Today, we are much wiser about the lifestyles of the rich and affluent. It is unfortunate that some people judge others by their choice in foods, beverages, suits, watches, motor vehicles and such. To them, superior people have excellent tastes in consumer goods. But it is easier to purchase products that denote superiority than to be actually superior in economic achievement. Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement.
The word that best describe the attribute of the affluent is FRUGAL. Webster’s defines frugal as “behavior characterized by or reflecting economy in the use of resources.” The opposite of frugal Is wasteful. Wasteful is define as a lifestyle marked by lavish spending and hyper-consumption.
Being frugal is the cornerstone of wealth-building. Yet far too often the big spenders are Promoted and sensationalized by the popular press. We are constantly barraged with media hype about so-called millionaire celebrities, for example. Yes, some of the members of this small population are millionaires. But if a celebrity makes $5 million a year, having $1 million in net worth is no big deal. According to the wealth equation, a $5 million earner who is thirty years of age should be worth $15 million or more. How many highly paid celebrities have a level of wealth in this range? I think only a tiny fraction. Why? Because most have a lavish lifestyle – and they can support such a lifestyle as long as they are earning a very high income. Technically, they may be millionaires (having a minimum net worth of $1 million or more), but they are typically low on the scale of wealth accumulation.
How many households can boast of earning $5 million in one year? Fewer than five thousand out of nearly 100 million households. That’s about one in twenty thousand. Most millionaires never earn one-tenth of $5 million in a year. Most never become millionaires until they are fifty years of age or older. Most are frugal. And few could have ever supported a high consumption lifestyle and become millionaires in the same lifetime.
But the lavish lifestyle sells TV time and newspapers. All too often young people are indoctrinated with the belief that “those who have money spend lavishly” and “if you don’t show it, you don’t have it.” Could you imagine the media hyping the frugal lifestyle of a typical millionaire? What would the results be? Low TV ratings and lack of readership, because most people who build wealth are hardworking, thrifty, and not at all glamorous. Wealth is rarely gained through the lottery, with a home run, or in quiz show fashion. But these are the rare jackpots that the press sensationalizes.
Many people, especially those in the poor category, know how to deal with increases in their realized income. They spend them! Their need for immediate gratification is great. To them. life is like a quiz show. Winners get quick cash and conspicuous gifts. Viewers of these quiz shows have lots of empathy for the contestants. Look at the top ratings such shows enjoy. People love to view their surrogate-other winning motor vehicles, boats, appliances, and money. Why don’t quiz shows offer tuition scholarships as prizes? Because most people want immediate gratification. They don’t want to trade a prize of, let’s say, a car for years in school, even though a college degree can translate into a value equivalent to more than dozen cars.
HOW DO YOU DEFINE WEALTH?
When people are asked to define the term wealthy. Most would give you the same definition found in Webster’s dictionary. Wealthy to them refers to persons who have abundance of material possessions.
In reality, the term wealthy would be define differently. The wealthy, affluent, or rich is not define In terms of material possessions. Many people who display a high consumption lifestyle have little or no investments, appreciable assets, income producing assets, common stocks, bonds, Private businesses, oil/gas rights, or timber land. Those people whom will be regarded as been Wealthy get much more pleasure from owning substantial amounts of assets than from displaying a high consumption lifestyle.
One way to determine whether someone is wealthy or not, is based on net worth. Net Worth is defined as the current value of one’s assets minus liabilities.
Another way of defining whether or not a person, household, or family is wealthy is based on one’s expected level of net worth. In this case, a person’s income and age are strong determinants of how much that person should be worth. In other words, the higher one’s income, the higher one’s net worth is expected to be. Similarly, the longer one is generating income, the more likely one will accumulate more and more wealth. So, it is expected that older people with higher income should have accumulated more wealth than low income producers who are younger.
The question you may be asking right now is if someone may be considered wealthy if he is not a millionaire and only worth let’s say $450,000? If the person is 41 years old, for example and have an annual income of $55,000. According to calculations, he should have a net worth of approximately $225,000. Meaning to say, the person of that age earning $55,000 annually and having a net worth of $450,000 is considered wealthy within the limit of his income and age.
HOW TO KNOW IF YOU ARE WEALTHY
Whatever your age or income, how much should you be worth right now?
Multiply your age by your pretax annual household income from all sources except inheritances. Divide by ten. This is what your net worth should be.
For example, if Mr Anthony is 41 years old, makes $143,000 a year, and has an investment that Returns another $12,000, he would multiply $155,000 by 41. That equals $6,355,000. Dividing By 10, his net worth should be $635,000.
