Financial planning: What is wealth?

At first glance this seems like a strange question to ask. Surely the answer is obvious?

But people use a wide variety of measures to keep score of how wealthy they are. For example, some define wealth in terms of how much they can borrow; whilst others keep score in terms of cash in the bank or the house they live in.

At PageRussell we think of a person’s wealth in terms of the number of days they can go without working for a living.

You are financially independent if you have enough assets to pay for your lifestyle without having to work.

This measure of wealth is dependent on your own lifestyle goals and financial targets.

It is why we might think the person riding in the back of the Roll Royce is poor but his chauffeur is rich.

If the Rolls Royce owner has borrowed money to buy the car, house and other assets, but has no savings or investments that can provide an income, he is going to run out of money fast if he has to stop working.

The chauffeur on the other hand may be close to retirement with a pension from another job, a small paid for house and modest investments. But crucially the assets will provide enough income for the life he wants to live. He works only because he wants to. Out of the two men, he is the one who is truly wealthy.