Different types of wealth
 

After reading a couple of personal finance books (the Millionaire Next Door and Richest Man in Babylon), I have been doing a lot of thinking about what constitutes "wealth" and what is the best type of wealth. For those that don't know, these personal finance books basically advocate not spending much money, particularly on luxury items or services, in order to become wealthy. They are definitely worth reading, but, IMO, leave out different measures of wealth. Here are the three types of wealth as I see them:

1. Traditional wealth - having a lot of cash and appreciating assets. You own a business, stocks, bonds, real estate, etc. that all generates more money via passive streams for you. This is the type of wealth that the books advocate.

2. Possession wealth - having a lot of stuff. You spend most of your income on stuff - nice cars, fancy dinners, massages, designer clothes, fun toys, new electronics, etc. You may not have a lot of savings, but you do live very comfortably and don't get inconvenienced often. You live a life of luxury.

3. Experience wealth - having a lot of memories. You may not even earn a very high income, but most of what you do earn goes towards doing things you enjoy. This could mean traveling the world, building model planes, visiting family, giving all your money to charity and living in a box on the street, etc. You don't save money, but you live life to the fullest and have fun as much of the time as you can.

There are obvious trade-offs to each of the types of wealth.

In the first, you basically have no financial worries in life. If you are suddenly fired/your business collapses/a medical emergency occurs, you have enough money to continue your current standard of living for years. However, you don't get all of the comforts or experiences that money can bring - basically, you have tons of money but don't get to enjoy it.

In the second, you live insulated from the world as long as you can keep working. But if something happens, you tend to have little saved up. You certainly can't keep up your standard of living.

And in the third, you will always have your memories, and most people agree that doing what you want is pretty much the best part of life. However, when you aren't traveling/hobbying/whatever, you live poor and STILL don't have financial "freedom" - you must keep working to keep doing what you want.


Thoughts? What type of wealth do you prefer? Obviously you can mix them, what blends would you prefer? I will post my personal goals later in the thread so as not to bias them. Do you think that there are more types of wealth?

Re: Different types of wealth
 

type 1 wealth seems like masturbation, and fairly stupid to have as a goal.

Re: Different types of wealth
 

type 4: super bajillionaire

Re: Different types of wealth
 

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type 1 wealth seems like masturbation, and fairly stupid to have as a goal.

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?

Re: Different types of wealth
 

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type 1 wealth seems like masturbation, and fairly stupid to have as a goal.

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type 1 wealth leads to security and having free time to do whatever you want, which I think most people value pretty highly.

Re: Different types of wealth
 

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type 1 wealth seems like masturbation, and fairly stupid to have as a goal.

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type 1 wealth leads to security and having free time to do whatever you want, which I think most people value pretty highly.

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most of the wealth gained from this style doesnt come until later in life, 50 to 60 years old, after your portfolio has time to matured etc (Im obv making generalizations), but I dont want a couple million when Im 60, its seems like striving for that goal would make my life miserable.

Re: Different types of wealth
 

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type 1 wealth seems like masturbation, and fairly stupid to have as a goal.

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type 1 wealth leads to security and having free time to do whatever you want, which I think most people value pretty highly.

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most of the wealth gained from this style doesnt come until later in life, 50 to 60 years old, after your portfolio has time to matured etc (Im obv making generalizations), but I dont want a couple million when Im 60, its seems like striving for that goal would make my life miserable.

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This is exactly the type of debate that I was looking for.

Also, in type 1, you don't necessarily pick up every penny you see on the ground - rather, you save 15% or more of your pretax income, buy cheaply, etc. You're not living a third world life. Rather, you're just not living "like a millionaire" - you're living like an average blue collar worker.

Re: Different types of wealth
 

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type 1 wealth seems like masturbation, and fairly stupid to have as a goal.

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type 1 wealth leads to security and having free time to do whatever you want, which I think most people value pretty highly.

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most of the wealth gained from this style doesnt come until later in life, 50 to 60 years old, after your portfolio has time to matured etc (Im obv making generalizations), but I dont want a couple million when Im 60, its seems like striving for that goal would make my life miserable.

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This is exactly the type of debate that I was looking for.

Also, in type 1, you don't necessarily pick up every penny you see on the ground - rather, you save 15% or more of your pretax income, buy cheaply, etc. You're not living a third world life. Rather, you're just not living "like a millionaire" - you're living like an average blue collar worker.

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my grandpa is a prime example of this, he is worth at least a million, not including his house that he has lived in for about 50 years (its worth about 500k now). he was a pharmacist, working in a small pharmacy, started his own until barnes jewish bought him out, and still works. He has a very low key life style, other than traveling overseas. I think its great if thats your style, but for me, having a couple million when Im 85 years old doesnt seem worth it

Re: Different types of wealth
 

I am 37 and married with no kids, never having any. I go for 3 at the expense of 2 largely, and a bit of 1. I drive a car I bought for $900 3 years ago, and the only other toys I have are 2 motorcycles (his and hers) that I bought for $2300 total. I have no credit cards, and have never paid a car payment in my life. I also rent instead of owning a house because I have a killer cheap apt. that costs me about 60% less than the cheapest house I can find in Seattle city limits.

I would not consider myself wealthy, my income is not THAT high. But it is higher than the average and I do what can to keep my expenses down. I do save money but not as much as I could if I did not travel and have other "experience expenses". For instance, we are going to Maui in October and then Puerto Rico for Xmas. This will amount to several thousand dollars that could be invested. But I cannot face working 50 weeks a year and not doing things like this, I would go crazy.

Our longterm plan is to move more towards investments and stuff in a few years when (hopefully) we have more income. That might be the time to slow down on the travelling a bit. But we will do that in preparation for a later life that involves living overseas. We plan to move to a place with nice weather where our money will go further, hopefully buying a house with cash so our expenses are pretty low for our twilight years.

I think that people's family status will dictate pretty heavily where folks end up in the 3 types. 2 and 3 obviously being not as do-able for those with a lot of mouths to feed.

KJS

Re: Different types of wealth
 

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type 1 wealth seems like masturbation, and fairly stupid to have as a goal.

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type 1 wealth leads to security and having free time to do whatever you want, which I think most people value pretty highly.

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most of the wealth gained from this style doesnt come until later in life, 50 to 60 years old, after your portfolio has time to matured etc (Im obv making generalizations), but I dont want a couple million when Im 60, its seems like striving for that goal would make my life miserable.

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This is exactly the type of debate that I was looking for.

Also, in type 1, you don't necessarily pick up every penny you see on the ground - rather, you save 15% or more of your pretax income, buy cheaply, etc. You're not living a third world life. Rather, you're just not living "like a millionaire" - you're living like an average blue collar worker.

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my grandpa is a prime example of this, he is worth at least a million, not including his house that he has lived in for about 50 years (its worth about 500k now). he was a pharmacist, working in a small pharmacy, started his own until barnes jewish bought him out, and still works. He has a very low key life style, other than traveling overseas. I think its great if thats your style, but for me, having a couple million when Im 85 years old doesnt seem worth it

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I think you're misrepresenting Type 1. I think it's more about forced savings into appreciating assets (equities, real estate) which will help you retire early, provide passive revenue streams allowing you to work less etc. these aren't get rick quick strategies for when you are 25 or 30, but they aren't "buy a sweet coffin" strategy either.

also I don't think investing wisely = living miserably