This is a guest post by Ami Kim, who blogs about searching for a calling at 40 Days to Change. Ami is a long-time GRS reader.
Here at Get Rich Slowly, we imbibe many flavors of frugality, smart investing, and money management. Between J.D.’s (and others’) posts and the treasure trove of comments, you could build a path to wealth tailored to your individual income, assets, and circumstances.
But how will you know when you’re done? Are you there yet? Are you rich? And what will you do once you get there?
When I worked as a lawyer at a Big Bank I conducted an informal poll of my co-workers, asking what their magic number was: What dollar figure would make them feel comfortable retiring? (Or at least leaving their comfortable jobs to pursue their passions?) I guessed that at least some would say $1 million would be enough to let them leave in comfort. After all, we weren’t living in a big city, and the cost of living in our town was pretty reasonable.
I was wrong: $1 million wasn’t even close to the magic number.
This didn’t completely surprise me. Some people have a lifestyle they want to maintain, and they’ll have to save a lot of money if they want to maintain that lifestyle. But even those colleagues who lived frugally threw out numbers like “$5-7 Million, minimum,” citing the impact of taxes, inflation, medical care, the desire to travel, etc.
$5-7 Million? Minimum?
I have a friend whose husband makes a six-figure income at his job, plus significant income as a consultant. They have a million-dollar home and a cottage on a lake and one million in a retirement account. One day, I made an off-hand comment about how wealthy they were, and my friend vehemently objected to the description. “We are not wealthy,” she said. “I’m not saying we’re poor. We’re comfortable, but we’re not wealthy.”
On the other end of the spectrum, most of the world would view the readers of this blog as incredibly wealthy. (Check out this “Wealth-o-meter” to see how you compare to the rest of the world.) On a personal note, my job was eliminated by the Big Bank at the beginning of this Great Recession. I got a severance package, which has since run out. Despite the absence of a steady income, I’m not alarmed, hysterical, or panicked. Most days, I feel blessed, perhaps even — dare I say it? — wealthy. Why?
On one level, my husband and I are the poster children for Why You Should Establish an Emergency Fund. We did the things that readers of this blog do, including:
- using the debt snowball to pay off our debts
- establishing an emergency fund
- establishing a habit of contributing to retirement accounts
- spending less than we earned
This meant that when I lost my job, we knew we had resources to fall back on. In addition, by viewing our financial situation as just another challenge, we adopted many of the cost-cutting strategies on this and other blogs, which allowed us to substantially reduce our expenses.
For me, the bottom line is this:
- Wealth is not a magic number. The problem with a magic number is that it’s never better than an estimate. It would be a miracle to leave this earth having spent exactly the number you forecast. You’re more likely to have some left — or not quite enough. Also, the bigger your magic number, the longer you may stay in an uninspiring job and the longer you may wait to follow your passions.
- So, wealth relates to a state of mind. For me, being wealthy means having the resources to be confident that I can manage the financial ups and downs. But more importantly, being wealthy means I can do what I love — and live comfortably. If you’re willing to experiment and take risks, this type of wealth can come a lot sooner than “magic number”-based wealth.
- Wealth does not mean never having to make choices. Some people think that being wealthy means being able to buy whatever they want, whenever they want it. Maybe that’s why those magic numbers are so big. If we wait until we’re “wealthy” to do what we love, we’ll wait too long. For me, being wealthy means being able to make choices that align with my values and my passions, and being happy with those choices.
- Wealth means being able to say, “I have enough.”
What about you? Do you think of yourself as wealthy? Do you have a magic number? Are you waiting until you’re wealthy to do what you love? How will you know when you’re rich enough?
You can also see what others think they’ll need for for a comfortable retirement in our recent reader poll and post on How Much Retirement Savings Will You Need?
GRS is committed to helping our readers save and achieve their financial goals. Savings interest rates may be low, but that is all the more reason to shop for the best rate. Find the highest savings interest rates and CD rates from Synchrony Bank, Ally Bank, and more.