A few weeks ago Joe from Retire By 40 wrote a great article: When Will You Feel Rich? He explained the following:
We’re doing quite well financially, but I don’t feel rich at all. Our net worth is over $2 million, but the majority of that is in our retirement accounts and real estate. We could access them if absolutely necessary, but it’s not exactly liquid like money in a savings account.
[Side Note: Joe noted in his article he was talking about money, not rich in friendships and good health. We’ll do the same.]
Our net worth isn’t $2 million, but I’d say we are doing well enough financially. That’s a relative feeling anyway. In showing my wife our monthly net worth, she said something to the effect of, “It certainly doesn’t feel like we have that much money.” If I didn’t know better, I’d think she’s been hanging out with Joe.
And she’s not wrong. Our situation mirrors Joe’s in many ways. If I had a blogging twin it would probably be Joe.
And just like Joe, the majority of our money is in retirement accounts and real estate equity. For the last couple of years, I’ve been keeping track of the percentage of retirement plus real estate equity is of our net worth. It’s north of 85%. Not just a little north of it… significantly so.
Since I don’t share specific numbers, let’s imagine a family with half of Joe’s net worth… $1 million. Let’s also imagine that we were to use a more-conservative-than-us percentage of 80% tied up in non-liquid assets.
That leaves the hypothetical family with $200,000 in liquid assets. That certainly isn’t change, but $200,000 can’t feel like a million dollars… especially when you still have a mortgage a pay.
One Million Dollars is Not One Million Dollars
Let’s rewind the clock 30 years to 1987. I was 10 years old. I had a good concept of money. “Rich” was being a millionaire. That to me meant that you lived in a big mansion and went on beach vacations… perhaps even had a beach house. Maybe that was wrong in 1987, but I was 10. It certainly seemed right.
Two things have changed since then. I’m a little wiser than I was 30 years old. A million dollars is worth $2,144,392.61 according that CPI calculator. So to get that same millionaire feeling, you’d have to have more than $2 million.
When you start to unravel it, the liquid cash for this family (still paying a mortgage) is 10% of the money of what’s necessary to feel rich. This helps me understand what my wife is thinking while the numbers might seem to portray a different story.