How much money do you need? Many of us would like to live like a king, but the medieval king had no heat or air conditioning, couldn’t hope to travel more than a couple hundred miles from home over his life, and probably died before age 45 from the plague without clean drinking water or healthcare. My point is that you already live better than a king but you probably don’t feel like a king. Perhaps we gauge being wealthy only relative to our peers which is a crazy thing. If we could get over that then maybe we are already wealthy.
Wealth in the Eye of the Beholder
I am not super wealthy. In fact, I have far less savings than this blog might lead you to believe. However, with discipline and perspective I am a rich man. I have a friend who is an Igbo chief and grew up in Biafra, Africa. War broke out and he lost family members and his home. He lived off the land inside a war zone for over 2 years while 0.5-2 million people died of starvation and sickness in addition to those killed in the war. Many years later he now lives and works as an engineer in Minnesota. I wonder what he would say about being rich? I also have a very close friend active in startups who refuses to accept that she is financially independent despite everything that I have thrown at her over the years. When she reached $2M, I told her that if she never made any more money she could live off of $80K per year under the 4% rule without even affecting her principal and she questioned the math. At $4M she told me that she still didn’t feel secure because what if some catastrophic event happened. At $6M, she still doesn’t feel wealthy but does acknowledge that she has a “safety net”.
When is Enough, Enough?
In fact, there is a center at Boston College that studies the ultra wealthy with some surprising findings: 165 households with an average net worth of $78M were surveyed and the majority claimed that they do not feel financially secure! To feel financially secure, they claim that they would need on average 25% more than they have. This is of course preposterous and it is easy to get angry and dismissive of rich people but this must be human nature at work emotionally fearing scarcity and wanting more. If we put emotions aside and look at the math in my example above, someone with a $78M fortune invested would have to spend more than $5,460,000 every year at a long term annual average inflation adjusted S&P500 return of 7% to even start to chip away at their principal. Suffice it to say that more money may not ever feel like enough.
If I Could Just Win the Lottery…
You may be saying ok, but I am more level headed than most. If I won the lottery for example surely I would be happier. I would be responsible and hardly change a thing. Numerous studies including this seminal one, indicate that lottery winners are not statistically happier than non-lottery winners for 2 reasons.
#1 Is that winners acclimate quickly to their new lifestyle. Meaning that at first driving a Bentley and staying at the 4 Seasons is awesome but researchers found that very quickly, it becomes your baseline and provides the same amount of satisfaction as you or I may get from road tripping in our Honda to the Holiday Inn. This phenomenon is called “hedonic adaptation,” ooh sounds fancy.
Reason #2 that lottery winners were found to not be happier is that they report getting less pleasure than non-winners from every day life things like eating breakfast or talking with a friend. In other words, the best things in life may be free until you lose them because of your “wealth.”
Still Isn’t it Better To Have More?
I know you are probably saying, “easy for you to say guy who doesn’t need to work to make ends meet. Maybe I don’t need to be super rich but if I had a little more money I know I wouldn’t worry about my bills or debt and that would surely make me happier.” That is surely true right? What is that magic number for happiness? Well you are in luck because there actually is a definitive magic number. A survey of 450,000 Americans by a nobel prize winning economist suggests that the number is $75K per year of household income. At $75K per year, the emotional toll of trying to make rent, or provide for the family is addressed and additional income while it did lead people to objectively evaluate their lives in a more positive way, it was not shown to subjectively make people experience any more day to day contentment or emotional well being. To quote one of the authors: “More money does not necessarily buy more happiness, but less money is associated with emotional pain.”
What is Your Number?
So what is your number, how much is enough, and how do we strike a balance before it gets unhealthy? I am not going to argue morality and how much money is enough vs too much, for I have literally stayed in palaces in my life and also slept on the ground with animal sweat soaked blankets to stave off the cold. However, I think the research shared indicates that claiming financial independence may be about something more than money. Are you Claiming Your Unclaimed Financial Independence?
