How to define wealth ?
In short, how you — and I mean you, personally — determine what constitutes wealth depends on your expectations.
A million bucks, wisely invested, will yield an income of about $40,000 a year, if you follow the financial planning rule of thumb that says you can only draw income equal to 4% of your assets (a must if you’re not working and want to be sure your money lasts as long as you do). That’s comfortable, but hardly rich.
Carole started out saying she really didn’t want to be rich. But when I pressed her to clarify what her desired not-really-rich lifestyle would look like, she ticked off the following:
- A two-bedroom home in downtown Manhattan.
- A car (and a garage to go with it).
- Between $200,000 and $500,000 in savings.
- $500,000 in her retirement accounts (which is about 10x what she has now).
- A couple of getaways per year.
“So although I just said I don’t want to be rich — that’s a couple of million right there,” she said, quite surprised.
Other versions of rich
Before you all start sending me angry mail about how unrealistic the New York lifestyle is, let’s turn to Beth, who lives in Oregon.
She and her husband are squeezing every penny, trying to save enough for both their daughter’s college education and their own retirement — on a joint income of about $92,000.
They are crossing their fingers that they’ll be able to swing a one-week trip to California this year.
In order for Beth to be “comfortable” — i.e. quit her job for a more inspiring one, be able to provide for her family and “travel wherever and whenever” she wants — she and her husband would need a lot more cash coming in. How much would it cost to have both freedom and family security? Perhaps another $50,000 per year, perhaps more.
Stephanie, 27, a newcomer to the Women in Red who lives in Chicago, has a combined income with her husband of about $69,000. Like Beth, she doesn’t want to be rich, but comfortable. She estimates that amount would be about $180,000 a year, almost triple her current income
Right now, she and her husband live in a modest apartment and pay $850 per month in rent. Someday, they’d like to have kids, and Stephanie admits to having a secret fantasy of being able to buy one of the lovely, million-dollar houses she sees for sale in her neighborhood.
Let’s say they saved their money, made a modest down payment of 10% ($100,000), and took out a 30-year mortgage at 7%. Their monthly payments would be about $7,000, including property taxes. Even on a $180K income, which sounds mighty plush, they couldn’t afford that.
source : money central
