In our seminars I often talk about the fact that no one really ‘feels’ wealthy.
This might strike you as odd, given that we spend our working day looking after people who are generally fairly well off by most standards.
It does seem however, that no matter how much money we have and how rich we appear to others, we don’t ever appear to feel wealthy in ourselves.
If I were to mention that this phenomenon occurs to people with £100,000 in wealth, then perhaps you could understand. Most would agree that £100,000, while a very nice sum indeed, is not enough to live a totally worry free financial life.
But we see this happening to people with over £1,000,000 in liquid wealth (that is excluding property values and other intangibles). Surely when you have £1 million in cold hard cash or investments you can call yourself wealthy?
Based on our experience, apparently not!
We regularly speak to people with £5 million or even £10 million in liquid cash and investments and yet they still do not feel wealthy in themselves.
Why should this be?
I don’t have any scientific evidence on this topic (perhaps this is a subject for my next dissertation?), but I have a few potential reasons why this could be:
- There is always someone richer. Whether you have £10 or £10 million, there is always someone richer who lives down the road or whom you know and associate with.
2. Some people don’t feel ‘worthy’. This is especially true when people have perhaps come from a less advantaged background and have made significant wealth with their own hands. In many cases, they don’t feel worthy of this new found wealth or perhaps they feel that they don’t deserve it.
3. I think the main reason though is down to mindset. Some people seem to be natural savers. They feel guilty about making large expenditures and always feel inclined to save as much as they can (even if they already have £10 million).
Other people, are natural spenders – they tend to spend money as they earn it, even if they do earn a lot.
This creates a bit of a problem because savers, generally, will continue to save and feel that they are not ‘allowed’ to spend, even when they have become incredibly wealthy.
Spenders on the other hand, tend not to become so wealthy in the first place.
So what is the solution? Well, as with most things, the middle ground is perhaps the best place to be.
It helps to have made a plan in advance about how much money you actually need to (insert goal here – retire early, but a boat etc). When you have defined the goal in advance you:
A – know when you have achieved the goal – you know when you can ‘stop’ and
B – generally feel less guilty about spending the accumulated money, if there was a specific goal or reason for saving it in the first place.
We call this ‘defining the finish line in advance’.
Much like in a race – you generally know the distance when you start and the type of pace you will need to run to win.
If there were no finish line already defined, how would you know when to stop? How would you know what training and preparation you needed to do?
The same is true with financial planning.
We find the clients who experience the greatest freedom around money are those who have a goal laid out in advance. This way, when they ‘make it’ they know that they have reached their finish line and can give themselves permission to stop (and go and spend some of that hard earned money).