Am I Rich?

How wealthy are you? Typically, we think of financial wealth in numbers: our income, our net worth, or maybe how much money we have. But of course, wealth is much more than just dollars & cents. Wealth includes our health, the quality of the relationships we have with our family & friends, as well as our knowledge & experience. Being wealthy in a broad sense is more like a state of mind than a numerical tally.

Without numbers, what other methods can we use to measure our wealth? This post describes a way to gauge our financial wealth by considering our financial goals.

You can tell how wealthy someone is by their financial goals. Working people, who sell their labour for money, have material goals. Wealthy people in contrast, have spiritual & legacy goals.

Goals of the Workers

Most people sell their labour. They work for an organization in exchange for money. With this money, workers pay for the necessities of life. Although workers commonly consume most of their earnings in this way, many successful workers also build up decent investment portfolios too.

Here are the three most common financial goals of workers:

1. Own a house (or pay down a mortgage)
2. Raise children (or “put my kids through school”)
3. Retire

These three financial goals are material goals. To achieve these goals, workers basically need to do two things:

1. Spend less than they make
2. Invest wisely

To achieve their financial goals, workers need to begin by spending less then they make. They’ll need to live within their means. Otherwise, workers won’t be able to save enough to build a “nest egg”. And, once they can save part of each paycheque, workers need to invest their savings wisely.

What should workers invest their savings in? Stocks, bonds, and real estate. These assets stand the test of time. Most people have a mix of these three types of investments in their portfolios. Many mutual funds, ETFs, and other investments that can obtained by consulting a registered investment advisor will do the trick. So will rental properties. Pension plans such as CPP, OMERS, HOOPP, OTPP also work just fine.

Goals of the Wealthy

When it comes to wealthy people, their financial goals are much different than workers. People with financial wealth typically own their own home already (or could buy one if they wanted) and raising children is less about the financial cost, and more about fostering values. “Retirement” as a financial goal is not something wealthy people are concerned about.

Wealthy people are more often focused on achieving spiritual & legacy goals. Smart wealthy people work towards building a legacy and living a purposeful life, instead of earning money to pay for consumption.

Here are the three most common financial goals of wealthy people:

1. Generate enough income to support my lifestyle
2. Provide financial support to my family (children)
3. Philanthropy & Impact

To achieve these financial goals, wealthy people need to determine how much income they require to support their lifestyle and family (ideally by budgeting), then structure their investment portfolio to generate at least this amount (typically with some cushion). Curiously, such goals can be achieved with the same investments as workers use: stocks, bonds, and real estate. The only difference is, wealthy people can usually pay much lower fees for service & advice (because they buy in larger sizes).

Anyone who says you need fancy investments like private equity, or other such things, instead of just sticking to the basics is likely selling you something you don’t need. This includes the employees of pension funds who have jobs because they convinced pensioners.

Entrepreneurs & Inheritors

Once they become wealthy, entrepreneurs have a hard time refocusing their lives towards spiritual & legacy goals. They seem “hard-wired” to focus on accumulating more financial capital no matter what.

By contrast, wealth inheritors are a bit more detached from the creation of wealth, so they often have different perspectives on philanthropy and their own legacy.

A state of mind

Being wealthy is more of a state of mind. When you stop caring about material consumption and start caring more about your health, your relationships, and your spirituality, this is a sign you’re wealthy.

What is the purpose of your life?

It might sound a bit depressing for a worker to hear that their financial life can be boiled down to some very basic goals and strategies to achieve them. But, this can also be liberating. Instead of worrying about money, workers should take advantage of the financial system to provide themselves with greater financial peace of mind.

For wealthy people, the purpose of life must be more than earning money. Otherwise, wealth can become burdensome and full of guilt (and foster mental health challenges). Finding purpose can come from the achievement of worthwhile goals, investing in children & family, your philanthropy, and the other ways you can make legacy impacts.

Buy Your Freedom

Financial capital buys freedom to pursue higher level goals, and potentially achieve greater peace of mind. When you’re free from the shackles of wage labour, you can choose to devote your time to the most worthwhile pursuits, instead of those which “pay the most”.

To do this, it helps to leverage the power of a good family office. Your family office can relieve you of the administrative burden that comes with successful wealth management. This will in turn free up more of your time and relieve the stress (and minutiae) of money management

Take advantage of the freedom your financial wealth provides. Ask us how we help our clients gain financial peace of mind.