What does it mean to be rich? Clients ask me this question a lot and I thought it was a good topic to leave you with for my blog’s summer break (back in September). We’re all striving for something. Some of us end up a wreck because of our striving. What are we striving for? Is there a number?
No, it’s not like 2 + 2. There’s no universal number. Rich means something different for everyone. Instead, we should strive for our own financial security and knowing how much we need for it. For me, financial security means being able to:
- Have your house paid off or be secure wherever you rent (meaning the rent won’t go up beyond your means)
- Age as you want to age (in your home, in an assisted living community, etc.) and not be dependent on the kids
- Do the things you want to do now and in retirement like travel, hobbies, giving to favorite causes
- Provide your kids whatever you think you should (it’s VERY different for everyone)
- Have enough cash saved to not stress out about emergencies or even a temporary loss of income
Don’t confuse the items listed above with pursuing a life that “looks good on social media.” You will never be rich enough for that, because it’s a bottomless pit. There will always be some new contraption you just have to own or some new place you just have to “summer” in. Oddly enough, the five points listed above can only be achieved the old fashion way, working hard, living beneath your means, and saving. Or, of course, inheriting it.
If you’re talking about private jets and buildings named after you, you have to remember that most of that kind of money comes from people who are still working (unless it is family money). They may be working at venture capital or running the business they took public, but income is still coming in from work, not just from investments. That means the person can continue to expect more money to come in and is not just living on a finite amount.
To just live off the money you have (a finite amount), conservatively, the “number” would be enough money to be able to live the way you want to live on about 4-5% of the total each year. Here’s the gray area: “the way you want to live” means a million different things to a million different people. Living in Manhattan is a vastly different number than living in a cabin you love on a lake somewhere. Know what matters to you, and what makes you feel financially secure. You may even calculate your own personal number and strive for it, but don’t strive for someone else’s.