With the recent election, we heard a lot of talk about the wealthy. How much money would it take for you to feel wealthy? According to research studies, the answer is consistent – we think another person is wealthy if they have more than we currently have. Very few people actually feel they are wealthy. Before we can say someone is wealthy, we first have to define what it means to be wealthy.
Which of the following people would you consider to be wealthy?
Person 1: Makes $400,000 per year as a corporate executive. They recently brought a new car, boat and RV. They haven’t saved much for retirement, and have a net worth of about $50,000.
Person 2: Makes $40,000 as a butcher at the local grocery store, and has never made more than this. They have diligently saved their entire life, and have about $500,000 saved for retirement.
So which person would you consider wealthy? It is the person with a high income but nothing in savings, or is it the person with average income and a lot in savings?
The common thread for most of my clients is that they have been diligent savers. They spent less than they made each year, and have done so their entire lives. Although some have higher than average incomes, many are more like Person 2.
What does it take for you to feel wealthy? What makes you think another person is wealthy? It is the flashy new car, huge home, or big screen TV? Or is it the person who always buys used cars, has lived in the same home for many years, and has built a good sized nest egg for retirement? The truth is, it is really hard to identify the latter group of people. They really are The Millionaire Next Door.
For most, we consider someone wealthy if they have more than us… whether it be income or assets. There really is no definition of wealthy… it is “I can’t define it, but I will know it when I see it.” Just keep in mind that this means you are wealthy to those that have less than you.
Remember, even though most would consider Mitt Romney wealthy, he has only 1% of the net worth of Bill Gates… To Bill Gates, Mitt Romney is poor. It’s all relative!
Between high income earners and high net worth individuals, which represents wealthy? Which do you aspire to be? I would love to hear your feedback in the comments section!
Alan Moore is a fee-only financial planner and founder of Serenity Financial Consulting in Shorewood WI. Follow him on Twitter @R_Alan_Moore. You can contact him at firstname.lastname@example.org, 414-455-5313, or visit his website at www.SerenityFC.com. Want more education? Download your free guide to the “10 Easy Steps To Securing Your Financial Future Today.”