Rich vs. rich – A wealth of common sense

Financial definitions are difficult to pin down because money is often in the eye of the beholder.

Poles are always in motion as you age and mature and tastes change.

Your perception of wealth can be affected by:

• How were you raised?
• The wealth and material possessions of your fellow man.
• Your lifestyle.
• Your contentment with what you have.
• How circumstances change over time.

My definitions of wealth have definitely changed over the years. My goals for income and net worth are much different in my 40s than in my 20s and 30s, just as they will likely be different in my 50s, 60s, and beyond.

That’s how it goes.

Here are my current definitions of rich and wealthy, which I consider different concepts of money:

Rich: Being rich means having enough income to spend money freely. Rich people generally have big houses, new vehicles, nice clothes, etc.

Rich: Being rich means having a high enough net worth that gives you a certain level of financial freedom.

Maybe this is all semantics. You may not agree with these definitions because living a rich life means different things to different people.

Many high earners are able to translate the amount of money they earn into a high net worth.

But there are certainly high-income households that spend too much money and don’t live below their means.

And there are households that do not have a high income that may live below their means to create a high net worth.

However, I strongly believe that income and net worth can create very different feelings about money.

I believe in the idea that money doesn’t buy happiness, but the old axiom requires context.

If you’re a generally happy person, more money can probably make you happier. If you are an unhappy person, money will not fill a void.

Researchers at the University of Pennsylvania released a new report last year that attempted to answer the age-old question of money and happiness. They found that unhappy people see their happiness increase up to an income of $100,000 a year. Anything over that and happiness has not improved.

People somewhere between the happy and the unhappy experienced a linear relationship between money and happiness, meaning that as income increased, so did happiness.

And those people with a happy-leaning disposition actually saw their happiness levels improve even faster as incomes rose.

I don’t think behavioral research is the be-all and end-all when it comes to determining how money influences our happiness. We humans are complex beings. There are so many things that go into the happiness equation that it’s difficult to use a single variable to explain it all.

But it makes sense to me that happier people become happier when they make more money. Money can provide comfort and convenience, which can make your life easier.

The latest Charles Schwab Modern Wealth Survey looks at the wealth side of things.

They asked a group of Americans how much it takes to be considered rich and how much it takes to be considered financially comfortable:

The numbers go up as you get older, which makes sense. The average for the group was $2.5 million and just under $780,000, respectively.

Both of these amounts would put you ahead of the vast majority of American households.

A net worth of $2.5 million would put you in the top 7%, while $780,000 is just outside the top 20%.

There are no easy answers when it comes to these things.

Most of us make it up as we go along, continually moving the poles and never settling on a specific definition of money or happiness.

I personally care more about building wealth than being considered rich, but increasing your income can make your life a lot easier if you play your cards right.

The hard part about money is being content with what you earn and what you have.

I could give you a pithy personal finance quote about the importance of figuring out what “enough” means to you, but I don’t think anyone ever really gets there.

Do your best to get to the point where money is not your biggest concern in life.

If you worry about money all the time, it’s hard to consider yourself rich or wealthy.

Michael and I discussed what it takes to be rich, rich and more in this week’s Animal Spirits video:

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Further reading:
How many millionaires are there?

Now here’s what I’ve been reading lately:

Books: