Measuring a person’s wealth can be done with a simple formula. You simply add up his or her assets (real estate, bank accounts, IRA’s, Roth IRA’s, 401(k)’s, etc.). Next, you subtract the liabilities (mortgages, loans, debt.) This gives you a persons Net Worth or Net Wealth statement.
Does a high net worth number make a person wealthy, though? If so, what is the magic number that borders between "non-wealthy" and "wealthy?" Is it $1 million? Is it $5 million? $1 billion? We at Fisher Wealth Management contend that the feeling of being wealthy is really not measured by a magic number. The problem with having a number in mind is that once you arrive there, you realize that you can always have more. When you always think in terms if wanting more, you find yourself living with feelings that are quite contrary to feelings of being wealthy.
Here are 5 things that we have found will actually make a person truly feel wealthy:
1. Give your money away! Yes, you read that correctly. If you want to feel wealthy, give at least 10% of your income away. This timeless, seemingly backwards principle works because you are giving out of the overflow. This is money that you declare you do not need. The only people that have “overflow” are people that are wealthy. However, we cannot give for the selfish purposes of feeling wealthy, joyful, or simply good about ourselves (though, these are certainly welcomed side effects.) We give because it is an opportunity to make the world a better place; to live beyond ourselves; to serve others. Whether you give to your church, to an orphanage, to your favorite university, or to the Biddle Family vacation fund, you’ll find that to live as a giver is the better way to live.
2. Live within your means! If you are still working, here is the formula: Begin with your total income. Subtract 10% for giving, subtract taxes, and subtract what you need to save. Now, simply live on what is left. This is what it means to live within your means during your working years. If you are retired, set realistic boundaries for your spending. If you have net worth of $2 million and you are spending a total of $70,000 per year, with proper planning you should have plenty. If on the other hand you are retiring with $2 million but you are spending $400,000 per year, chances are you’ll be in trouble in about 5 years. Whether you are living the retired life or living the life of a young parent, spending a reasonable amount relative to your income is key to feeling wealthy.
3. Have a plan! I have noticed a big difference in my life and in the lives of others when a plan is implemented. There is something about telling our money where to go that is so empowering. The alternative is to look at your checking account at the end of each month and have no idea where the money went. You can either learn to master your money or you just need to get use to being mastered by it.
4. Have an amount of money set aside! Let’s face it. . . a recent college grad just beginning his or her career is going to (or certainly should) have a different net worth than the person at the end of his or her career that is nearing retirement. Though this sounds like I’m suggesting there is a magic number, I’m not. You should have an amount set aside that is appropriate for your age, your spending habits, your timeline, your goals, and emergency situations. If you are retiring or retired, you should have an appropriate amount set aside to fund the golden years and the advanced years of your life. This is not a random number. It is a number very specific to you at any given stage of life.
5. Appropriately manage your risks! Part of feeling wealthy is having peace of mind. If a premature death, disability, or long term nursing care would derail your family’s financial plan, then you will lack the security that wealthy people experience. We cannot perfectly manage risk because life is unpredictable. However, we can do better than “nothing” by planning for some of the more common risks.
There you have it. I have met millionaires who seem poor and I've met people who have very little to their names who seem to feel wealthy. It should not be your goal to be a millionaire or a billionaire. If this is your goal, you will never feel like you have enough because once you reach it you’ll realize there is more to be had. To feel truly wealthy you need to give, live within your means, have a plan, have money set aside, and appropriately manage your risks. Oh yeah . . . and if you really don’t know who to give to and if giving to the Biddle Family vacation fund really lights your heart on fire, those checks can be made out to Eric Biddle. However, you should know that we are not a 501(c)(3) entity.