How would you guys define each? What is the difference if any?
There is a definition of net worth which is simply a balance sheet exercise. You add up everything you own and subtract everything you owe what is left over is your net worth. My main problem with Robert Kyoski is that he says that an asset is anything that puts money into your pocket and anything that takes money out of your pocket is a liability. When these terms have accounting definitions. An asset is anything of economic value. For example he says your primary residence costs you money so it is a liability. When it is not a liability it is an asset. The mortgage on that house, however, is a liability. So if your house is worth $100,000 and you have a mortgage on it of $90,000 you have a net worth of $10,000.
Now you call it wealth, I call it being rich is an income statement exercise. You are rich if you can maintain your lifestyle without going to work. For example if you stopped working today and you never have to go back to work because you have enough income to afford that lifestyle (at whatever level that lifestyle is) you are rich. My wife’s grandmother is rich although she only makes less that $2,000/month. An income statement is based on cash flow of receipts of money and payments of obligations. The real bugger to retirement accounts is that they focus on balances when what they should focus on is income. If you save a big nest egg up and start spending it to live eventually you will spend it up and have to replenish it. Their business model is to restrict your lifestyle so that you can save every available penny and start spending it when you retire and pray you die before you spend it up. That is why real estate is so great. It pays you a stream of income. It makes you rich although you may be mortgaged to the hilt.
If you have $400,000 worth of houses that have mortgages totaling $1million you have a negative net worth of negative $600,000. But if those houses cash flow to the tune of net cash flow to your pocket of $100,000/year and your lifestyle can be maintained on $60,000/year you are rich.
If I could buy IBM for $5Billion and borrowed every penny of it I would have a zero net worth, but I would be able to live the lifestyle of a person that owned IBM.
I hear about guys that live in a 1 room hovel and wear the same clothes for years and eat Ramon noodles everyday. When he dies they find out he has $1millon net worth. Which would you prefer?
I have some friends who are not millionaires but I would consider them rich. They make a decent living and are pretty much debt free they own nice things and still have a decent nest egg leftover. One of them works at the local market making a couple grand a weekend and then works every other other day as a fire-fighter. His nice house is paid off and in his fathers name so he could easily live off not working. Plus, whenever we stop at Hooters and run up a $100 bill I usually get stuck paying the tab!