Last week was off to a great start, with the Consumer Price Index coming in lower than expected, as inflation continues to approach the Federal Reserve Bank’s 2% target. The market reacted favorably before dropping as a result of the Middle East tensions. With that, the S&P 500 is still positive for the year; it’s up just under 2%.
Hearing that market is up may make you wonder if you’re rich. And how do you define that? A Charles Schwab survey showed that, on average, Americans believe that having a net worth of $2.5 million is rich, and $778,000 is comfortable. But many people we work have well over the comfortable figure, and feel cash-strapped and, well, poor. It turns out there are many ways to define rich.
One way to look at it is how much discretionary income you have. When you have a family, after children’s activities, the high cost of living in this area, and saving for retirement and college, there’s often not much left over. Many of these people have what’s been referred to as phantom wealth: it’s there, but you can’t really see it. It’s equity in a home and retirement account savings. These families may be well beyond comfortable and approaching rich by the survey results, but lack discretionary income.
For some, being rich is being debt-free. I’m a big fan of home mortgages, for a lot of reasons. But credit card and other consumer debt is generally a negative. It’s like an anchor. So paying off debt and then building an emergency fund can make you feel rich. If an emergency happens, or an opportunity arises, you’re ready.
Sometimes a change in perspective matters. Many of us can’t help but want to keep up with the Joneses. Learning that you make more than someone else makes you feel richer, regardless of the income. It’s not how much you make, it’s how much you make in comparison to others. But if you take a broader look, being in the bottom 10% of American earners still puts you in the top 10% in most of the world.
A solid financial plan can relieve some of the anxiety and stress around money. Because at the end of the day, it’s not about how much money you have, it’s about the life that money enabled.
Your action item this week is to take a look at your hot water heater. Draining and flushing your water heater annually can improve efficiency, extend its lifespan, and potentially prevent costly repairs.
Check out our website at covingtonalsina.com, or our Facebook page, for more information and our upcoming educational events.
CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.