What is wealth?

Since the ripe old age of 9 I realized that to have choice in life, you need to have money. By the time I was 17 I realized that having money one week and spending it the next week is like a perpetual motion machine. You keep having to earn it to be able to spend it. By the time I was 22 and in professional work, I realized that an education gives you the opportunity to earn so much more money than without, maybe there is a light at the end of the tunnel. I thought back to my mother who always quoted Mr Micawber from Charles Dickens “Income one pound, expenditure nineteen shillings and sixpence, result happiness. Income one pound, expenditure one pound and sixpence, result misery”. Perhaps what we misunderstood about Mr Micawber’s famous statement was that income does not have to be earned income.

If we add up all the earned income over all our working life, simple arithmetic doesn’t seem to make sense. I know we have accumulated wealth in plain old Pound Sterling terms equivalent to almost all the income we have ever earned. That doesn’t seem fair does it? How can we have accumulated, albeit on paper, a sum of net wealth equal to all the money we have ever earned in our life?

Around 20 years ago, I learned that Jewish people had a philosophy of teaching their children that they should never spend more than 90% of the money they earned. I looked back over the first ten years of my working life, when my net assets were less than zero, and back-calculated what position I would have been in had I saved (invested) exactly 10% of my earned income. Had I just put that money in the bank it would have been about the price of a semi-detached house at the time I would have started saving. However, had I put the first years' saving as a deposit on a house and rented that house out to a tenant, and continued to put 10% of my income into paying off the mortgage of that house, I would have owned that house outright in the first ten years. But the value of that house had just about doubled by that time. So I would have had net assets equivalent to around 20% of all my net income over that 10 years.

I vowed at that time, though still in debt, to make sure that I "saved" (I later corrected that to “invested”) 10% of my net income, in five decades, I would have a net wealth equal to my entire net income over the 50 years. Surely enough to retire on? So how much is enough?