This report discusses the core principles for building true wealth. It begins by pointing out that “making a lot of money” and “staying rich” are entirely different. It explains the reality that many high-income earners fall into an “income addiction trap”—where spending expands along with rising income—and consequently fail to build assets, using the case of Mike Tyson as an example.

To address this problem, the report proposes redefining the measure of wealth not as mere net worth, but as “net investable assets,” which are practically available for investment. It states that the secret to building true wealth lies in the simple principle of “increasing income while controlling expenses,” and sets the ultimate goal as “financial independence,” where living expenses can be covered by investment returns alone. It recommends building assets equivalent to “20 times annual expenses” as a concrete target and emphasizes the importance of a specific action plan to achieve it.

Introduction: The Misconception of the Nature of Wealth

When discussing wealth creation, there is a core principle that must first be recognized: the fact that “making a lot of money” and “staying rich” are completely different concepts. In popular perception, a high income is often regarded as the absolute indicator of wealth, but this misses the point. This is because many people tend to increase their spending proportionally, or even more, as their income rises. As a result, they fail to accumulate assets and live with financial vulnerability despite their high earnings. The path to becoming truly wealthy depends less on the effort to simply increase income and more on the discipline and knowledge to wisely manage that income and steadily accumulate it as assets.

Redefining “Wealth”: The Metric of Net Investable Assets

Rigorously redefining the word “wealth” is the first step in asset formation. Generally, “net worth” is calculated as the total market value of all owned assets—such as cash, savings, real estate, and cars—minus all liabilities, like mortgages and auto loans. However, this definition includes assets essential for living, such as one’s primary residence and car, or cherished items like art that one has no intention of selling. Therefore, it does not accurately reflect the assets that can actually be leveraged to achieve financial freedom.

In this report, we advocate for a more conservative and practical measure of wealth: “Net Investable Assets.” It is calculated using the following formula:

Net Investable Assets = Income – (Expenses + Liabilities) – Value of Assets You Wish to Keep

This formula represents the pure surplus funds that can be freely directed toward investment for the future, after subtracting daily living expenses and debt payments, and excluding assets not intended for sale (e.g., primary home, daily-use car). Using this metric allows for a more objective assessment of one’s financial situation and the creation of a realistic wealth-building plan.

The Mechanism of Bankruptcy Despite High Income: “The Income Addiction Trap”

The reality that a high income does not necessarily lead to wealth is best symbolized by the cases of high-earners who go bankrupt. A prime example is the professional boxer Mike Tyson. During his active career, he amassed a colossal fortune with a net worth exceeding 40 billion yen. However, as a result of continued spending that far surpassed his income, he eventually found himself with a massive debt of 3.2 billion yen. His expenses, including employing a large staff, maintaining dozens of luxury cars, and multiple mansions, ballooned without limit as his income grew. This case painfully illustrates how critical expense management is in asset formation.

Underlying this phenomenon is a psychological pitfall that can be called the “income addiction trap.” Humans have a strong tendency to raise their standard of living in line with their income. Behaviors such as living in a more luxurious home, driving a more expensive car, and taking more extravagant vacations stem from a desire to show off one’s success to others (vanity) and the temporary euphoria that luxury itself brings.

However, this euphoria is not sustainable and one quickly becomes accustomed to it. Then, in search of further stimulation and satisfaction, one is driven toward even greater luxury. This is truly an addiction, much like a drug, and once caught in this trap, it becomes difficult to build wealth no matter how much one’s income increases. It is necessary to calmly recognize the fact that even if your annual income multiplies, the essential joy and happiness you derive from life do not increase proportionally.

Concrete Secrets and First Steps to Building Wealth

The secret to building wealth is surprisingly simple: “To consciously keep expenses down while your income increases.” This principle is the most important iron rule that forms the foundation of all wealth-building strategies.

The concrete first steps to practice this principle and start on the path to becoming wealthy can be summarized in the following three steps:

1. Start saving and investing immediately:
   It is never too late to start building assets. At any stage of life, it is essential to establish a habit of forcing a significant portion of your income (e.g., setting a specific goal like 20% or more) into savings and investments.
2. Accurately determine the income needed for your ideal life:
   Calculate in detail how much money you need annually to live the life you truly desire and find satisfying. This will free you from vague anxieties and enable clear goal-setting.

Set “financial independence” as the ultimate goal:
The ultimate goal of asset formation is to achieve a state where you are no longer dependent on labor income and can cover all your annual living expenses with the interest, dividends, and returns generated from your accumulated assets—in other words, “financial independence.” For example, if your annual living expenses are 2.4 million yen, building assets of 48 million yen and investing them at a 5% annual return would generate 2.4 million yen in passive income, theoretically allowing you to live without working. Setting such a specific numerical target is extremely important.

The Target Amount of Wealth You Need

How much wealth should you ultimately build to achieve financial independence? As a specific target, we recommend holding “net investable assets equivalent to 20 times your required annual expenses.”

The basis for this “20 times” figure lies in the investment yield mentioned earlier. If assets of this scale can be invested at a realistic average annual return of 5%, considering historical stock market returns, it can generate investment income equal to your annual living expenses (Asset Amount × 5% = Annual Expenses). By achieving this state, you can continue to pay for your living expenses with investment returns alone, without ever touching the principal amount of your assets. This allows you to secure lasting financial stability without depleting your wealth.

Conclusion

In conclusion, true wealth is not measured by the absolute amount of one’s income, but by the ability to accumulate and manage assets from that income. Unless one breaks the habit of the “income addiction trap”—raising one’s standard of living in proportion to income growth, which many people fall into—achieving financial freedom is impossible.

Therefore, what we should aim for is to first accurately grasp the costs required for our ideal lifestyle and thoroughly manage our expenses. It is then essential to maximize our “net investable assets,” set a clear goal of “20 times our annual expenses,” and practice disciplined saving and investing. Understanding and implementing this principle is the only path to attaining lasting financial stability and true wealth, without being misled by the illusion of a high income.