As you may be aware, I work in wealth management and my firm, The St. Louis Trust Company, is a multi-family office and trust company. In my role at our firm, I’ve spent a lot of time over the past decade plus pondering the nature of wealth. This IFOD is my thoughts on the amount of wealth or income at which being “wealthy” begins. I believe this concept of being wealthy is useful and important in examining at wants, needs, life goals and purpose. Here is my proposed definition of “wealthy”:
Wealthy [wel-thee] Adj.:
- The state whereby if your income doubled tomorrow very little or nothing would change about your life other than the amount you save (or give to charity).
- The state whereby if the amount of your net worth doubled tomorrow very little or nothing would change about your standard of living.
I also call this “being in the gravy.”
This definition of wealth is not a dollar amount of income or assets, rather it is completely related to what you “want” or “need” to spend money on. It’s totally relative to spending and wants.
For example, I have a good friend who spends very little money, and he is quite wealthy on what most would consider a modest income and net worth. I’ve also known people who objectively have a large income or a great amount of assets but don’t meet the above definition of being wealthy because they have a desire to spend more and to have more. If they had more money they’d buy a bigger house, or a second (or third) house, they’d travel in greater luxury, etc. The point is here is not to judge people’s choices in terms of how they spend their money, but rather it’s possible to be “wealthy” at all sorts of different levels of income and assets.
The point isn’t that once you reach the level of “wealthy” according to the above definition that all your money problems are gone. It doesn’t mean that we shouldn’t desire more money or more financial security. Rather, being wealthy means that you’ve hit a significant point – one where additional monetary resources have no real effect on how you live. Much of America lives sub-wealthy where doubling of income or assets would have a huge effect, like the difference between taking a vacation each year or not; living in an area with a decent school district or not; moving to a location with a shorter commute; having a nicer car (or a car at all); being able to send a child to college, etc. A similar concept is found in the fantastic book Factfulness by Dr. Hans Rosling where he divides the world into fourths based on income levels with each level hitting a milestone of standard-of-living.
Many people with a lot of wealth don’t consider themselves “wealthy.” According to the Wall Street Journal “studies have shown that when people are asked how much it takes to be rich, they always give a number that’s twice their current net worth or income. Those with $100,000 in incomes say $200,000, while those worth $5 million say $10 million.” Similarly, a UBS survey of investors found that of respondents with $1-5 million of investable assets only 28% considered themselves wealthy and only 60% of those with over $5 million thought they were wealthy.
Related, fantastic article by David Brooks about home size and happiness: The Haimish Line. Well worth the time to read, IMO.
Related IFOD on What Does it Mean to be Middle Class?