How much money does it take to be “wealthy” in America? According to the 2018 Modern Wealth Index by Charles Schwab*, Americans claimed on average that a net worth of $2.4 million dollars makes you “wealthy”. However, the survey also found that many Americans did not define wealth only by net worth. In fact, the most popular definition of wealth did not include money at all; the largest group of Americans considered wealth to be living a “stress-free” life and experiencing “peace of mind.”
In my experience as a financial adviser, finances are a major source of stress regardless of your level of wealth. Deciding how to invest for retirement, sending kids to college, employer benefit elections, selling a business, and planning your estate are just some examples of financial decisions that can burden us. Thus, large paychecks alone are not sufficient for wealth.
The Schwab survey cited other things that make Americans feel wealthy; 62% of Americans stated that “spending time with family” made them feel wealthy and 55% claimed the same for “taking time for oneself.” Although these definitions of wealth seem unrelated to finances, a closer look proves otherwise. Both spending time with family and taking time for yourself are luxuries that cannot be accomplished comfortably without adequate financial planning.
Essentially, according to America’s definition of wealth, even the wealthy may not actually be “wealthy.” True wealth is found in feeling secure and independent in your finances.
So, what is the key to becoming financially secure and achieving the kind of wealth that brings stress-free living and peace of mind? According to Joseph Griffin, President of TrueNorth Wealth in Salt Lake City, Utah, the answer lies in creating and executing a financial plan.
“If life is a marathon, then your financial plan is the miles you put in beforehand. You create a starting point, monitor your progress, and push yourself to new distances. We need to take the same approach with our finances. You cannot hit new running goals without a plan and discipline; likewise, it is difficult to achieve wealth without careful, comprehensive financially planning coupled with commitment and implementation of that plan”
Although this seems logical, data suggests that most Americans do not understand the essentiality of creating a plan to manage your finances. Schwab’s survey reported that only 1 in 4 Americans have a written financial plan. About half of these people claim it is because they don’t have enough money to plan, while the other half admit that having a financial plan never occurred to them or they do not know how to go about making a plan.
Americans with a financial plan are nearly twice as likely as non-planners to pay bills on time, save each month, stay out of debt, have an emergency fund, and balance their portfolio regularly. They also excel in staying on top of investments and are more likely to feel “very confident” in achieving their financial goals. Overall, Americans with a financial plan are twice as likely to feel financially stable than those without a plan, regardless of yearly income or assets.
“Wealth” cannot be defined simply by net worth; it is a stress-free state of mind generated by the creation and execution of a financial plan. As you strive for a financially stable future, consider how you can create a financial plan that will enable you to be “wealthy” in every sense of the word.
At TrueNorth Wealth, we are fee-only financial advisers dedicated to our clients’ goals. Find out more about how a dedicated financial advocate can improve your long-term financial outcomes and relieve your financial stress through long-term financial planning and implementation.