How much money do you need to be happy? Struggling to find the sweet spot

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The Swedes and Norwegians have a word in their languages called lagom, loosely translated as “just right” or “in moderation.” It denotes a state of balance, which could easily refer to the oft-lauded social and economic equality that’s come to define much of Scandinavian life.

Perhaps it explains why the five Nordic countries — Sweden, Norway, Finland, Denmark and Iceland — have since 2013 ranked in the top 10 of the World Happiness Report’s listing of the most contented countries across the globe.

But when it’s applied to the personal balance sheets of Canada’s wealthiest families, how much wealth is lagom to be happy? It’s a complex — and very common — discussion that family offices have with their high-net-worth clients.

The latter often struggle to determine the dollar amount they need to gain financial security and achieve their long-term lifestyle goals.

“There’s no right or wrong, one-size-fits-all answer,” Greg Moore, a partner at Montreal-based family office Richter LLP, says of a methodology the affluent can use to determine how much wealth is enough. A family with a $100 million fortune, for example, can often thrive on the investment returns of a fraction of their portfolio without worrying that they might deplete their savings.

Investment projections based on reasonable market assumptions and an analysis of both lifetime and legacy funding requirements (in other words, the inheritance they hope to leave to their children) can be used to determine the necessary cash flow to fund annual expenses. That figure will vary widely, of course. Some families will be satisfied living on a healthy, but not extravagant, income, while others might prefer to jet-set and live large.

Many will say, ‘I want to make so much money that I never have to fight over or worry about it.’

Maggie Baker, financial therapist

Simply modelling a 40-per-cent drop in the equities market with no recovery, then analyzing whether an individual could meet his or her consumption goals, can be enough to determine the cash flow needed to generate each year to meet their lifestyle aspirations and not run out.

“[With wealthy families] it’s usually not a conversation around burn rate and running out of money,” Moore notes. “They have enough to sustain their lifestyle, so what are the tertiary objectives around legacy issues?”

Indeed, Moore says it’s a question that tends to surface when wealth builders consider the mark they hope to make on their family and community — and when mounting wealth presents greater challenges and complexity. Managing a fortune, as the affluent often come to realize, can be as time-consuming as it is liberating. It takes careful governance and stewardship as it grows and eventually passes from one generation to the next.

Do you make more than $80,000?

“My experience with families is there’s always an element of aspiration somewhere,” Moore adds. “Not a single wealthy family that I’ve worked with has said, ‘I have enough, I don’t need any more.’”

It’s fair to say that when familial coffers fill, the freedom to live life on their terms only grows. And the old saying that money doesn’t buy you happiness? Let’s just say it may be overstated.

For example, a 2021 University of Pennsylvania study found that well-being does increase with a rise in income beyond $80,000. Those findings contradict previous (and oft-quoted) research, which suggested that happiness peaks at an income of about $75,000.

A 2018 Globe and Mail survey found a direct correlation between income and contentment, with nearly 80 per cent of respondents who earned more than $150,000 annually reporting they were very happy. The number was 57 per cent for those earning less than $50,000.

When wealth becomes multi-generational, the focus typically shifts to how a fortune could impact children and grandchildren, Moore says, not to mention how wealth builders can lay the foundation to help the next generation create their own fortunes.

Think of the children

Maggie Baker, a financial therapist based in Philadelphia and the author of Crazy About Money: How Emotions Confuse Our Money Choices and What To Do About It, says the discussion about how wealth will impact children tends to be a defining one. It is far more common than a worry of how much wealth needs to be accumulated, even if affluent families never stop working to increase their net worth.

“People tend to look up, want more money and strive to get it,” she says. “In a sense, it can never be enough because there’s always someone who has more. What brings up the notion of whether [their wealth] will be sufficient is what happens with the children. The fear of not having enough lights up when they think about their kids.”

Baker says family history will often skew the perception of how much money is sufficient. Perhaps wealth builders came from poor families and worry about running out, or saw family members build and squander fortunes, perhaps through multiple divorces or failed businesses.

“Many will say, ‘I want to make so much money that I never have to fight over or worry about it,’” according to Baker. “They grow up, make millions of dollars and still worry that it may never be enough, that it might disappear or they might still fight with their family about it.”

Asset appreciation rarely cited

Tom McCullough, chairman and CEO of Northwood Family Office in Toronto, says wealthy families that work to define their shared values and discuss how their goals align (or differ) and what they hope to achieve together have an easier time finding a sense of balance and better managing their wealth.

Finding out what lagom means to them is often a matter of figuring out what opportunity their money affords and how they can put it to work in the most productive ways possible.

When he asks high-net-worth clients to explain the best things they’ve done for themselves or their families in recent memory, for example, asset appreciation rarely comes up. They tend to focus instead on how they’ve made purposeful use of their time — whether it’s giving back through philanthropy, using their funds to build a successful business (perhaps several) or enjoying time with their family.

“I think it’s great when families can go through that process and figure out what money means and what drives them,” McCullough explains.

“Ultimately, money is just a tool to do what’s most important to you.”

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• Hiring the right kind of savvy can maximize sale of a business
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