Money & Power

The Formula for 'Real Wealth' and How Much You Need to Be Happy, According to a Private Banker

"Real wealth is having the freedom to be true to oneself."
IMAGE JARED RICE/UNSPLASH
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“You can never be too rich or too thin” is a statement attributed to the late Wallis Simpson, Duchess of Windsor. In all the years I have worked as a private banker, I have often pondered, “What is real wealth? When can a person claim to be wealthy, really and truly wealthy?” 

The obvious answer is factual. Bankers measure wealth in terms of investable assets. A “high net worth individual” (HNWI) has at least US$1 million and an “ultra-high net worth individual” (UHNWI) has at least US$30 million. As a private banker, I have met both kinds of individuals. Not surprisingly, the UHNWIs were not necessarily happier or more fulfilled than the “mere” HNWIs, but neither could I conclude that the latter were always happier than their richer counterparts. Conclusion: The determinant of real wealth is not the actual amount of one’s net worth but something else.

I read somewhere that “you are rich not by how much you have, but by how little you need.” Could it be then that the really wealthy are those with the widest gap between their purchasing power and their purchasing requirement? If we were to quantify this gap, a person with a net worth of US$1 million but requires only US$100,000 to live (a gap of US$900,000) is wealthier than someone with a net worth of US$10 million but who requires all of it to live (a gap of zero)?

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To have real wealth is to have the financial resources to be your own person: to live where you want to live, to do what you want to do, and to be the person that you want to be.

While there is wisdom in the Buddhist teaching that “the cause of suffering is selfish desire” and that “to end suffering, selfish desire must be removed,” let’s get real. We’re all still on earth; none of us have reached nirvana (the absence of selfish desire), which means that a person with a net worth of US$1 million cannot possibly be wealthier than one with a net worth of US$10 million. As the obscure 1980s song goes, “The best things in life are free, but you can give them to the birds and beasts.” Tongue in cheek, LOL.

To bridge the factual definition with the philosophical proposition, I suggest that real wealth is possessed by those who have sufficient material assets to enable them to make all the life choices which are meaningful to them. In short, real wealth—financial independence equals maximization of meaningful options.

To have real wealth is to have the financial resources to be your own person: to live where you want to live, to do what you want to do, and to be the person that you want to be. It is to realize your dreams without worrying about money. It is having the means to attain self-actualization without burdening yourself with the question, “Can I afford to pay for this?” It is being sufficiently wealthy so that you can make decisions independently without being swayed by other people’s opinions because you are beholden to them in some way. It is living life on your own terms without compromising your deeply held values. As my brother Manuel sagely says, “It is expensive to be a gentleman” and by inference, a lady.

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If something is not important to you, then possessing it is not meaningful to you. Therefore to be really wealthy, it is not necessary for you to afford it.

My definition leads to some startlingly surprising comparisons and conclusions. Note my use of the term meaningful because it implies that one’s state of mind is fundamental to achieving real wealth. If something is not important to you, then possessing it is not meaningful to you. Therefore to be really wealthy, it is not necessary for you to afford it.


Rank the following from wealthiest to least wealthy (Assume they are all the same age):

1) A woman with a net worth of US$5 million requires US$200,000 per annum to live comfortably, does not attend (nor does she care to attend) high-profile parties, does not seek press coverage and in fact welcomes relative anonymity, and thinks she looks good even if she’s not wearing designer clothes.

2) A woman with a net worth of US$50 million requires US$5 million p.a. to live comfortably, attends every notable party and is determined to be in each year’s best-dressed list (which requires only true haute couture which means a single dress costs at least US$50,000).

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3) A woman with a net worth of US$100 million requires US$100,000 p.a. to live comfortably and has no interest in anything apart from the size of her bank account.

Based on my definition of real wealth, I have ranked these three hypothetical women in the right order. Why?

