… well not exactly a new measure, more a new definition.
Let’s think about some stages of wealth:
1. Debt Wealthy
At some stage, after half a lifetime of struggle, you will most likely have a mortgage, a partially paid off car loan, some residual student loans, and probably a few credit card bills hanging around.
If you’ve come to this blog via the other personal finance blogs floating around, then this probably bothers you enough to want to do something about it …
… as for the rest, many will struggle with this debt until the day that they die.
But, not the Debt Wealthy!
These lucky few will have risen up the corporate or business ladder high enough that their income is enough to service this debt and a little more:
– They can finance their house, car, boat, and caravan/vacation home
– What they can’t finance, their job or business provides (car, phone, laptop, corporate dinners)
– They have enough left over for a domestic trip or two every year sitting up the back of the plane,
– And, enough to eat and clothe themselves well, and to educate their children.
Their only problem – one that they choose never to voice, yet the one that has the bread-winner tossing and turning in their sleep every so often – is the ‘what if” …
… what if:
– They lose their job/business?
– They get sick?
– They get divorced?
They have no plan other than hoping for the best … and, for many, this is enough and for the rest …
… well, sh*t happens 😉
2. Rent Wealthy
But, for a lucky few – and, never through saving but always through Their Big Lucky Break – a huge wind-fall gain comes in; it could be:
– Selling their business
– Retiring (or being retrenched) with a huge Golden Parachute
– Winning the lottery or the Inheritance Jackpot
Presuming that they understand how to deal with this situation and don’t go crazy [AJC: reading this blog should help], they can probably:
– Finally stop working
– Begin to live their Life’s Purpose
– Pay off all of their debts (houses, cars, etc.)
… and, they should still be Rent Wealthy … a really nice stage of life, because they should have enough passive income (again, if they don’t go crazy) to rent whatever they want, whenever they want it; for example, they can rent:
– Seats somewhere towards the pointy end of the plane (or, even by charter),
– Hotel rooms anywhere in the world that come with at least a few stars,
– A Really Nice Convertible for a drive in the country once or twice a year,
– Time on the golf course as often as they want
… and, the list can be virtually endless.
I should know, because with $7 million I am Rent Wealthy 🙂
3. Buy Wealthy
Of course, if their Big Windfall is really an Obscenely Big Windfall, then a Really Lucky Minority becomes wealthy enough to buy everything that I can rent, either in whole (or, in multiples if they are Oprah) or in parts (eg fractional ownership):
– They own their own personal jet either outright or by fractional ownership,
– They have one or more vacation homes (owned in full or fractionally) around the world,
– They own at least one Really Nice Convertible or share ownership of a few,
– They have memberships at one (or many) Really Nice Private Golf Clubs.
The interesting thing about all of these stages is that they have one thing in common …
… can you guess what that might be?
You are much more comfortable at the top end of each stage than you may be at the bottom of it!
At the bottom, you are always trying to keeping up with The Jones (you know, the ones who can borrow, rent, or buy much more comfortably than you). Others think you are fine, in reality, you are struggling:
– to pay the mortgage, if you are Debt Wealthy
– to pay the bills for all of those discretionary expenses, if you are Rent Wealthy
– to pay for the maintenance and upkeep of all that stuff you own, if you are Buy Wealthy
So, what’s the lesson, other than a cute observation?
It’s simply this:
When you consider your Life’s Purpose, don’t pop yourself into the bottom of the next stage.
Instead, hold yourself back either permanently or until you have enough passive income to drive you to the ‘sweet spot’ of the next stage.
Aim toward the mid-to-upper part of the stage that you think may be enough for you …
… for example: for me, Rent Wealthy is plenty 😉
How about you?
That is a very neat way of putting it.
If you are going to step up to a higher
level of consumption, make sure you have a healthy margin to make sure you can stay there – getting knocked back down would be….painful from both a financial as well as an emotional perspective. At the bottom end, the sustainability of your chosen lifestyle would be a cause of stress (at least for me).
Another bizarre way to achieve financial independence (not really rent wealthy) earlier is to move to a country perceived to have lower standard of living but with your spending power, you will be at the higher quality of living quadrant in that country.
Example, with us$1mil properly invested, you might be living the life of a “peasant” millionaire in USA with the high healthcare cost etc etc. But with that same us$1mil portfolio, you could be living the life of a “middle-class” millionaire in Thailand or Malaysia. Your money is stretch further there.
Debt rich is my situation. The system works, but against me.
This is a great post because I think it addresses something that we all never talk about…..the fact that building wealth and “getting to the next stage” can be very addicting for the human condition and difficult to force yourself “out of the game”.
What I mean is, most people that are becoming wealthy or getting to a stage that most would consider wealthy, are still majorly discontent. You get to a certain level and look over your shoulder to realize that there are tons of people over there enjoying a much GREATER wealth than yours, so you keep trucking along, coming up with MORE business ideas, or how to expand your current ventures to build and have more! And the cycle repeats.
Does it really ever end or is the thought of cashing out and “taking the money and run” to live your life’s purpose just an illusion? Many folks say they will cash out, but is this just the ‘ideal self’ speaking and not reality once you get there? Think about it…
I see this pursuit as being a slave to money still, much in the same way that I look at someone in debt up to their ears, working a job, paycheck to paycheck, waiting for Friday, meanwhile making someone else wealthy by building THEIR business. It’s basically the same thing, only in a different version. I would much rather be in the ‘wealthier’ version, but man, the though of getting to your ‘number’ and getting the heck out of the game and rat race over more money accumulation(and more inevitable discontent) sounds so much more appealing, if one can actually do it……;)
Very interesting thoughts Adrian. As usual you come up with a very nice nuance that many of us have not thought of.
@wj You don’t have to go that far. You would be amazed at how many expats live in my current community here in Baja and throughtout Latin America.
@ Scott – You’ve just written my follow-up piece. Thanks! 🙂
@ Luis – Baja Country. Nice. Presumably, your cost of living is equally low over there?
@Adrian, Some of my retired neighbors live well off with an average of about 1800 dollars a month. Some even make it work with much less…
Typical neighbor: nice 3 bed, 2.5 bath house, 1 – 5 blocks from the beach. They dine out all the time, they have a maid, they give back to the community. They take trips to other parts of Mexico. They take trips back to the States to visit family.
Some retirees don’t do so well but that has more to do with the cultural aspect of living the “two fish a day lifestyle” not the financial aspect.
@ Adrian – Great points; which is why I was careful NOT to put any $$$ figures in my post, because it’s all relative to the cost of living Your Life’s Purpose. In Mexico, as both you and Luis allude, the cost of “two fish” may very well make you Buy Wealthy for a sum that would barely make you Rent Wealthy in, say, the USA.
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