ONE of the easiest ways to measure your current wealth is by the way of your savings. Assume you lost your main source of income today, how long would you survive on your current savings to cover your monthly expenses? Let’s say you have saved up three million francs and your monthly expenses are three hundred thousand francs. This means that your ‘wealth’ is ten months of expenses; hence you can afford to live on your current budget for ten months in case you, for example, lost your job while you find other ways of bringing in income. This is a simple, practical way for many of us to assess where we are financially. It tells us how long we can live on what we have saved. Most of us are not millionaires who can live off interest income and not touch our principal. Some folks reading this might be in that position, but if the rest of us stopped working, we would have to use our savings. This approach tells us how long our savings will last. Also, we can save money with the intent of accumulating year in, year out, and never spending your savings. Keep on saving it, even when your months of covered expenses exceed your estimated remaining lifespan. This is how Portfolio income comes in. Portfolio income is income gained from your portfolio of investments. It can be a major source of income for some people who invest heavily. It is the income one derives from capital gains, dividends, and other activities related to the purchase and sale of securities. This differs from wages and salary primarily in that one does not need to work for portfolio income. This form of wealth is one that protects your principal ‘savings’ by supplying you with money to cover your monthly expenses from the ‘interest earned’ which in this case includes dividends, capital gains, royalties etc. with savvy investing, your savings grow, because you cannot spend all the interest earned and the remainder increases your principal or wealth.
