What Is Wealth? 5 Simple Graphs That Depicts Our Financial Status

What is wealth?

At this junction, most of us aren’t financially literate. Financial terms like assets, liabilities, equity, profit margins, cash flows, … etc seem foreign. Coupled with a mixture of human behaviour and societal beliefs, it’s a lot easier to define one’s level of wealth based on possessions that could be seen, felt and touched. Such includes perceptions like: 

a. He lives in a RM 2 million semi-D in a nice neighbourhood. Rich.
b. He drives a RM 500k sports car. Rich. 
c. He has 10 investment properties to his name. Rich. 

d. He runs several businesses with combined revenue of RM 20 million. Rich. 
e. He is a C-level executive in a multinational corporation. Rich. 
f. He spends RM 200k on a 2-week luxurious holiday in Europe. Rich. 

and the list goes on. 

Sure, there are truly rich people that could attain and afford the above. But, the interesting thing is – “some of the above could be pseudo-rich.” Pseudo-rich are people that look rich but are not financially rich. Some may be financially worse off than an average Joe on the main street. 

Perhaps, you may even question: “Ian, could someone who lives in a nice house and drives a fancy car be financially poor?”. Absolutely. 

What about the guy with 10 properties? Could he be financially poor? Yes. And, certainly, it’s the same with the C-level executive, the businessman that owns & operates multiple businesses and the one that travels in style. It is possible that they could be pseudo-rich. Yup, you won’t believe it. 

How to Assess Real Financial Wealth?

Short answer: Financial Statements. 

A rich man can drive a Lambogini. So as a poor man. The most effective method to tell them apart is to look at their financial statements. The real rich has a rich financial statement. Meanwhile, the pseudo-rich has a poor financial statement and thus, is truly a poor person. 

The first step to do this is to know how both financial statements: rich and poor look like. Hence, in this article, I’ll share 5 simple graphs to illustrate their major differences. They will enable you to truly assess one’s financial wealth including yours so that you could position yourself towards accumulating real wealth. 

Graph 1: Income – Expenses = ?

The rich has surpluses. The poor has deficits. Let’s assume that you’re earning a monthly income of RM 8k. You are rich if you have surpluses consistently. But, if you make RM 80k per month and consistently have deficits, you’re poor despite possessing the ability to earn 10x more. Hence, it’s not what you make but how much you can keep from what you make that sets the rich apart from the poor.

Graph 2: The More Income We Earn, The More ?

Sure, it is easier to save money if we earn more income. But really, is that so? In the financial lives of most people, we start earning below RM 5k a month. From this income, we try our level best to live with it. Then, we raise our income. The amount gradually increased from RM 5k to RM 8k, RM 10k, RM 20k … a month. 

The rich find it easier to raise their amount of surpluses. Perhaps, they could be saving RM 1k a month from their RM 5k in monthly income. But, as the amount of their income grows, they can increase their monthly savings to RM 3k, RM 5k and RM 10k a month gradually over time. 

Their savings rate (margin) would increase over time. 

The poor find it very difficult to save money. This is so if their concept of wealth is on material possessions. They upgrade homes and cars. They start fine-dining and have expensive hobbies. It’s called lifestyle inflation. The more income they earn, the more money they spend (and borrow). 

Graph 3: What Assets Do We Own?

Assets are defined as items that we own which could be valued in dollars. Sure, this definition sounds academically correct. But, they aren’t useful in telling the difference between a rich person and a poor person. 

So, what’s the trick? 

Simple. It’s to separate assets into two categories: productive and consumption assets. Productive assets are assets that generate income. To name a few, these could be stocks, properties, estates, business interests and FDs that generate to you dividends, rents, business income and interests. Consumption assets would be assets that you use and thus, aren’t income productive. They include the car that you drive and the house you live in. 

The rich has greater proportion of productive assets. In many cases, their assets (productive) generate income that supports their consumption assets. Whereas for the poor, they have a greater proportion of consumption assets. Typically, in most cases, the poor has to work hard to earn income to support these assets. 

Graph 4: The Level of Financial Stress

Let’s say, we have Alison and Ben. Both have RM 1 million in assets. Their yearly expenses (including debt instalments) are RM 100k. But, their level of stress are different. 

For Alison, her RM 1 million assets comprise of a RM 400k investment property, RM 140k in EPF Account 1, RM 60k in EPF Account 2 & 3, RM 350k in stocks and RM 50k in FDs. Here, we could separate these assets into two simple categories namely: illiquid and liquid assets. 

Illiquid assets are assets that cannot be converted into cash immediately. This is also known as hard assets. In Alison’s case, they would be her property and EPF Account 1 which are worth RM 540k. Meanwhile, liquid assets are assets which can be liquidated into cash on an immediate basis. These assets include her EPF Account 2 & 3, her stocks and FDs worth RM 460k. 

In times of emergency, Alison’s RM 460k in liquid assets will come in handy as it could support her annual expenses of RM 100k for 4.6 years. 

But, that is not quite the case for Ben. 

Ben’s RM 1 million in assets comprise of his RM 750k house, a RM 130k car, RM 70k in EPF Account 1, RM 30k in EPF Account 2 & 3 and RM 20k in FDs. As such, Ben has RM 950k in illiquid assets and RM 50k in liquid assets. In times of need, Ben’s RM 50k in liquid assets can only support his annual expenses for 0.5 years (6 months). 

Once he runs out of funds, Ben is forced to either: 

  • Borrow money. 
  • Sell off his house / car at discounted prices. 

to stay alive. 

In these cases, Ben has greater financial stress as compared to Alison.

Graph 5: Net Worth

Once again, two individuals could have RM 1 million in assets but have different net worth. 

This depends on their debt levels. 

Let’s say the first guy owes RM 100k in debt. Thus, his net worth is RM 900k. As for the second guy, he owes RM 900k in debt. So, his net worth is RM 100k. The two guys have RM 1 million in assets but the first guy is worth 9x more than the second guy. 

Take a look: 


The 5 graphs offer the basics of a financial statement and how we could apply it to assess our financial wealth. Here, the areas to focus on are as follows: 

a. Increase income to increase savings, not spendings. 
b. Prioritise investing in productive assets over consumption assets. 
c. Liquid assets come in handy especially in times of need. 
d. It’s not about how much assets but the net worth to be built over time. 

By Ian Tai financial guru with KC Lau

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