In a recent article you read about how the drive to accumulate financial wealth can sometimes become all-consuming. This can create an outcome where you are overly focused on the next acquisition, rather than seeing the wider picture.
I described this as constantly moving your own goalposts and never being entirely happy, regardless of your financial wealth.
In this article, I want to drill down a bit further into the whole concept of “wealth” and explain to you why I believe there are different ways of measuring how wealthy you are.
Wealth doesn’t always mean money
If you’re asked what “wealth” means, it’s likely your definition will include reference to money. But to my mind it’s about more than that.
One dictionary definition refers to “a plentiful supply of a particular desirable thing”.
Obviously, money will come high on any list of desirable possessions, but beyond that there are other, non-tangible assets that can help define your wealth.
There’s a limit to how much happiness money can buy you
Before getting to other criteria, it’s worth reiterating that money is important when it comes to measuring wealth.
For one thing, it’s easily quantifiable and so easy for you to understand. It’s also important from a financial planning perspective in terms of accumulating financial assets – savings, investments, pensions, and so on – and using them to fund your financial future.
However, as you read last month, there are issues when financial accumulation becomes your overriding goal.
In a landmark study in 2010, carried out in the United States, Nobel prize-winning economists Daniel Kahneman and Angus Deaton concluded that overall happiness remained unchanged once household income exceeded $75,000.
The key conclusion they drew was that increasing your income can buy you life satisfaction, but not happiness.
One reason for such a relatively low figure – even once it’s adjusted for inflation and converted to sterling – is that increases in income, and asset acquisition, matter more when you’re earning less.
Buying your first house probably meant far more to you than your third or fourth step on the housing ladder. Likewise, it’s highly likely that you recall the moment you bought your first car, or went on your first expensive overseas holiday, more than more recent acquisitions.
Time is a precious luxury
When you consider them through the prism of wealth, time and money can be seen as opposites.
As you get older, your wealth increases but the amount of time you have left decreases. Because it’s finite, how you spend your time becomes increasingly important.
That explains why you’re likely to spend a lot of money on time-saving devices or services, to free up more time for yourself.
It also explains why we value time more as we get older. Younger people are more time-rich and so can tend to waste time without any sense of guilt or regret as they have more of it ahead of them.
So, while investing and saving for your future is prudent, it’s also important to live in the present as well.
Your health can benefit from the power of compounding
When it comes to securing your financial future, compounding is one of the biggest assets you have. Saving an extra amount into your pension, for example, might not be that noticeable in the first couple of years. But over the long term, those additional contributions can make an appreciable difference to the overall value of your fund.
There’s also a big element of compounding in play when it comes to your health.
When you’re younger the tendency is often to play fast and loose with your health, but by taking simple steps to look after yourself when you’re younger, you can reap rewards in terms of better health as you get older.
Of course, there’s always the option to spend money to improve your health as you age. But you can add appreciable value, and reduce future expenditure, by looking after yourself when you’re younger.
Relationships and experiences
One of the key reasons why we have relationships is to share experiences.
If you’re lucky enough to find your life partner, you’ll enjoy a lifetime of shared experiences that no amount of financial wealth could ever buy you.
Likewise, the relationship you develop and nurture with your children is priceless. No amount of monetary wealth can change it. If anything, it can impair it by distorting your true relationship behind a fragile veneer of spending money.
Funding experiences can be a good investment, especially if those experiences are shared with others. But often it’s the natural course of relationships, not involving financial outlay, that can feel so valuable and prompt you to describe them in terms of being “more than money can buy”.
Financial planning can be a key component in all forms of wealth accrual
Although, as you’ve read here, there are various ways of defining wealth beyond simply how much money you have, so it’s important not to underestimate the role planning can have on your financial future.
Careful planning can ensure you have the means to give yourself more time. It can help you afford to share those all-important experiences, and help you look after your health.
The important thing is to consider all the different ideas of wealth interacting as an overall package rather than as individually exclusive. You can then measure the totality of your personal wealth taking all these factors into account, rather than simply the value of your financial assets.
Get in touch
If you’d like to talk about your financial planning strategy, please get in touch.
You can call me on 07769 156 250.
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.
Foster Denovo Limited is authorised and regulated by the Financial Conduct Authority.