What does it mean to be wealthy (1)?

This is a question that generates a lot of different answers. Wikipedia summarises some of the concepts of "wealth", including differentiating macro economic wealth, personal wealth and various forms of material and non-material wealth.

Since this blog is about personal finance, I am more interested in the concept as it applies to personal finance. After giving the matter some consideration, I concluded that, in personal finance terms, being wealthy is a function of two concepts. The first concept is is about funding your lifestyle. The second concept is about the standard of that lifestyle. In this post, I will explore the first of those concepts.

In terms of funding your lifestyle, there are six discrete categories or stages of wealth:

1. unable to sustain your lifestyle;

2. able to sustain your lifestyle only through work;

3. able to sustain your lifesytle through work and accumulate capital;

4. able to sustain your lifestyle without working;

5. able to sustain your lifestyle without working or drawing down capital;

6. able to sustain your lifestyle without working and accumulate capital.

At one end of the spectrum, people could be described as poor or living below the poverty line. Unfortunately, a depressingly high number of people fall into this category. At least some of them are there as a result of choices which they made of their own free will. Others may find themsleves stuck in a financially precarious position through misfortune or lack of opportunity. Although others may disagree, a person who is drawing down capital to maintain their lifestyle at an unsustainable rate is, by my definition at least, poor.

At the other end of the scale are people with the greatest degree of economic freedom possible. In between are people who, much like economies, are going through various stages of personal economic development. Most of us start off with relatively little in the way financial assets (e.g. university students) and will progressively accumulate wealth as we go through our lives. Some people are more successful at this than others and will become genuinely wealthy. Whether as a result of choice, misfortune or lack of opportunity, many will not attain improved degrees of personal wealth or at least will not attain the degree of personal wealth that they aspire to.

Most of my acquaintances are at stage 3. They work because they have to but, at the same time, are managing to save and invest with a view to graduating to a more affluent stage. Some (like myself) intend to quit their jobs when they are in a position to do so. Most have not expressed an intention to do so. In addition, most of the people I know who have reached a position where they do not need to work to support their lifestyle continue to do so. An interesting question for me is why people who clearly have no need to work continue to do so? (A topic for another post, perhaps.)

The categorisation of wealth set above begs one important question: what is your "lifestyle"? I will address this question in the second part of this post.