WHAT IS REAL WEALTH? Is it having lots of money, hard cash? Is it having a grand salary or income? Is it owning a finely appointed palatial home, travelling the world and buying the best in brand-name merchandise? Most people asked to make three wishes would wish for things along these lines.
When last have you wished that you could win the lottery? Yet simple research quickly turns up the fact that many big jackpot winners have ended up dead-end losers in life. They lose their winnings in short order. In some cases, within a year, not only are their winnings gone but there is an accumulation of substantial debt.
The record of failure for many grand lottery winners stands. Their example should guide you to accept the premise that wealth is not necessarily having a lot of hard cash.
Similarly, you can deduce that real wealth is not necessarily having a grand salary, nor is it owning exclusive, expensive and sophisticated belongings. Real wealth can be all these things and yet is not necessarily congruent with any of these things.
Real wealth has at least three key elements. These elements are not presented in any particular order of priority, yet they are interdependent. Specifically, real wealth must be represented by having a significant amount of net assets. Secondly, real wealth must be sustainable in the long term and, thirdly, a truly wealthy person needs a strong spiritual dimension in their life.
Other elements can contribute to a better appreciation of real wealth, but these three elements are essential in any situation of real wealth. If you are considering whether someone you know is really wealthy, check to see if these three elements are present.
One element relates to the fact that real wealth must be represented by a significant amount of net assets – total assets less total liabilities. The assets may consist of cash, cash equivalent, shares, bonds, real estate or other assets.
What is a significant amount? Let us say a million dollars to start with. For lots of us, a million dollars in net assets would provide us with enough interest or other investment income to sustain us for life. So a million dollars is a reasonable starting point. According to everyday standard, if you can be called a millionaire, you are considered wealthy.
However, it is also useful to relate the size of the net asset position to the level of the income earned as an alternate measure. For example, a useful measure is to have accumulated net assets as a multiple of your current income.
Looking at film stars, the point is also made that a large income is not necessarily wealth. Real wealth must be sustainable in the long term. Consider the many stars that we know who had earned millions in the heights of their careers and are broke today.
Simple, income, particularly if handled well, can lead to wealth, but by itself, a large income is not necessarily wealth.
Real wealth must have a spiritual dimension. This point cannot be emphasised enough. It is the most overlooked ingredient of “coveted wealth”.
To accumulate and retain wealth requires discipline, order, the lack of envy, graciousness and a sense of contentment. These are only a few of the key attributes that represent real wealth.
• Louise Fairsave is a personal financial management advisor, providing practical counsel on money and estate matters. Her advice is general in nature; readers should seek personal counsel about their specific circumstances.