Photo credit – American Dollar 2 by thinkpanama on Flickr

How does one define how rich one is? Some measure with the amount of cash you have, others measure by number of tangible assets or what investments are in your basket, and a certain few may judge based on your personal outlook (from the car you drive to the clothes you wear).

Our society also has a very predictable mindset at how happy you could be if you are rich. Just last week I was following a discussion over the radio, the DJs asked listeners what they’d do if they were suddenly handed RM 1,000,000 cash. Without much surprise, typical answers were:

1. buy a big house
2. go for a holiday
3. purchase a luxury car
4. quit working

Looking at the answers, we can’t help but dream about spending that RM 1 million, or taking that much awaited Safari retreat in Africa, or just plain resigning from that daily grind called “the job”. But what is real wealth? Is that RM 1 million really going to sustain you until the day you leave Earth? Does the measure of richness in the form of assets owned really define your status of wealth? If you drive a Ferrari it means you’re probably pretty high society?

First of all, we have to move away from the traditional mindset of what wealth really is. Yes, inevitably we need to have some form of income to live our lives, to put food on the table, a roof over our heads, and clothes to cover ourselves. I’m not saying that we shouldn’t aim to advance in our careers, or attempt to look for ways to make more money. The problem is, we become greedy, and we want more. The main reason for this happening is, WE KEEP COMPARING OURSELVES TO OTHERS’ WEALTH. Greed in turn means that we are never satisfied with what we have, what enough is and when it is enough!

Last year David bought a book by Ramit Sethi, simply titled “I Will Teach You To Be Rich”. It’s a no-nonsense, straight-in-your-face personal finance book. Honestly, I was quite put off by the title of the book, thinking, “Hey, another get-rich-quick-type-of-book”. To my surprise, Ramit helped me re-align my definition of wealth, and re-organised the way I looked at being rich. Of course, there were some parts of the book that were very US-centric (i.e. taxes, investments) but the rest of the topics discussed are very relevant, regardless if you’re in Timbuktu. Using the book as a guide, I had re-constructed my personal finances (streamlining credit cards & bank accounts, decided on investment choices, and revamped my spending budget); I could see clearly what being rich is to me.

So here’s my definition of wealth:

1. Be in as little debt as possible – no credit card debts (yahoo!), really short hire-purchase loan terms (i.e. 5 years rather than 10 years), and flexible home loan terms (loans that allow you to reduce the % interest charged based on a reduction in amount owing)
2. Ability to save 20% of income every month without feeling like you don’t have enough spending money (i.e. you are not reducing your lifestyle to zero). I have an allotted amount of guilt free spending money which I use for shopping, food and entertainment, and really spending it without guilt!
3. Invest 10% of income every month automatically for long term returns.
4. Pay my income tax yearly, responsibly.
5. Review and minimise commitments and eliminate the unnecessary (i.e. review Astro packages, mobile phone plans)

I know I am rich when I can live comfortably without worrying about needing to make more money to maintain the lifestyle I’ve chosen; or indulging in yearly holidays without having to sacrifice something else for it. I know I am rich when I have the minimum amount of debt I’m in (so why dream of having a big house or drive a big car when I can be debt free quicker with what I have now … see the point of having just enough?). I know I’m rich when over the years I’ve extra income that I can grow my investments or save even more!

When we take away our greed factor, take away the comparing attitude, and take away the mentality that wealth means having everything big and great, you’ll find that you enjoy living your life more comfortably and you’re happier with what you have. We need to find that sweet spot of being contented and having enough. We’ll never be rich if we keep growing our commitments every time we have extra income—instead of improving our well being we’re putting ourselves in more debt! So if I had RM 1 million handed to me, I’d go on a holiday, and invest the rest of the money. ‘Nuff said.

P/S: I also enjoyed reading this article, which talks about how money was once the currency of a successful life, wealth is increasingly being measured in connection, sustainability and happiness. Read more about “Finding The Way To A Meaningful Life“