I once heard wealth defined as “stored value.” That made sense to me. You are wealthy in something if you have a plentiful supply of it — enough to enjoy now and a sufficient reserve to take care of future needs. I like that definition because it emphasizes storage. Having the things you desire — say, a big house and fancy cars — does not make you materially wealthy if you don’t have the wherewithal to keep those goods over a protracted period of time. Nor are you wealthy in friendship if the many “friends” you have now would abandon you if your fortune changed.
When my net worth first hit a million dollars, my friend Eddie, who had a real-estate-development business in Boca Raton, FL, told me that I was “wealthier than 90% of the doctors in Boca.” I found that hard to believe and told him so. “They’ve got the 7,000-square-foot houses in the country clubs,” he said, “but I see their balance statements. Most of these guys owe more than they own.” “It boils down to storage — how many acorns you’ve squirreled away,” my accountant tells me. “The guy with the private jet and Rolex watch may look wealthy to the average guy, but if he’s on the verge of bankruptcy it don’t amount to a hill of beans.”
I’ve talked about this subject before in different ways. As I see it, the wealth-seeking world is divided into two camps. In one, you have the wealth accumulators — men and women who are cautious about spending but eager to save and invest. The other camp is populated with spenders — men and women who are obsessed with things. They spend all their spare money, and often much more than that, buying things that say “rich” but actually impoverish them.
What are these impoverishing things? Fancy cars and boats. Expensive jewelry. Fur coats. Gucci bags and Ferragamo shoes. All such material things are indisputably of value. But unless you have the financial capacity to keep them, to maintain them, and to replace them, you don’t have wealth. You simply have its obligations. Financial freedom comes when you have enough money tucked away to walk away from your current business and live happily ever after. It means being able to walk away from a lucrative moneymaking deal because you don’t like the guy on the other side of the table. It means not having to worry if the price of gas goes up 10 cents.
And it means knowing that your future, and even your children’s future, has a downside bottom — that you won’t drop below a certain floor regardless of what happens with the economy. Steve Sjuggerud, in one of his rare, undignified moments, once called it “F.U. money.” The ideal of wealth, then, is to have so much money (or money equivalents) stored away that you won’t have to rely on anyone else, now or in the future, to take care of the lifestyle you choose to live. How much that needs to be is entirely up to you.
If you can be happy with a monk’s existence (as one of our readers suggested), your net-worth goal might be something like $200,000 dollars. If you have a larger appetite (as I do), the target might be 10 or even 100 times that amount. The less you need to feel safe, the better off you are. But don’t kid yourself. You need some amount of wealth, and you need to put it away safely for the future.