Better financial planning holds key to getting rich

One of the main reasons that one chose to invest, in any opportunity is to become rich or wealthy. Of course, there is no end to riches or being wealthy.

Wealth is a very subjective evaluation and definition could change from person to person and varies across societies.

But the general understanding about being wealthy is that there is no dearth in continuing a comfortable lifestyle for them and their immediate dependents during their lifetime.

We have heard about millionaires being rich and was always considered the first level of being wealthy.

This was standard even for an advanced country like the US till a few years back and even in the developed world the prosperity of the region is gauged from the number of Dollar Millionaires it has produced or producing each year.

A recent annual survey by Charles Schwab, a financial corporation in the US, seems to redraw the definition of wealthy at least in the US. Surprisingly, it's not the same across the demographic of the country.

The survey results point out that in order to be considered "rich", the average worth is $2.3 million, which is more than twenty times the actual median net worth of the US households.

Interestingly, the survey also noted that as the age of the respondents goes higher or older, the threshold for defining 'wealthy' also goes higher.

It could be due to what they have seen in the years through value or wealth erosion during the economic compressions and vagaries of long life which has impacted their lifestyles.

According to Bloomberg, the actual quantum is down from $2.4 million the previous two years of the survey. The baby boomers, those of the generation born in mid-40s and mid-60s, feel that they need at least $2.6mn to be considered as "wealthy", which is 35 per cent higher than what millennials, those who are born in the early 21st century, think.

Such is the contrast of their assessment about the future. The perspective changes due to the age and their experience of life through economic volatility, health, tenure and outlook for the future.

The survey sampled about 1,000 Americans between age of 21 and 75, has revealed majority of them crave for "real estate" as an investment.

For a question where they were asked if they got $1 million as a windfall, more than 50 per cent of the respondents said that they had spent it on real estate.

Remarkably, this sentiment was held true particularly among millennials (roughly aged between 22 and 37). Intriguingly, more than 75 per cent of the millennials surveyed also said their personal definition of wealth was "really about the way they live their lives, rather than a discrete dollar amount".

Enigmatic as it is, about 60 per cent of these millennials believe they will be wealthy within '1 to 10 years.'

When asked, if they expected to become wealthy at some point in their lifetimes, 20 per cent of the millennials, 46 per cent of the Gen-Xers (those born post the boomer generation up to early 80s) and 64 per cent of the boomers said no.

For someone to be considered 'financially comfortable', the threshold falls significantly from that of being wealthy.

The average amount needed to be 'comfortable' was $1.1 million and only Gen Z (born in mid-90s to early 2000s) believed that under a million was acceptable.

Its been a decade since the great meltdown due to the Global Financial Crisis and the US stock market has been on the longest streak of expansion.

Despite historically low unemployment and economic growth, as many as 59 per cent of the respondents surveyed said that they still live paycheck to paycheck.

Though, economic marvel unravels, the losses for the US banks has been outpaced by credit cards than the auto and home loans where the credit card interest rates are amongst highest in the history.

There is a lesson for all of us from the survey and that is to get real with future estimation. Of course, not that any of us could be accurate about our future but its the component of contingency that makes our lives comfortable during financial planning.

It was evident how the boomers responded to the survey where they had seen their own lives collapse as the workplaces, work and professions changed, the consistency in the pension or retirement altered their approach to life.

(The author is a co-founder of "Wealocity", a wealth management firm and could be reached at [email protected])