A reader wrote in to a Monterey Herald financial planning column to ask investment banker Kenneth Peterson if he or she would be considered wealthy. And although Peterson offers a formula for calculating wealth, Peterson begins his response stating that wealth “means different things to different people” and that it can be “a state of mind and relative to whatever standard you care to measure it by.”
For those that are curious, here are the steps outlined to calculate wealth:
“1. Carefully calculate the projected total amount of your annual expenses. Include everything — taxes, gifts, utilities, trips, repairs, mortgage payments, food and clothing, etc.
2. Divide your projected annual expenses by 0.04. The result is your “number.” For example, if your projected annual expenses equal $96,000 then your level of income producing assets must equal or exceed $2.4 million before you can consider yourself financially wealthy.”
While it could be said that if you have to ask if you are wealthy, you are not, putting numbers aside, wealth really does vary. It is not good to delude yourself into thinking you are wealthy when you’re finances are terrible shape but it is also problematic to continuously cry poverty and ignore how much you really do have. It is important to remember that you should not compare yourself to others but set financial goals and define wealth for yourself.
As we observe the Thanksgiving holiday, you may be taking inventory of all that you have. Hopefully you are examining all of the non-monetary resources you have that make you wealthy. However, if after expressing gratitude for all that you have, you conclude that you could do more to make the most of your financial resources, remember you can get help. Claire Emory, MBA, CFP, CFA of Clarity Financial Planning, LLC takes an all-inclusive approach to your situation and goals, understanding your need for financial security and independence as well as the happiness that comes from knowing that you and your family have options for the future.