If you were to look for the modern day definition of “Baller,” you will likely find it described as someone who has “made it” or “spend lots of money.” However, there is no mention whatsoever of the creation of their wealth, how much they have, how they invest it, or how long it will last.
People that own multiple income producing assets such as stocks, bonds, real estate, or businesses are known as “Rich.” These types of people are not to be confused with “Ballers,” who simply seem to promote the “Image” of the “Rich” through unsustainable spending habits.
There are a couple of ways to measure how “rich” you are. The most common way is by measuring your net worth. This is done by adding up your assets (stocks, real estate, cash, etc.) and subtracting from it your liabilities (mortgage, credit card debt, etc.). This is the basic equation this is used to figure out that Bill Gates and Warren Buffet are worth so many billions of dollars. This method of measuring how rich you are has been made popular by magazines such as Fortune, who prints an annual list of the richest people in the world.
The second way, that I am going to focus on here, is how long the cash flow from your assets can support your current lifestyle. Unfortunately, this method gets a lot less attention, although in my opinion, it is the true measure. Using this method, you will see that having the biggest Net Worth will only make you “Rich” if you control spending and become an active investor.
Let’s go ahead and introduce the financial profile of our two investors using this second method of measuring how “Rich” someone is.
Investor A – “Rich”, Age 30
- Net Worth: $500K
- Annual Spending Habits: $40K
- Preferred Investment Type: 10% Interest From Passive Real Estate Investments and Stocks
- Annual Income from Investments: $50,000
- Net Worth at age 40: $636K
Length of time until this person is broke: NEVER BROKE
Investor B – “Baller”, Age 30
- Net Worth: $2M
- Annual Spending Habits: $250K Per Year
- Preferred Investment Type: 3% Interest From Checking Account
- Annual Income from Investments: $60,000
- Net Worth at age 40: $70K
Length of time until this person is broke: 10.5 Years
This is a simple profile, and there are some holes, but this was created to make a point. I will admit that the “Baller” went on quite a run here. I mean, this guy is spending $250K per year, killing it, making it rain, buying up bottles. He’s got 3 cars, a big house, and loves treating his friends. All this said, he has no income producing assets and terrible spending habits. His run will be coming to an abrupt end and his lifestyle will become severely compromised.
“Rich” is living a modest lifestyle. He owns a home that is big enough and in a nice neighborhood, drives a nice car, and eats most of his meals at home. He has a small stock portfolio that he actively manages, as well as income producing real estate. He really has everything that he needs and will never have to work another day in his life. In fact, if he were to pass on what he had left to his kids when he was 80 years old, they would be receiving over $11M.
Who would you rather be?
There are two main differences between “Rich” and “Baller”: 1) Spending Habits and 2) Investment Preferences.
Spending habits are something that you need the discipline to take control of yourself. It helps to have friends and family that are on the same page and I suggest that you have an expert help you with this if it is a struggle. I must admit that my life is easy, as my wife is a financial literacy expert and sits on the board of Operation Hope (OperationHope.org). We keep one another in check with our spending habits.
Investment Preferences are what my group specializes in. I believe that you need to invest in vehicles that you are comfortable with. My investment of choice is real estate, but yours may be Stocks or Certificates of Deposit.
One thing to remember is that all “Rich” will eventually get the chance to become true “Ballers,” while all “Ballers” will become “Broke” before they ever become “Rich.”