In order to properly understand the purpose of a wealth ratio, we will first define wealth.
Definition of Wealth: The number of days you can survive without working.
What is a Wealth Ratio?
Your personal wealth ratio is the amount of passive income divided by your expenses.
Passive Income = Wealth RatioExpenses
If you have ever played Cashflow 101 or 202, you understand that when your wealth ratio is >1 you are technically out of the “rat race” and are financially free. This is because your passive income is greater than your living expenses allowing you to have an infinite number of days you could survive without working.
How to Increase Your Personal Wealth Ratio
There are two ways to raise your wealth ratio to 1 or greater. One is to raise your passive income, the other is to reduce your expenses. By choosing great passive income opportunities, you will be on your way to financial freedom. At the same time you can reduce your expenses. I recommend you take a look at your expenses each month and figure out what you need to make each month to live. Then set goals in order to move your personal wealth ratio to become greater than 1.
When your passive income is greater than your expenses, technically you be wealthy. This is how rich people switch to becoming wealthy people.
See you at the top!