Here’s something you probably would be surprised to know about me: I hate talking about money. I am not unaware of the irony given that I write about money on a regular basis. My reticence occasionally puts me in difficult corners, conversationally. Luckily, few people nowadays raise personal finances as a topic of conversation, much less ask you, point-blank, about the state of yours. But, on the rare occasion that this happens, what to do? I used to stammer, and hum and haw, and generally fidget so much that even the most inquisitive of folks would drop the subject matter. In the interests of avoiding such awkwardness in the future, I have developed a finely tuned response.
“We’re doing ok.”
Assuming you knew the hard numbers, some of you might think that’s an understatement, and some of you might think it’s an optimistic view. Regardless, I’m guessing almost all of you would consider it a cop-out statement … and that’s exactly what it is. Importantly, though, it’s also an actual rung in my personal wealth hierarchy, as I will explain below.
We all have internal wealth hierarchies. Whether you have $1 in the bank, or $1,000,000, you likely think of your financial situation in relation to a particular spectrum – ranging, at its most generic, from “rich” to “poor”. Given the statistics on Canadians’ spending and saving habits, I would be very curious to know what other people’s wealth hierarchies look like; I have a feeling they would be very different from mine. Speaking of which, and without further ado, here is my wealth hierarchy:
Billionaire/Out of Sight: This category is self-explanatory, and I only include it as a comparison. For the most part, the personal finances of people falling into this category interest me the least, mostly because they might as well live on a different planet from me. [I am pretty sure that at some point during my lifetime, that will literally be the case.] As an aside, I got the “out of sight” appelation from Paul Fussell’s treatise on social class; in his analysis, “top out of sight” is the highest social class precisely because, for the most part, their wealth makes them practically invisible to the hoi polloi.
Rich – anyone with enough liquid assets to ensure that at least one future generation doesn’t have to work at all, whilst maintaining (at a minimum) an upper-middle class lifestyle. As a rough ballpark, let’s say anyone with at least $20 million in assets, excluding real property. I don’t expect to ever reach this level, but it’s fun to fantasize about it whenever I consider playing the lottery.
Financially Independent – anyone with enough liquid assets to maintain a lifestyle I consider well-appointed, without being dependent on active employment. This is the category that interests me the most, hence the personal caveat; “financial independence” doesn’t mean much to me if it involves living in a remote cabin without premium cable. [That is a purely personal preference, and I realize that, to some people, I have just described their Shangri-La.] It’s hard to put hard numbers on this category; erring on the side of caution, let’s say any couple with no debt and at least $200,000 in gross (passive) income per year.
Well Off – anyone who is on track to a comfortable requirement and able to meet current financial obligations, whilst having enough left-over income that they don’t have to prioritize their spending. Eating all the cake, and having enough to eat it all over again later (or something like that).
Doing Ok - anyone who is on track to a retirement that doesn’t involve eating cat food, and able to have a little fun along the way. To put it in perspective, I place our family in this category. We save roughly 30% of our net income, have no debts apart from our mortgage, and liquid assets that almost equal our yearly gross income. We prioritize our indulgences, splurging on some, but not all, of the “finer things” we appreciate (because our resources don’t stretch far enough to accommodate all of them).
Getting By – anyone who saves less than 10% of their income, but can otherwise live within their means.
Poor – anyone who needs to take on debt to finance their lifestyle, but is able to meet their minimum debt repayment obligations every month. Alternately, people actually living on or near the poverty line, independent of debt.
Destitute - anyone living below the poverty line. From a purely financial perspective, a person in this category might be considered better off than someone with negative net worth and living a nicer, but credit-dependent, lifestyle. Personally, I don’t agree; if you’re missing out on any of the true necessities of life, I would think it’s a cold comfort to know that you’re debt-free.
Putting my wealth hierarchy – heretofore a purely imaginary scale – on paper made me realize a couple of things. One, I have never properly delineated the rungs lower than mine, and trying to do so is hard. Given that my focus has been so much on moving ahead, rather than looking back or imagining some worst case scenario, this is somewhat understandable. However, it does create a very lop-sided perspective on my part. Which brings me to my second realization: I have really high expectations for what it means to be “wealthy”. It’s not because I’m out of touch with reality. It’s because I am highly sensitive to risk (both the real and imagined) and have a corresponding need for feeling “secure” – money being the ultimate safeguard of security. To me, being wealthy means never having to worry about any negative contingencies that can be mitigated, in part if not wholly, by money. Since I can easily imagine a veritable plethora of negative contingencies, you can start to see why my wealth hierarchy is fairly ambitious.
Do you have a personal wealth hierarchy and, if so, how does yours stack up?