My 10 y.o. daughter asked me exactly that question the other night … actually, she simply asked “are we rich”? I’ll tell you how I answered in a minute, because it is important that you understand how YOU would answer this question.
In the meantime, and by coincidence, I came across this blog just yesterday: http://www.millionairecorner.com/content/blogsection/4/110/
It’s written by Spectrum who did some research on what it takes to be rich …
The problem is that they asked people who were already Rich!
So, most said $5 million (what? net worth? in the bank? under the mattress?), but some said as much as $25 million. I would guess that this was related to how much money they made … the more they have, the more they spend, so the more they believe it takes to be ‘rich’.
Only 1 in 5 said $1 million, which is what many people just starting on the road to wealth would believe means ‘rich’ … when you get to $1M tell me if you’re ready to retire (I’ll bet the answer is NO!).
I think the number is somewhere between $100 million and $1 billion …
… as one Billionaire said recently, after his company stocks grew five-fold in less than 12 months moving him from $1 Billion to $5 Billion net worth: “once you get past the first Billion the rest doesn’t matter.
So, how did I answer my daughter?
I said: “we are not ‘rich’ we are wealthy, because we can afford to live the same way that we are living now for the rest of our lives”.
Now, we aren’t slouches (nice house in a great suburb, the ‘right’ cars, schools, vacations, etc.) but we have no helicopters or Lear Jets …
So, to determine when you are ‘rich’ you first need to determine your Number … that is the amount of money that you need to have ‘in the bank’ (actually in Passive Investments : bank accounts, investment properties, stock market … anything that makes YOU money even while you are asleep) to produce enough income for you to live your current (or desired) lifestyle for the rest of your life (which means, the amount has to be indexed for inflation).
I’ll show you how I worked through this in a future post!
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Most people agree that $5 million makes you rich. But you should also take into consideration your happiness.