way you think about money changes and you’ll start to realize there is a difference between the two.
If you have read any of Robert Kiyosaki‘s books you’ll be very familiar with the distinction he uses “The rich have LOTS of money but the wealthy DON’T WORRY about money.”
Now that you recognise the difference between being rich and being wealthy which one would you rather be? Wealthy? I thought so.
What types of wealth are there?
You may be surprised to learn that there are four different types of wealth and only one relates to financial wealth. As you are likely starting to notice being wealthy isn’t just about your bank balance.
The 4 types of wealth are:
- Financial (Money) – which I’ll help you learn more about the longer you stick around
- Social (Status) – nope, sorry I can’t help with this one
- Time (Freedom to do what you want with your time) – I’ll help you with this one
- Physical (Health) – sorry, I can’t help with this one either
Can you imagine your life if you had all four types of wealth? To be financially secure and not worry about money, you have a social status that opens doors to otherwise unheard of opportunities, the time to be able to take a holiday or vacation for six months if you so desired and having the health that will help you live a long and active life.
Your Lifetime Wealth Ratio
Your lifetime wealth ratio is a simple formula developed by budget blogger J. Money at Budgets Are Sexy. It’s the type of formula that will likely give you the kick up the bum you need to really make changes to your financial habits. It will shatter any illusions you have that earning well over 6 figures automatically means you have a great lifetime wealth ratio which is why I like to use this formula – it helps put your financial life into perspective.
How to calculate your lifetime wealth ratio:
Lifetime Wealth Ratio = Net Worth / Total Income Earned to Date
The tricky part in this equation isn’t determining your Net Worth it’s determining your Total Income Earned.
If you’re American you can login into your Social Security Administration website and get the an estimate of your lifetime taxable income to date.
If you’re Australian and have only one superannuation account you can login your super account and get an estimate of your lifetime taxable income to date.
Now you have both your current Net Worth and your Total Income Earned to Date figure take a deep breath pull out the calculator on your phone and punch in the numbers.
Lifetime Wealth Ratio Score
- 0%-10%: You’re on par with the average not the wealthy
- 10%-25%: You’re young and this will improve over the next 40 years
- 25-50% – Well done you’re starting to make a difference
- 50-100% – Excellent! You need to be here to be wealthy
- 100%-1,000% – Wow… Congratulations! Keep it up! For you it’s all about mindset now and making a positive impact on the world around you!
How’d you go? Happy with your ratio?
Change Your Wealth Ratio
Knowing your Lifetime wealth ratio is perhaps the best way I have ever seen to frame in your mind what your ‘financial past’ looks like and where you want your ‘future financial self’ to be.
If your lifetime wealth ration is lower than 50% I urge you to sign up to my email newsletter below, learn more about money and putting what you learn into practice. Become the wealthy person you want to be and know you can be. You now have a clear goal! I know you can achieve it!
THANKS FOR READING
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