Why is wealth important?

Posted by Maneesh Sethi :: August 17, 2007 @ 10:53 am

This is an important question: why does it matter how wealthy you are? Being rich for the sake of being rich might not make sense. And as I wrote in an earlier article, simply being wealthy doesn't make you happy. But one great thing about being wealthy is just being able to continue your current standard of living, even if you don't have a source of income.

I read a very interesting article on TheSimpleDollar regarding something called the “Crossover Point”. In the article, the author found the point at which the returns from his investments equaled his yearly income. At this point, even if he quit working, he would be bringing home the same amount of money each year that he would earn if he continued working (minus the amount that he would have added to his investments).

The author calculated that one of his friends would be able to retire and live off his investments within 35 years by contributing a small portion of his paycheck each month to investments. Add that to the Social Security benefits he would receive as he got older, and this friend could expect his future financial situation to be very steady.

Wealth is important for a healthy retirement. Wealth matters because it can enable you to continue living even if you don't have a source of income for a while. And what if you want to take a few months off of work to travel? Investments will help you pay for that.

The important thing to remember is that as you get older, investing will get much harder. It is extremely difficult to contribute money from your paycheck once you have a family and kids -- not impossible, but difficult. If you start early, when it is easy, you'll make it a habit. And you might find that, come 65, your retirement is a lot steadier than it might have been.