FP Article 35 (For a FREE eReport on Dollar-Cost Averaging and Value-Cost Averaging, click here.)

The 8 Wealth Slices of Humanity

by Rajen Devadason

"Financial planning is the process of meeting your life goals through the proper management of your finances."

Any process of meeting an important self-defined life goal involves taking incremental steps... upward.

There's always room for improvement in every dimension of life. Economically speaking, for instance, our species - which at the time of writing, numbers about 6.87 billion people - covers an extensive spectrum of personal wealth.

Where do you fit in? Let's find out, shall we?

To help give you an objective sense of where you are now so that you may choose to set a challenging but realistic goal for wealth enhancement, I'm going to discuss 8 segments of humanity's spectrum of wealth. Using a combination of my own flippant terms and widely used ones, here are the names of those 8 segments:

Scuba diver, flatlander, hill climber, mass affluent, high net worth individual (HNWI), ultra-HNWI, super-elite, and Himalayan!

In financial planning, two personal finance statements measure and guide a person’s journey to or from financial freedom. They are the net worth statement and the cash flow statement. The first comprises a listing of a person’s assets and liabilities on a particular day, say today or December 31st or January 1st or your birthday. The second records the cash flow pattern over a period of time, meaning the cash inflow and the cash outflow over, say, a month or a quarter or a year. To learn more, you may read my article What is a Cash Flow Statement?

Here's what I mean by each of those 8 terms:

Scuba Diver

Real scuba divers operate underwater and see amazing sights the rest of us never experience firsthand. But when it comes to economic scuba divers, those with negative net worths, the sights are less palatable.

If a person has more liabilities than assets, he is technically insolvent. He is operating below water, so to speak, and should strive to swim his way back to the surface by paying down his liabilities and growing his assets.

Flatlander

An economic flatlander lives life in balance. His assets and his liabilities are matched, so his net worth is either zero or close to it, say between minus RM5,000 and plus RM5,000 (in Malaysian currency terms, which at the time of writing amounts to roughly US$1,600).

Hill Climber

An economic hill climber is someone who is either consciously or unconsciously doing the right things within a financial planning framework, such as spending less than he earns, and saving and investing the difference, and so is gradually growing richer. This improvement is tracked through his progressively larger positive net worth numbers over the course of years and decades. A hill climber’s net worth would be north of RM5,000 (about US$1,600) but below RM500,000 (about US$160,000), including the equity (which equals market value minus outstanding mortgage owed to the bank) in his own home.

For the hill climber and the other five segments beyond the flatlander, I'll simply use US dollars as that is the standard unit of global wealth levels.

Mass Affluent

Excluding equity in the primary residence and focusing solely on financial assets such as stocks, bonds, cash, hedge funds, and unit trusts or mutual funds, the mass affluent or so-called emerging affluent person is worth more than US$100,000 but less than US$1 million.

HNWI

Using the same yardstick as the mass affluent, a high net worth individual or HNWI (pronounced hun-wee), is worth more than US$1 million but less than US$30 million.

Ultra-HNWI

According to the annual World Wealth Report published each year in late June by Capgemini and Merrill Lynch Global Wealth Management, an ultra-HNWI individual is worth more than US$30 million. I tend to use the same starting point but with one minor difference. I think of ultra-HNWIs as having financial assets of US$30 million or more but less than the magical US$1 billion mark.

Super-Elite

This segment comprises the slightly more than 500 people worldwide with net worths of US$1 billion or more but who still fall outside the BIG CLUB of the Forbes 400 list of the world’s richest whom I have designated Himalayan wealth accumulators.

Himalayan

Just as the Himalayan mountains form the highest mountain range on our planet, by my terminology a Himalayan wealth accumulator is one of the 400 richest individuals on Earth.

The March 2010 Forbes global ranking placed Mexican telecommunications magnate Carlos Slim Helu at the pinnacle with an estimated Everest-like wealth pile of US$53.5 billion; Bill Gates was second with US$53.0 billion, while the world’s greatest investor Warren Buffett stood in third place at US$47.0 billion. To earn a Himalayan spot in early 2010, the 400th ranked wealth waterline mark was US$2.4 billion.

What does all this mean? Well, the overwhelming majority of humanity (6.86 billion out of 6.87 billion people) inhabit the lower half of my 8-rung ‘ladder’: the scuba divers, flatlanders, hill climbers, and mass affluent!

The top four rungs only have an estimated 10 million (0.01 billion) people! So the odds are overwhelmingly high (99.85%) that almost all readers of this FreeCoolArticle belong to the lower half of my ladder of wealth distribution. But that doesn't mean there aren't opportunities for mobility.

Do you want to 'go up in the world'? Then, my friend, make it your goal in the months and years ahead to focus on your personal finance issues. Build your wealth and eradicate the blight of bad forms of debt from your life. Then set a key life goal to climb at least one rung (preferably two or more) in the decades ahead as you strive to thrive.

(If you live in Malaysia AND believe you might require my help in the realm of financial planning and retirement planning, you're also welcome to learn more about me here.)

© Rajen Devadason