[/caption]Traditional methods for measuring wealth are to look at the absolute amount of assets which a person has, and compare this to other well-endowed people, in order to arrive at some basis for comparison and benchmarking. Interestingly, Singapore happens to be the country which generated the highest number of new millionaires, and everywhere one goes, we see beautiful luxury cars and people carrying branded goods. All these serve to reinforce the notion that Singapore is a country filled with rich and wealthy people who are ready to flaunt their assets. But how rich are we in actual fact? This post intends to poke some holes in the theory of “wealth” (note the quotation marks) and how it is generally perceived; and to suggest some measures of my own!
The first quirk of being wealthy is the often quoted “Asset Rich, but Cash Poor” syndrome. Essentially, this refers to a person owning many assets (most often, real estate), but having very little cash savings. Such people often plough a significant chunk of their funds into real estate or other assets, leaving them with very little cash buffer. Others purchase such assets using leverage, and thus have high monthly capital commitments to service. On the surface, these people would be classified as “rich”, but then again they do not really “own” the property or properties as these are all on loan. Eventually, one has to liquidate in order to justify the investment, but lack of liquidity can severely stymie a person’s ability to get cash fast. In the interim, one may suffer from a serious lack of working capital if they do not manage their cash flows well. Thus, this definition of “wealthy” is contingent upon a person being able to manage his cash flows very well, while at the same time juggling a (highly) leveraged Balance Sheet. Risky, admittedly; but sometimes that is the price to pay for being able to tag on a label “Wealthy”; however ephemeral that may be.
Let’s face it: what most people in this world seek is material comforts and financial abundance. Money can buy one many items which can enhance one’s quality of life, and in industrialized, capitalistic countries like Singapore, materialism has gone on hyperdrive. Ask any young person these days on how he measures one’s wealth and he will not hesitate to quote a number, usually in the six to seven-digit range. But the pursuit of absolute wealth is meaningless unless we have an idea of how that wealth is able to sustain us in times of emergency, or in a downturn when we lose our jobs. Therefore, I propose an alternative method of measuring wealth. By the way, this method is not new and has been mentioned on some personal finance websites; however it has generally not been widely acknowledged and recognized because of its difficulty to measure. Wealth should be defined as a function of how long your current savings can last you assuming you lose your income-generation capability.
Read more...[caption id="attachment_1206" align="alignright" width="150" caption="Photo by Leonid Mamchenkov"][/caption]Traditional methods for measuring wealth are to look at the absolute amount of assets which a person has, and compare this to other well-endowed people, in order to arrive at some basis for comparison and benchmarking. Interestingly, Singapore happens to be the country which generated the highest number of new millionaires, and everywhere one goes, we see beautiful luxury cars and people carrying branded goods. All these serve to reinforce the notion that Singapore is a country filled with rich and wealthy people who are ready to flaunt their assets. But how rich are we in actual fact? This post intends to poke some holes in the theory of “wealth” (note the quotation marks) and how it is generally perceived; and to suggest some measures of my own!
The first quirk of being wealthy is the often quoted “Asset Rich, but Cash Poor” syndrome. Essentially, this refers to a person owning many assets (most often, real estate), but having very little cash savings. Such people often plough a significant chunk of their funds into real estate or other assets, leaving them with very little cash buffer. Others purchase such assets using leverage, and thus have high monthly capital commitments to service. On the surface, these people would be classified as “rich”, but then again they do not really “own” the property or properties as these are all on loan. Eventually, one has to liquidate in order to justify the investment, but lack of liquidity can severely stymie a person’s ability to get cash fast. In the interim, one may suffer from a serious lack of working capital if they do not manage their cash flows well. Thus, this definition of “wealthy” is contingent upon a person being able to manage his cash flows very well, while at the same time juggling a (highly) leveraged Balance Sheet. Risky, admittedly; but sometimes that is the price to pay for being able to tag on a label “Wealthy”; however ephemeral that may be.
Let’s face it: what most people in this world seek is material comforts and financial abundance. Money can buy one many items which can enhance one’s quality of life, and in industrialized, capitalistic countries like Singapore, materialism has gone on hyperdrive. Ask any young person these days on how he measures one’s wealth and he will not hesitate to quote a number, usually in the six to seven-digit range. But the pursuit of absolute wealth is meaningless unless we have an idea of how that wealth is able to sustain us in times of emergency, or in a downturn when we lose our jobs. Therefore, I propose an alternative method of measuring wealth. By the way, this method is not new and has been mentioned on some personal finance websites; however it has generally not been widely acknowledged and recognized because of its difficulty to measure. Wealth should be defined as a function of how long your current savings can last you assuming you lose your income-generation capability.
Read more...
[/caption]Traditional methods for measuring wealth are to look at the absolute amount of assets which a person has, and compare this to other well-endowed people, in order to arrive at some basis for comparison and benchmarking. Interestingly, Singapore happens to be the country which generated the highest number of new millionaires, and everywhere one goes, we see beautiful luxury cars and people carrying branded goods. All these serve to reinforce the notion that Singapore is a country filled with rich and wealthy people who are ready to flaunt their assets. But how rich are we in actual fact? This post intends to poke some holes in the theory of “wealth” (note the quotation marks) and how it is generally perceived; and to suggest some measures of my own!
The first quirk of being wealthy is the often quoted “Asset Rich, but Cash Poor” syndrome. Essentially, this refers to a person owning many assets (most often, real estate), but having very little cash savings. Such people often plough a significant chunk of their funds into real estate or other assets, leaving them with very little cash buffer. Others purchase such assets using leverage, and thus have high monthly capital commitments to service. On the surface, these people would be classified as “rich”, but then again they do not really “own” the property or properties as these are all on loan. Eventually, one has to liquidate in order to justify the investment, but lack of liquidity can severely stymie a person’s ability to get cash fast. In the interim, one may suffer from a serious lack of working capital if they do not manage their cash flows well. Thus, this definition of “wealthy” is contingent upon a person being able to manage his cash flows very well, while at the same time juggling a (highly) leveraged Balance Sheet. Risky, admittedly; but sometimes that is the price to pay for being able to tag on a label “Wealthy”; however ephemeral that may be.
Let’s face it: what most people in this world seek is material comforts and financial abundance. Money can buy one many items which can enhance one’s quality of life, and in industrialized, capitalistic countries like Singapore, materialism has gone on hyperdrive. Ask any young person these days on how he measures one’s wealth and he will not hesitate to quote a number, usually in the six to seven-digit range. But the pursuit of absolute wealth is meaningless unless we have an idea of how that wealth is able to sustain us in times of emergency, or in a downturn when we lose our jobs. Therefore, I propose an alternative method of measuring wealth. By the way, this method is not new and has been mentioned on some personal finance websites; however it has generally not been widely acknowledged and recognized because of its difficulty to measure. Wealth should be defined as a function of how long your current savings can last you assuming you lose your income-generation capability.
Read more...
