Feeling Wealthy

I had a family member tell me recently that her feeling of wealth has almost nothing to do with the size of her portfolio. Long term savings are just numbers on a computer screen. Whether she feels rich or poor is driven by just a couple of things:

1. Debts
2. Cash in a regular bank account

This means that transferring money from her bank account to her RRSP makes her feel less wealthy. In a sense, the money is gone even though it is now poised to grow over time. On one hand, this all seems very irrational, but on the other hand I’m impressed that she understands herself quite well.

One consequence of her formula for feeling wealthy is that leverage is a problem. With leverage she’d have a large debt with no offsetting pile of cash in a bank account.

Have you figured out the drivers for your feelings of being rich or poor?

Comments

  1. PatrickMay 10, 2011 at 11:17 AM

    I feel the same way. When I have more than a couple hundred bucks in my account, I feel rich and spend more. I learned a long time ago that automatic paycheque withdrawals are crucial for me.

    ReplyDelete
  2. Michael JamesMay 10, 2011 at 11:22 AM

    @Patrick: Interesting. My guess is that this emotional side of money is quite common. Each person who feels this way has to find the optimum cash level for bank accounts. Too much makes them spendthrift and too little makes them miserly.

    ReplyDelete
  3. The Passive Income EarnerMay 10, 2011 at 4:13 PM

    For me, it's definitely the combination of lower debt, and an increased investment portfolio. I paid off a reno line of credit and it felt good. Seeing the mortgage going down at a good rate and the portfolio growing (albeit slowly) makes me feel good about my wealth.

    ReplyDelete
  4. Michael JamesMay 10, 2011 at 5:17 PM

    @Passive Income Earner: It sounds like your feeling of wealth is more tied to net worth, as mine is. The votes so far for feeling wealthy are for either net worth or ready cash in a bank account.

    ReplyDelete
  5. TaraMay 10, 2011 at 6:55 PM

    I try not to keep too much cash in my checking account because like Patrick, I feel rich and spend more. I try to funnel all excess money immediately into savings accounts to hide it from myself. It's better for me to feel poor when I look at my ATM receipt. Fortunately when I sit down and do my budgeting, I can see that the overall picture is very good due to no debts.

    ReplyDelete
  6. AndiMay 10, 2011 at 7:39 PM

    While it is to be desired to leave out the feelings when it comes to finances, if that is impossible, better to deal with them. Personally, I have milestones and I feel rich when I beat them, meet them or at least am very close to them. The bank account has - in my case - very little to do with those milestones: that is just to pay bills. Debts getting reduced, investments and how they are performing (offsetting the interest I pay on debts and bringing me some profit) etc. are my personal indicators.

    ReplyDelete
  7. My Own AdvisorMay 13, 2011 at 8:57 PM

    Definitely a combination of low/no debt for me and a healthy investment portfolio. Once my house is paid off, hopefully in another 12 years, I'm confident I'm going to feel much better about my financial situation.

    ReplyDelete

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