On Monday, I asked – Are you getting richer every year? We had 339 votes so far and an overwhelming 96% believe they are doing better every year. This poll is a bit biased toward younger folks. As long as you are working and in good health, chances are you will be able to accumulate more wealth every year. Getting wealthier is much more difficult once you retire and start withdrawing from your investments. It’s not impossible though, and I’m sure many retirees are getting wealthier even after they quit working. That’s Financial Independence plus a bit more cushion so you don’t have to draw down your principle. Now that’s what being wealthy means to me.
I mentioned that I don’t consider our family wealthy. Being wealthy is actually a moving target for most people. It turns out most people need twice or more of their current net worth or income to feel wealthy. So if someone is worth $5 million, they would say they’d feel wealthy with $10 million. That’s pretty funny, isn’t it? Let’s focus on net worth for this article. I don’t think high income automatically equals wealth. It’s how much you keep that counts, not how much you make.
Here is the latest wealth study from UBS.
Investors are telling us that wealth isn’t just about having a certain amount of money. The majority of investors define wealth as having no financial constraints on what they do. But when asked to assign a dollar amount to being wealthy, they say it takes $5 million.
I’m pretty sure we’d feel wealthy upon reaching the $5 million mark (inflation adjusted). Let’s assume 80% of that is invested and generates 3% every year. That’s $120,000 of income per year with minimal tax. We could live quite luxuriously with that kind of income. $10,000 per month is 250% more than our monthly expense right now. We would be able to travel and live a very comfortable lifestyle at home. Actually, $3 million probably would do it for me now that I think about it more. That would enable our family to live quite comfortably without working. I wouldn’t want to stop blogging, though. You need some goals to drive you forward or else you’d stagnate.
It seems most investors* agree with me. Being wealthy means you should be able to do the things you want without having to worry about money too much. This is why being wealthy is such a subjective thing. I don’t mind cooking at home, flying coach, and wearing old clothes. This isn’t acceptable for some people and they’d need a lot more money to really feel wealthy.
*For the fourth edition of UBS Investor Watch, 4,450 U.S. investors responded to the survey from June 23–July 1, 2013. Investors surveyed are ages 25+ and have at least $250,000 in investable assets; half have at least $1 million in investable assets.
The real problem is lifestyle inflation. As we make more money, we spend even more. We are the one raising the bar on ourselves every year. If we spend more money every year and need 2x the net worth to feel wealthy, then we’ll never get there.
Do you feel wealthy?
It seems being rich is a subjective thing, but let’s make a call. Can you tell me how much money you’d need to feel wealthy? Would it take $3 million, $5 million, $10 million, or more?
Great Comment from David Michael
I seem to remember a quote from Ram Dass, spiritual teacher of the 60?s, “You have to be a somebody before you can be a nobody.” I had it all, and gave it up at age 65. Wealth is an illusion. Now I am a nobody and I’ve never felt more free.
photo credit: UBS and flickr grahamc99