Who’s richer? Siapa lagi kaya? Part 1

Here’s something to think about.

Consider this:

You own a one-billion-dollar asset, fully financed by the bank. i.e. you took a loan of $1 billion, thus owing $1 billion.

The homeless person you usually see on the streets has no assets at all and has no debts.

Assume also that other things remain constant (ceteris paribus).

Now, the question is, who’s richer?

If your answer is, you’re richer, then you’re probably wrong.

Net worth-wise, that homeless dude is way richer than you are. Why? Well, if you think about it, he’s actually richer by $1 billion. This is due to the fact that you owe the bank $1 billion and he owes the bank nothing.

Morale of the story:

1. Accumulating wealth is not only about accumulating assets but also to consider the impact towards your net worth and how much money you can harvest from those assets (through capital gains and income).

2. Most important of all, don’t look down on others that practice non-extravagant lifestyle 😉


Disclaimer: This article is not a specific nor general advice on managing or investing your money. This article does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs.

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Back to Basics: Asset, Liability, Equity
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Why Not Everyone Can be Wealthy
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