Woman #1 appears to have a strong sense of self because she doesn’t need external affirmation. As a result, to be happy she doesn’t need to spend on many costly items. She lives well within her means (she spends only four percent p.a. of her net worth). Many things considered necessities by Woman #2 are not valuable to Woman #1.

Woman #2 is the classic uber-maintenance chick whose self-esteem depends on public affirmation. Fortunately for her, she can afford to pay for her high-flying lifestyle. However, she has to be careful—she spends 10 percent of her net worth p.a., which means that if she experiences a drastic decline in her net worth, she runs the risk of being miserable.

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Woman #3 is seemingly the wealthiest because she requires so little, comparatively speaking, to live comfortably. She sounds like a miser, though. Are misers truly wealthy? Misers are slaves to their wealth.


I have observed that in some cases having too much wealth brings an individual to a point of diminishing returns. One’s exceedingly wealthy circumstance can potentially limit, rather than expand, one’s lifestyle choices: the inability to enjoy one’s vacations, even if one is billeted in the best resorts, because one is constantly bombarded by phone calls from one’s companies; the need to be nice to people whom one detests because one is dependent on them for certain licenses and permits; the inability to visit one’s sick parent or to attend a child’s recital because of an important deal signing; the loss of one’s privacy and freedom to move around because one’s photo always appears on the front page of the business papers… The list goes on and on. The flip side to this is that if one is this wealthy materially, the likelihood is that one is treated like a god, at least in this country. To some people, this is the definitive proof that they have arrived.

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Real wealth is having the freedom to be true to oneself. It is being sufficiently secure in both one’s material possessions and one’s sense of self to be happy with all the lifestyle options one can afford.

At the end of the day, there are trade-offs to all the choices we make in life. My bottom line: Real wealth is having the freedom to be true to oneself. It is being sufficiently secure in both one’s material possessions and one’s sense of self to be happy with all the lifestyle options one can afford. For me, ultimately, real wealth is being able to afford the freedom to spend my time with the people who matter most to me, engaging in activities which we can enjoy together without being interrupted by my smartphone. My peak of luxury is savoring “il bel far niente,” the beauty of doing nothing (from Elizabeth Gilbert’s book Eat, Pray, Love).

Going back to dear old Wallis, because of her, King Edward gave up his crown, thus freeing them both to spend the rest of their lives together. By turning his back on the wealth of an empire, perhaps with her, he found real wealth.

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My Formula For Real Wealth

1) List the things which you consider necessary to be happy. Distinguish between the “one-time” items (e.g., dream home) and annual, recurring expenditures (e.g., necessities, children’s education, travel, etc.).

2) Save up to obtain the “one-time” items as soon as you can. Invest only in the most conservative instruments. NEVER invest “house money” in aggressive instruments.

3) Alternatively, with interest rates so low, consider taking out a mortgage to buy your home, but work to pay this fully ASAP.

4) Once you have purchased your home, build up a fund whose interest, assuming the five-year risk-free rate (i.e., the yield of five-year U.S. Treasuries), will cover your annual expenditures. For example, you require US$150,000 p.a. Assuming five-year U.S. Treasuries yield 2.5 percent p.a., your fund size should be US$6 million.

This doesn’t mean that this will be the yield of your portfolio. I’m merely suggesting that you use the risk-free rate for planning purposes, to be conservative in your projections.

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5) When you invest to build up your fund, have a diversified portfolio. You must have cash, bonds, stocks, commodities and real estate. Diversify the currency mix of your portfolio too, especially if you intend to spend in the other currencies. Cash is a valid asset allocation. You must always keep cash or near-cash instruments for emergencies.

6) If you are unable to achieve your target fund size, adjust your lifestyle and your concept of necessities.

7) Have a strong sense of self. Do not compare yourself with others or “you may become vain or bitter; for always there will be greater and lesser persons than yourself.” (Max Ehrmann’s “Desiderata”)

This story was originally published in the October 2009 issue of Town & Country Philippines.

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Maite Gallego
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