Wealth can be defined in many ways and true wealth is not only cramped to financial wealth but includes other factors as well. The examples below focus on financial wealth and financial independence.

There have been bounty of studies which tried to determine if wealth equals happiness and while the opinions may differ there seems to be a connection between financial wealth and happiness.

Here are two reports that attempted to answer the question:

1.‘Does Money equal to happiness?’
2. ‘Why Money Doesn’t Buy Happiness?’ 
An individual who is financially independent may be more happier since more options are on the table to choose from in order to achieve happiness.

An individual who is financially dependent has fewer options to choose from and spends most time to make other people happy such as ‘the employer’.

Time may be a key factor when it comes to happiness and time may just be your most precious asset. In today’s world time has become a very expensive ‘commodity’ but nevertheless the majority treats their time worse than the ‘Septic Tank’ and the ‘International Beggar’ treat the U.S. economy.

The majority uses the same tool in order to rape their time and completely disrespect their most precious asset:
Mutual Funds!

Mutual Funds are the most efficient way to waste money.
Mutual Funds are the most efficient way to destroy wealth.
Mutual Funds are the most efficient way to underperform on a constant base.
Mutual Funds are the most efficient way to illustrate stupidity.

Laziness decreases both health and wealth and mutual funds are just about the ‘laziest mismanagement tool’ available in the markets.

Happiness is a state of mind and each individual needs to define what classifies happiness in their case but a numerical value is not the best ‘Happy-Meter’.
So, when are you wealthy?

That’s one question which many people have asked themselves and definitions about that topic differ.

Here is one definition:
Consider you are completely satisfied with your current life-style. If you would retire today and you have enough money (passive income) to continue the exact same life-style until you reach 100 years of age then you are wealthy.

Let’s put some numbers to the above definition of wealth and examine two examples, one were the persons is wealthy and one were the person isn’t wealthy.

Example 1 – Wealthy Person:
1.Assume that your current life-style is completely satisfactory to you and you don’t wish to change it and that it costs you $100,000 per year. You are 35 years old.

2.So, given the guidelines of the above example, you have 65 years until you reach 100 which means that you will be considered wealthy when you have $6,500,000 (65Y * 100K).

3. You could retire now and continue to live the same life-style. If you decide to only put it into a money market account which currently earns you roughly 3% interest you would be able to live of the interest and if you don’t ‘upgrade’ your life-style your capital would actually increase. Even if you chose to ‘upgrade’ as long as you won’t spend more then the monthly interest you would increase your wealth as well.

Since you can live of the interest wouldn’t a smaller amount of capital be required to be wealthy and financially independent?

Yes, of course. The definition above is an extreme and without the ‘addition’ of funds (i.e. interest payments, capital gains, asset appreciation).
If you assume an annual return of only 3% you could achieve that status with about $3,400,000 (make that $4,000,000 due to taxes) since 3% annual ROI would yield you $102,000.

Example 2 – Rich Person which is not wealthy

1.An individual, who has $100,000,000, is 35 years old and has current ‘life-style’ expenses of $6,000,000 per year.

2.Once again, excluding the ‘addition’ of funds as described above, that individual would ‘run-out-of money’ in less then 17 years and therefore although rich at the moment not wealthy.

3.To consider that individual wealthy the total assets would need to be $390,000,000 (65Y * 6M).

Again, the above examples are very simple and exclude many things such as appreciation of assets, taxes and inflation which therefore could be considered unrealistic and capital requirements as to high in order to achieve ‘wealth’ status

The example used the ‘cash-is-king’ rule but if an individual reaches the definition of wealth as described above any financial problems, given that the life-style expenses used to calculate wealth won’t increase, should be ruled out and that individual can fully be classify as a wealthy and financially independent person.

What is your definition of wealth and when would you qualify an individual as wealthy?



Post a Comment

Newer Post Older Post Home