Updated: May 23, 2018
An interesting question popped up last week while I was having dinner with some friends. One of them asked, “How is it possible that Jeff Bezos has 119.4 Billion dollars. If he had 40 years to make that money, he would have needed to make 166 Million dollars a month!”
There you have it. The concept that befuddles a good portion of our population.
If you are similarly puzzled as to why the rich can amass so much money, you need to understand the difference between net worth, assets and cash. Well, for the purpose of this discussion, we’re going to separate the cash from assets. Strictly speaking, cash is a form of asset, but let’s define assets as investments that generate returns for you in this discussion.
Most people spend a good portion of their life finding ways on how to make money (cash) through income and job opportunities…attempting to save this money to get where they want to go. But the truly wealthy make their wealth on assets and net worth, never just cash. Of course, these assets, depending on how liquidable they are, can easily be converted to cash when required.
The key to this is that assets invested can be multiplied as they appreciate. When we talk about Jeff Bezos having 119.4 Billion dollars, he doesn’t actually have 119.4 Billion dollars in cash currently. He can if he liquidate all his assets to cash, but he has this amount largely because of shares in Amazon that had multiplied and multiplied.
The same goes for Warren Buffett! Being 70 billion dollars rich does not mean he has the equivalent of it in cash in the bank. There’s no point putting all that money in the bank because as an investor, he has it so much better off growing it exponentially on the stock markets!
Now a second misconception that may arise would be the typical person now scoffing,
“Oh! Then I was mistaken…there’s no such thing as quick money then. Jeff Bezos does not actually have 119.4 Billion dollars in money.”
Let’s be clear on a few things,
There’s no so-called inferior asset. The wealthy spread their wealth over many different asset classes such as bonds, property, stocks, gold and more to protect their legacy.
When the wealthy move their assets into cash, they usually do so with good reason. It’s not just about how much “money” they have in their bank!