Yesterday, I attended Wealth Expo which was organized by Adam Khoo Learning Technologies Group. The 2-day event held at Singapore Expo was attended by a few thousand people.
Adam Khoo was the first speaker for the day. Given that the event was called Wealth Expo, it was probably no coincidence that one of the things that Adam talked about was on the concept of wealth and financial freedom.
If you have read Rich Dad Poor Dad, you will know that Robert Kiyosaki defined wealth as the number of days that a person can survive financially without working.
So if you have $100,000 in liquid assets, earn $5000 a month and spend $2,000 a month, your wealth will be defined as 50 months.
By the way, liquid assets does not include the primary property which you live in and your CPF. 🙂
Using this definition, a person’s wealth is not measured by how much he or she has, but by how financially secure he is once he is out of a job.
A person who earns $25,000 a month but has little or no savings and spends $20,000 a month could be less wealthy than our $5,000 a month income person who was given as an example above.
Adam Khoo goes on to elaborate that if you have passive income (the kind of income that you receive without having to work) such as share dividends and rental, you can subtract it from your expenses when you are calculating your wealth.
The wealth formula looks like this:
Wealth = Liquid Assets / (Monthly Expenses – Monthly Passive Income)
And if your passive income happens to exceed your monthly expenses, you can be considered financially free.
There are two ways that you can determine your wealth. One is to calculate it based on your current monthly expenses.
The other way is to use a projected monthly expense based on the lifestyle you want to live once you retire. This will tell you how many days you can survive should you decide to retire today.
So how wealthy are you?
Adam goes on to give some examples of how much money you need to save using different variables of time, inflation rate, rate of return, monthly expenses and savings.
The examples were done using one of his financial calculators. This calculator, as well as some other financial templates and a video, was sold to us at a price of $10. As Adam mentioned that there were only 100 limited copies available, a section of the audience rushed (they literally ran) to the payment counter to buy a copy.
For those of you who didn’t manage to buy a copy, you can consider checking out the financial calculators at CPF website.