How to Determine if You Are Wealthy

When we think of wealth, we often picture luxury—fancy cars, designer clothes, and spacious homes. But does being wealthy really mean having a flashy lifestyle? Surprisingly, the answer is no. True wealth runs much deeper. It’s about what you keep, grow, and secure over time, not about what you display.

In this article, we’ll explore what wealth really means, how to measure it, and how you can work toward financial freedom. We’ll use the lives of two people, Sarah and Keith, to see how income, spending, and lifestyle choices impact their actual wealth.

What Wealth Isn’t

It’s easy to assume that wealth means earning a high income or living a luxurious lifestyle, but this isn’t always true. Income alone doesn’t make someone wealthy, nor do expensive possessions. To understand this, let’s look at Sarah and Keith.

Sarah earns UGX 5 million per month, and she’s careful with her spending, saves consistently, and avoids debt. Her wealth isn’t showy, but she has worked hard to build her net worth over time. Her net worth—the true measure of her wealth—is UGX 162 million.

In contrast, Keith earns UGX 10 million a month, double what Sarah makes. He drives a flashy car, dresses in designer clothing, and lives in an upscale apartment. However, this lifestyle comes with high monthly payments, car loans, credit card debt, and little saved for the future. When you look at Keith’s finances, his net worth is surprisingly low—just UGX 50 million.

So, while Keith’s lifestyle may appear wealthy, Sarah is the one with genuine financial stability. Wealth isn’t about how much you make or spend; it’s about what you save, grow, and ultimately keep. Keith’s high income and luxury items haven’t made him wealthy; rather, they’ve drained his resources and put him in a more vulnerable financial position.

What Wealth Really Is: Understanding Net Worth

Wealth, in the clearest sense, is your "net worth". Net worth is the difference between everything you own (your assets) and everything you owe (your liabilities). It reflects the value of your savings, investments, and other assets after subtracting any debts or obligations.

To illustrate, let’s look at Sarah’s net worth in detail:

Sarah owns a home worth UGX 200 million, a modest car valued at UGX 10 million, and has UGX 5 million in her savings account. She also has some debt, including UGX 50 million on her mortgage and UGX 3 million in credit card debt. Her net worth is calculated as follows:

Assets = UGX 215,000,000 (Home + Car + Savings)

Liabilities = UGX 53,000,000 (Mortgage + Credit Card Debt)

Net Worth = UGX 215,000,000 - UGX 53,000,000 = UGX 162,000,000

Sarah’s net worth, UGX 162 million, reflects the wealth she has genuinely built up. This amount is not only her financial cushion but also a measure of her financial health. Keith, on the other hand, has a high income and expensive tastes, but his net worth is only UGX 50 million because his debts and lifestyle choices drain his wealth.

This comparison shows that true wealth is not about income or lifestyle; it’s about how well you manage what you have.

How Much Net Worth Should You Have by Age?

If you’re wondering what a healthy net worth looks like, there’s a simple rule of thumb from "The Millionaire Next Door" by Thomas Stanley and William Danko. They suggest a formula to estimate your ideal net worth based on your income and age:

Formula:

(Annual Pretax Income × Age) ÷ 10 = Ideal Net Worth

Let’s apply this to Sarah’s situation. She’s 40 years old and earns UGX 60 million annually, so her ideal net worth, according to this formula, would be:

(60,000,000 X 40) ÷ 10 = 240,000,000

Using this benchmark, Sarah’s ideal net worth at her age would be around UGX 240 million. However, her actual net worth currently stands at UGX 162 million. This means Sarah’s net worth is lower than this ideal benchmark, so she’s not quite where she could be for her age and income level.

But does this mean she’s not doing well? Not necessarily. Sarah’s net worth reflects her consistent saving, wise investing, and careful spending habits, all of which are building her wealth over time. While she may be under the target figure, her solid financial habits indicate she’s on the right path. If Sarah continues making smart decisions, she’ll likely see her net worth increase steadily and may even reach or exceed the benchmark in the future.

In short, Sarah is making smart, steady progress. She might not yet have hit the target, but she’s in a good position to keep growing her wealth—and that’s what truly counts.

How to Increase Your Net Worth

If your net worth isn’t quite where you’d like it to be, don’t worry. Growing your wealth is within reach. Here are some practical steps inspired by Sarah’s approach that can help you boost your net worth over time:

1. Consistently Save

? Sarah sets aside a portion of her income each month, even if it’s a modest amount. Over time, these savings grow into a valuable asset that adds to her net worth.

2. Invest in Appreciating Assets

? Sarah invests in assets that appreciate, like stocks and bonds, rather than spending on quickly depreciating items like luxury cars or high-end electronics. Investing in assets that grow over time increases her net worth.

3. Minimize High-Interest Debt

? High-interest debts, like credit card balances, eat away at your net worth. Sarah keeps her debt low to avoid liabilities that reduce her financial health.

4. Live Within Your Means?

? Sarah’s financial stability comes from living within her income and focusing on her future goals. Instead of splurging on luxuries, she makes intentional choices that build her wealth.

5. Seek Additional Income Streams?

? Sarah sometimes takes on extra work or finds passive income sources, using the funds to grow her savings and investments. Even small income sources can boost your net worth over time.

6. Set Financial Goals?

? With clear goals, Sarah stays focused on her long-term wealth, such as retirement and financial freedom. Setting goals provides direction and motivation, making every financial decision more intentional.

The True Mark of Wealth

Ultimately, wealth isn’t about income or a luxurious lifestyle. As we’ve seen, Keith’s high income and luxury items don’t equate to real wealth. In contrast, Sarah, with her modest income and disciplined approach, has built a solid foundation of true wealth.

Wealth is what remains after spending, debts, and years of careful saving and investing. It’s about security, freedom, and the ability to make choices without financial worry. True wealth doesn’t need to be flaunted; it’s felt in the peace, confidence, and flexibility it brings.

So, if you want to know if you’re truly wealthy, focus not on your income or possessions but on your net worth. Build wealth that grows quietly and steadily, just like Sarah’s, and enjoy the security and freedom that real financial health can bring.