Even the wealthy can feel precariously close to financial ruin.
You have a great career and a solid and growing investment portfolio. You have a spacious home and maybe even a cottage. By most measures, you’d be called affluent. So, why do you still worry about money and feel your financial empire could fall apart at any time?
You’re not alone. Many high net-worth people think of themselves as having less than they do. Just being wealthy doesn’t mean you never worry about money.
According to a US-based study, when asked to assign a dollar amount to being wealthy, 60 percent of investors said it takes $5 million. Nearly 70 percent of investors with $1 million in investible assets didn’t consider themselves wealthy, although that’s a healthy nest egg by most measures. Another study found that many millionaires have an ever-present fear of losing it all.
More money, more spending
One of the reasons why higher net-worth individuals worry about money is that they spend a large chunk of it on myriad expenses.
“[Wealthy individuals] often carry much higher debt than the average person – a large mortgage, payments for toys like big boats and summer residences – so they typically need more cash flow to sustain their lifestyle,” says Aurèle Courcelles, Assistant Vice-President of Tax and Estate Planning for Investors Group. “That’s stressful. And so is the pressure to keep up with their peers, to maintain the image they’ve built.”
Meanwhile, the suddenly affluent – especially ones who receive money from a previous generation – worry about frittering their newfound wealth away.
“Some boomer inheritors become instantly wealthy and, if they’re not prepared, they worry about how they’ll maintain those assets,” says Courcelles.
Planning brings comfort
Fortunately, you don’t have to worry all your life. There are steps you can take to better appreciate your financial status, says Courcelles. The first one is to create a financial plan – or update one if you came into wealth by, say, receiving an inheritance.
Having a detailed plan that includes looking at your entire portfolio, from investments and real estate to a business you might own, will give you a better idea of how much you have.
Having a detailed plan that includes looking at your entire portfolio, from investments and real estate to a business you might own, will give you a better idea of how much you have. Creating a budget is key, too, even for wealthier Canadians.
Securing sufficient insurance, such as life, disability, critical illness and long-term care, can also help remove some financial uncertainty, says Courcelles.
This kind of planning may not radically change your already healthy financial landscape, but seeing the numbers written down on paper may make you feel more comfortable.
“You’ll see you’re doing well,” he says. “You can stop worrying about your finances as long as you stay on the same path.”
The planning process might also reveal some portfolio pitfalls. Perhaps an investment property is costing more than it earns or you realize you’re spending more on travel than you think. Adjust and feel better that you’re not spending more than you need to.
There’s nothing wrong with being concerned about your dollars – it’s always good to think carefully before a big splurge – but you need to find a balance. Think enough about money to spend and save it wisely, but don’t let it consume you, either. The ultimate goal? To live more and worry less.