How much income do YOU need to feel wealthy?

[Aceyducey]

There's a thread currently exploring the income levels that Australians want in order to feel wealthy.

Well, virtually everyone who is investing is doing it to become wealthy,or at least to become financially independent so I thought I'd ask the question:

How much income per year do YOU need to feel wealthy?

This income may include both passive income & your salary or wages, but should be the figure that makes you feel wealthy.

OOPS forgot to note - this should be AFTER-TAX income

Cheers,

Aceyducey

 

[Gill Bates]

my definition of wealthy is being happy with ones lifestyle and being in the situation where every time u check ur bank account the savings are increasing. My wealthy income was 100k+ .

My plan is to achieve a net passive income of 50k year - a modest income . I formed this plan after reading a book titled "Your money or your life"

 

[Peter Parker]

I found this difficult to answer as I consider high income and wealth are different animals. There is relationship between the two but it's not straigtforward.

I would regard wealth as referring more to achieving financial independence (ie being able to live without needing to work or being of independent means).

I see affluence as relating to lifestyle and the income per year required to sustain it. If you borrow big you can live like a king, but not for long before it catches up!

People must be wealthy before they can be affluent. But many people want affluence before wealth. The former is financially sustainable and consistent with maintaining wealth, whereas the latter is short-term and sends you broke!

The higher your desired income, the more wealth you must have in order to derive your full income from passive means.

Even if I earned $500k/year, I would not feel wealthy at all if all that income came from an employer. Affluent yes, wealthy no! Now if I was able to save $300k/year for a few years and used this to amass a portfolio to generate enough passive income, then and only then would I be wealthy.

Stanley's 'Millionaire Next Door' book has a formula to determine your expected wealth based on your annual income and your age. The distinction is made between 'income statement affluent' (few assets for income level) and 'balance sheet affluent' (many assets for income) is a good one.

From memory, the formula was your age x your income.
If you're 30 and earn $30k your expected wealth is $90k. You're wealthy for your age/income if you've got over $180k in assets.
In contrast a 60 year old earning $100k/year with only $300k is not wealthy for their age/income.

It would be interesting to see how these compare with real Australian wealth data.

$180k is a good effort for someone on that income/age. It shows that they're a diligent investor. But $180k is nowhere near what's required for immediate financial independence even on a very basic income.

If we want early financial independence, I think we should remove the age factor. And as we're talking about money to live, why not use expenditure rather than income?

So Required Wealth to be Wealthy = Annual Expenditure x 20

That assumes your investments allow you to withdraw 5% each year after tax, costs, compensation for inflation, etc without eating into capital. If that's a bit low, maybe use 25 or 30 instead to be more conservative or accept more risk by going for higher yields.

A variant of this is ratio of passive income to expenditure. When the ratio is more than 1:1 (with an appropriate margin) you've arrived, and can 'get off' if you want to (many don't seem to, and enjoy growing our portfolios further)! This is what Kiyosaki's Cashflow game is all about.

Another measure we could use is proportion of income derived from passive sources. I think Kiyosaki talks about this in Retire Young Retire Rich.

So there are several ways of measuring wealth, but the link to income is not straightforward.

Regards, Peter

 

[quoll]

I'm intending to live a long healthy life, I would like it to be active and enjoyable.

My income guestimate has taken these into account. If we have paid out the mortgage and get rid of the kids we can live on a low income around $50k, but if we need to pay for new cars, medical bills, personal trainers, golf membership, holidays, etc we need more $$$$. If you want a flash car not just an average car you need more $$$.

Talking about living for a long time, what are people doing to make sure they stay healthy and are able to benefit from this passive income they are generating?

I work out (sometimes), taekwondo 2 days per week, bike ride, surf, eat lots of fresh fruit, veg, etc. (not organic a bit dear still), walk up the 8 flights of stairs at work each day.

Cheers
Quoll

 

[Aceyducey]

To pull two threads together....namely this one &
'raise your expectations Australia!!! ' (http://www.somersoft.com/forums/showthread.php?s=&threadid=12791)

Forumites have thus far said on average that they see a income of about $200,000 per annum AFTER-TAX would make them feel rich - or roughly double the average BEFORE-TAX $100,000 income for the average Queenslander.

This was calculated by taking the highest figure in each band of the poll above & treating the $150K plus crowd as aiming for $300K per year.

Using a higher assumption for this top option would only push the figure higher.

So in conclusion - forumites have set a much higher wealth bar than the average Australian!

And by being here are certainly doing something to achieve it as well

Cheers,

Aceyducey