After years of toiling away, or still working but for the kick of it rather than the money, we have seen several people becoming rich. There are many others on this journey and will definitely reach that point.
But even among the very rich there is always the lingering doubt if the money they have is sufficient. What is sufficient? What is being rich? What does it take to call yourself ultra-wealthy?
What defines being ‘very-rich’?
Being very-rich really means that the amount of savings you have is more than sufficient to ensure your lifestyle of choice is assured and there is little risk to that. The key phrase here is the ‘lifestyle of choice’ and does not mean an ‘extravagant lifestyle’.
The real question is whether you have reached that place?
The Wealth Meter formula
Let us assume your annual expenses is 1. The amount of savings you need is directly linked to your annual expenses. One needs a minimum of 25x your annual expenses to lead a comfortable retirement. When we say retired, it means you don’t need to work for a living, though you may continue to actively contribute to society. Please do continue to contribute. The country needs you to.
Remember we are talking about genuine and liquid financial assets. Not the illiquid business assets which may or may not yield fruits.
How does the math work?
As long as the total corpus is 25 times your current annual expense and you have sufficient conviction to invest in inflation beating assets, your current lifestyle is broadly covered for.
For example, if the current annual expense is Rs 10 lakhs (not including home EMI, or rent) and you have a corpus of Rs 2.5 Cr, the math works as follows.
- If Rs 2.5 Cr is invested in a portfolio which earns 10%, you make Rs 25 lakhs that year. You take out Rs 10 lakhs, for your consumption needs. Allow the remaining Rs 15 lakhs to continue to grow the portfolio.
- This way, in the next year you can use Rs 10.5 lakhs and this will keep increasing in line with inflation. Remember, your expenses will double every 12 years.
Do your math. Let us know where you stand on the ‘Wealth Meter’. More importantly, let the person you see in the mirror know.