What does “wealthy” mean, and how does it impact on your retirement planning?
When it comes to defining “wealth” and, by extension, “wealthy”, the obvious place to start is through measuring the value of assets. These will include your money, savings, property, and pension fund.
On the face of it, these will give a decent approximation of your overall monetary wealth, and therefore define if you are “wealthy”.
But, from a financial planning point of view, wealth is far less straightforward than that. I often think it’s more about your state of mind than your tangible assets.
So, how do you define wealth, and how it can impact on your financial planning?
Wealth can be more about your lifestyle than your assets
If you want to boil it down to a simple statement: “wealth is being able to do what you want, when you want to do it.”
And if you want to boil it down even further to a single word, it’s all about “freedom”.
So, when you start thinking that through, the actual value of your assets, while obviously having a bearing, isn’t the whole story.
For example, if you’re happy living a simple lifestyle with minimal outgoings, you could define yourself as being wealthier than someone whose lifestyle involves constantly spending money to meet their expensive tastes – even more so if the amount they are spending means that they struggle to match income and expenditure each month.
Someone having expensive holidays abroad, eating out regularly, and upgrading their car every couple of years may actually be less wealthy than the person happy to holiday in the UK and who sees eating out as an occasional treat.
If you’re both earning the same amount and have the same measurable assets, then the person with the simpler lifestyle is arguably wealthier.
Remember Wilkins Micawber’s famous dictum in David Copperfield by Charles Dickens:
“Annual income 20 pounds, annual expenditure 19 pounds 19 shillings and sixpence, result happiness. Annual income 20 pounds, annual expenditure 20 pounds ought and six, result misery.”
Wealth can be about you not having to worry about money
Another way of defining wealth and being wealthy, is being in the position of not having to worry about money.
This doesn’t necessarily come from having more money. It’s more a question of better control over how you manage it.
If you’re living the simple lifestyle I referred to above, then you’re less likely to have to worry about having the money to live how you want.
Conversely, someone who needs a lot of money to support their chosen way of life is more likely to be impacted by external events – such as a stock market crash – that can have a detrimental effect on the value of their assets.
Much depends on how you personally define wealth and being wealthy.
This demonstrates the importance of planning ahead
The best way to ensure you’re wealthy when you come to retire – by whatever measurement you want to use – is to plan ahead.
It’s never too soon to start thinking about your financial future. Longevity statistics show that the time you spend in retirement could be at least a quarter of your life.
A good start is to put together an outline of a plan based on the answers to three questions you should ask yourself:
- When do I want to stop working?
- What do I want to do once I’ve retired?
- How long will my money need to last me?
If you then consider your current income and expenditure, and how much you’re saving to fund your retirement, you’ll get a good idea of the steps you need to take to be able to consider yourself “wealthy” in your retirement.
When you’re planning ahead and working out how much you need to save, it’s crucial not to overlook the negative impact of inflation. Regardless of your assets, few things can throw your plans off course more than a period of high inflation that reduces the real value of your money.
Money can protect you from bad outcomes
It’s often said that “money can’t buy you happiness.” However, it’s worth injecting a hint of realism to that statement by accepting that money can protect you from bad outcomes. It can also put you in an advantageous position to be able to react to unforeseen events.
Bearing that in mind, part of your financial planning process should take account of the unexpected, by ensuring that you’re taking steps to protect your loved ones from the impact of threats to your health and livelihood.
The secret is focusing on what matters to you
We’ve established that it’s very possible for you to be “wealthier” than a high earner if your lifestyle expenses are within your means.
The key thing is to plan ahead so you’re in the position of being able to do what you want with your life. Planning gives you the opportunity to amass enough money to fund the life you want to lead.
You’ll be “wealthy” if you have enough financial resources to live the life of your choosing.
Get in touch
I can help you put a robust financial plan together to give you the best possible chance of you having the level of wealth you need to enjoy your retirement.
To find out more, please give me a call on 07769 156 250.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
