How do You Define Wealth

Early in my career, the following parable had a profound impact on how I view work, wealth, and life:

A Parable That Redefined Wealth and Life for Me

An American investment banker was taking a much-needed vacation in a small coastal Mexican village when a small boat with just one fisherman docked. The boat had several large, fresh fish in it.

The investment banker was impressed by the quality of the fish and asked the Mexican how long it took to catch them. The Mexican replied, “Only a little while.” The banker then asked why he didn’t stay out longer and catch more fish?

The Mexican fisherman replied he had enough to support his family’s immediate needs.

The American then asked, “But what do you do with the rest of your time?”

The Mexican fisherman replied, “I sleep late, fish a little, play with my children, take siesta with my wife, stroll into the village each evening where I sip wine and play guitar with my amigos: I have a full and busy life, señor.”

The investment banker scoffed, “I am an Ivy League MBA, and I could help you. You could spend more time fishing and with the proceeds buy a bigger boat, and with the proceeds from the bigger boat, you could buy several boats until eventually, you would have a whole fleet of fishing boats. Instead of selling your catch to the middleman you could sell directly to the processor, eventually opening your own cannery. You could control the product, processing and distribution.”

Then he added, “Of course, you would need to leave this small coastal fishing village and move to Mexico City where you would run your growing enterprise.”

The Mexican fisherman asked, “But señor, how long will this all take?”

To which the American replied, “15–20 years.”

“But what then?” asked the Mexican.

The American laughed and said, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich. You could make millions.”

“Millions, señor? Then what?”

To which the investment banker replied, “Then you would retire. You could move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”

What Does Wealth Truly Mean to You?

One of the core tenets of my financial planning approach is the belief that wealth is not defined only by your net worth. How you choose to define what a wealthy life looks like will have a significant impact on how you structure every component of your financial plan and your financial life. This is why, at Blackwater Financial, prior to spending any significant time on calculations and quantitative analysis, we spend some time talking about what a rich life looks like for you.

Monetary wealth is a relative concept. For example, a household with $500,000 in annual income and a $3 million dollar net worth might feel very wealthy when compared to a household with half those amounts or less. However, when compared to a household with double those numbers ($1 million in annual income and $6 million net worth), they might feel relatively worse off. This is why it is so important to define what wealth means to you. There will always be someone, somewhere with greater financial resources than you.

The Pitfalls of Comparing Wealth

One of the most common questions that I have received from the hundreds of clients I have served in my career is - How do I compare? Everyone wants to know how they are doing relative to their peer group. If you are an attorney with a particular specialty and 10 years of experience, you want to know if your income is higher, lower, or in line with your peers. You also probably want to know how your net worth stacks up relative to them. And, while I completely understand the curiosity, I am quick to point out the potential short sightedness in this one dimensional comparison. I find that folks are often using this question as a benchmark to see if they “have enough” and are “doing well.”

The problem with this is that it doesn't matter how well you are doing relative to others, only how well you are doing relative to your own goals. By taking the time to decide what “doing well” means in the context of your own life, you ensure that you are chasing your own wealthy life, not someone else’s.

Shaping Your Financial Goals Around Your Own Vision

When working to create a financial plan, I spend a lot of time with clients discussing what a “perfect life” might look like and what financial resources might be needed to make that life a possibility. Many times, this is the most difficult part of the planning process for folks because they haven't given much thought to it.

Breaking Away from “Default Goals”

What I refer to as “default goals” come up a lot. For example, retire by “normal retirement age,” pay for “college,” and go on “vacation.”

What is “normal retirement age” in your mind? How certain are you that you won't change your mind and want to retire sooner? What type of college? Private, public? What about graduate school? What does vacation cost? Would you like to take more? Go to nicer places?

Clients don't often answer all of these questions quickly, and that isn't the point. The point is to get people thinking about what they want their own life to look like and not what they think they should say based on societal norms and expectations.

Handling Tradeoffs to Align With Your Rich Life

One of the most challenging parts of the financial goals conversation is when tradeoffs exist. For example, maybe a big home purchase is possible, but it comes at the cost of being financially independent by age 50. Helping clients navigate these competing goals and decide what the right choice is for them based on their definition of a “rich life” is one of the most rewarding parts of my work.

When faced with competing goals, I find that folks tend to get much clearer on their values. They further refine and define what is really important to them and apply that to a particular financial decision.

Avoiding the Trap of Pursuing Others’ Dreams

As you begin to dream about your future, make sure the dream that you have is your own. Far too often, clients come to me already chasing someone else's goals. And, while part of my job is to help you find your own vision of a “perfect life,” it is always a bit sad to think about how much they missed out on in the meantime.

Ready to Define Your Wealthy Life? Let’s Talk

If, after reading this, you find yourself with more questions than answers, give me a shout. I’d love to help you find your wealthy life.