Mark Blasini

Wealth rate

Instead of thinking in terms of wealth (i.e. how much money you have), think in terms of wealth rate – the rate at which you build wealth over a period of time. To calculate your wealth rate, you want to subtract your expense rate (the expenses you pay over a time period, let’s say a month) from your income rate (the income you make every month). The equation, then, would be:

Wealth Rate = Income Rate – Expense Rate

If you know how much you make and spend on average per month, you can calculate the rate at which your wealth is building or declining. For example, if your expense rate is greater than your income rate, then you are building negative wealth.

Looking at wealth rate allows you to see if, as time goes by, your wealth is increasing or decreasing and gives you a more accurate picture of your state of affairs.

Indeed, from the equation above, it looks like there are two ways to increase wealth rate: lower the expense rate, increase the income rate.

In fact, however, there are 4 ways. Because we are talking about rate, that means we talking about an amount per time.

So to decrease the expense rate, there are two things we can do:

1. Decrease the expense. For example, if I currently spend $500/mo, I can try to cut costs to reduce expenses in half (by $250), thereby increasing my wealth rate by $250/mo.
2. Increase the time period. For example, if I currently spend $500/mo, I can try to expand the time for making the purchase by an extra month, so that my expense rate is $500/2 months. This is done typically through a kind of loan: have someone pay the full expense, and then agree to pay them back in increments ($500 over two months).

1. Increase the income. For example, if I currently make $1000/mo, I can increase my earnings by working more or selling more to $2000/mo, thereby increasing my wealth rate by $1000/mo.
2. Decrease the time period. For example, if I currently make $1000/mo, I can increase the income rate by decreasing the time period ($1000/2 weeks). This is done typically by investing: when you invest, you can make money on your investment in a time period, called a return on investment (ROI). If I invest $1000 and every week I make a quarter of that investment ($250/week), then I made a 100% ROI for that month.

1. Reducing costs
2. Borrowing
3. Earning more
4. Investing