Some people are so poor, all they have is money. - Unknown
Rob Gronkowski retired after his Super Bowl win in February this year. He was one of the most dominant tight ends in NFL history, setting numerous records during a nine-year career in which he earned $54 million through his NFL contracts.
What did Gronk buy with $54,000,000 in nine years? Nothing! He invested it instead, choosing to live exclusively off of his endorsement income. He stated in at least one interview that he has significantly grown that $54 million which is a far cry from most of his professional athlete peers.
During the past few years I've met many people with money, with anywhere from a million or two to Gronk status. The wealthy people I admire (note I don't admire all rich people) are commonly closet millionaires living in modest houses and driving basic cars. Some of them do have expensive, millionaire things. But they all have the following characteristics which I believe characterizes true wealth.
They have passive income. If somebody makes $600,000 a year working 70 hours a week that seems like a poor quality of life. Even if they love what they're doing, the opportunity costs of that occupation are high. It's likely that they could think of a few things they'd rather do than be at work but they may feel trapped by their job. By contrast, wealthy people have passive income that frees up their time; this is because:
Truly wealthy people know that the most precious resource they've got is time. They don't want to squander that, so they devote effort toward reducing active income and increasing passive income. A natural consequence of this is that they're deliberate about where, how and with whom they spend their time.
They live well within their means. They don't have an inordinate portion of their net worth tied up in stupid assets like homes and cars. The ones who do buy stupid assets do so with their eyes wide open, allocating a very small portion of their net worth toward luxuries.
They understand that the purpose of life is not to continually increase one's spending ability.
Yes, this is true even for those who possess luxuries. The truly wealthy keep things in perspective and realize happiness is not about continually one-upping others which is a Sisyphean task. They know that pissing contests are a waste of time, money and effort. Instead, they chase money to further their pursuit of their WHY. Which leads me to...
They know that money isn't the WHY - it is the HOW. Money should not be the reason why you work so hard at your job, or become an entrepreneur. Money is the means by which you achieve, so you had better figure out what you want to achieve. This is so important because money will allow you to do all sorts of things, but it provides no direction! Take a moment to consider why it's so dangerous to have a lot of means without having direction, and think about why lottery winners and professional athletes so commonly fall into financial ruin.
I'm in the early stages of a career that will generate wealth and passive income for my investors and for myself. However I realize that in addition to working hard on my business, I need to identify the people whose lifestyles I want to emulate. This blog is an attempt to hold myself to account and keep things in perspective.
Chihiro Kurokawa is founder of BlackRiver Equity Partners, a real estate private equity firm providing private offerings to investors seeking tax-advantaged cash flowing investments in real estate.