Hello everybody, it's Sam from Financial Samurai and in this episode I want to talk about happiness and I want to debate happiness and I want to come up with a ratio that could tell you whether you should be happy or not and how much wealth you really do need to be happy.

So every so often a new idea hits me like a charging baby rhino for its next meal. I then stew on the idea for a while to make sure it's logical before publishing my thoughts. What if we could measure the financial satisfaction of various city residents? What if we could also identify how big of a minimum net worth is needed to feel truly wealthy?

And what if we could measure our current greed levels? Well, I figured it out. I've come up with the Financial Samurai Wealth Reality Ratio and the ratio is simply the minimum net worth required to feel wealthy divided by the median home price of your city. The higher the wealth reality ratio, the less satisfied you are and vice versa.

Given we can find the objective value of the denominator, which is the median home price of your city, we can discover our personal satisfaction or determine a net worth target that'll make us feel rich. So how did I come up with this brilliant, obviously logical ratio? Well, it first hit me when I saw Schwab's annual modern wealth survey.

And every year they survey hundreds of residents from the 12 largest cities in America how much they think is required to feel wealthy. What is the minimum net worth required to feel wealthy? And to be clear, Schwab wasn't surveying people who were already wealthy, who already had the minimum net worth required to feel wealthy.

They were surveying the average person who lives in that city. So I saw the survey results and the numbers range from a minimum of around 2.5 million to feel wealthy in Chicago to 5.1 million to feel wealthy in San Francisco. Now, intuitively, you would think, well, okay, it makes sense that you need more wealth, a bigger net worth in San Francisco to feel wealthy versus a bigger net worth in Chicago or Dallas or Houston.

However, it's important to think about ratios and percentages, not so much absolute dollar amounts. When you're trying to figure out wealth or relative wealth, or outperformance or underperformance, too many people get hung up on the absolute dollar figures. And as a result, it just kind of short circuits their brain a little bit where they're like, wow, you need $300,000 to feel middle class in a big city or $5 million to feel wealthy in San Francisco.

Oh my gosh, that's so ridiculous. But is it really ridiculous? It's not so much ridiculous if you look at the cost of living of an area. And so I came up with the median home price as a denominator, not so much to reflect what type of house will make you feel wealthy.

But the median home price of your city reflects economic opportunity. And what do I mean by economic opportunity? Well, that's the ability to get paid and promoted. If there is greater economic opportunity, you are seeing companies hire more people, pay people better, you're seeing more companies come to your city.

And as a result, the median home price will increase. Now if you have a low median home price city, you should think well, maybe the economic opportunity is not that great. For example, the median home price in Charleston, West Virginia is $151,330 in 2022, according to Zillow. Now the reason why it's so low is because the job market growth is not as strong as let's say in New York City, where the median home price is $767,000.

So let's think about the ratio a little bit more. Again, the minimum net worth required to feel wealthy divided by the median home price of your city. Logically, the more money you aspire to have, the harder you will likely need to work, the more time you will likely need to spend, and the more risks you will likely have to take to achieve your net worth target.

And if your target is too high, in other words, if you are super greedy or a little bit delusional or whatnot, there's a great chance that you might not ever get to that minimum net worth target. And what will happen as a result? You will feel frustrated, you will feel a little annoyed, miserable.

And that's probably gonna bum you out, right? Conversely, if you can be satisfied with little more than a comfortable place to live, a t-shirt, you know, a burger a day from McDonald's, then you are more easily satisfied with your finances. So in order to get rich, you can work harder, take more risks to try to make more money and build your net worth, or you can want less.

We know this. And the Buddha teaches us that desire is the cause of all suffering. I truly believe this. I wrote an article recently talking about my real estate FOMO because I found an amazing house on a huge lot. And I imagine my kids running around and having a great time.

But I had just bought my current home a couple years ago in 2020. So I was thinking to myself, wow, I desire this. So now I'm thinking I have to go through, let's say, 30 days to 60 days of rigorous underwriting with the bank to try to get funding.

I've got to figure out, you know, what new furniture to buy and what curtain shades to buy. And then I've got to go through and transfer money and sell this and move my family and pack my bags. I mean, that's a lot of work to because I desire something I really don't need.

And I got to thinking, well, gosh, this is so sad, because I remember feeling this real estate FOMO in April 2020. When I was coming to my current house to visit during the private open house showings, I was imagining my kids running around, sitting on the deck, having a glass of wine, looking at the sunset.

And I just thought, wow, this house would be so amazing to raise a family. And yet here I am, two years later, desiring some other house. And it's such a shame that I can't maintain satisfaction. I'm trying. And I think all of us try to some extent. But it's sad that we always are wanting a little bit more.

So let's go back to the wealth reality ratio, which is the minimum net worth required to feel wealthy divided by the median home price. I've ranked the cities, the top 12 cities in a chart. And I've got the most financially satisfied cities with the lowest lowest wealth reality ratio to the least financially satisfied cities with the highest wealth reality ratio.

And they are San Francisco, Seattle, Denver at three, Boston, LA, San Diego at five, New York City, Washington, DC, Phoenix at eight, Atlanta, Chicago, Dallas, Houston at 12. So San Francisco residents are the most financially satisfied. And Houston City residents are the least financially satisfied. And you could say happiest and least happy.

But this is quite subjective. Now before residents of Phoenix, Atlanta, Chicago, Dallas and Houston get all apoplectic and angry about my chart. This is all relative, folks. We live in America, the best country in the world, with the most amount of freedom with the least corrupt government with the best infrastructure.

And so if you are ranked the least happiest city or the least financially satisfied city in America, that's kind of like, you know, going to the buffet and maybe you know, the crab legs are missing and you can just eat roast beef, or, you know, scallops or whatever, you know, it's still pretty good, folks.

So just don't get bent out of shape about the ranking so much. I just want you to think about how much wealth you really, really need to be happy. So here in San Francisco, with a median home price of $1.7 million, residents only need a net worth minimum of three times greater than the median home price or 5.1 million to feel wealthy.

Now, if you're in Houston, the median home price is $267,000. And the survey respondents said they needed $2.6 million. That's 10 times greater 9.7 to be exact, to feel wealthy. Why do you need 10 times greater net worth than the median home price of your city to feel wealthy?

Once you have a normal place to live, okay, let's say you go 4x the median to $1 million. You've got a fat pad in Houston, it's just massive, lots of land, pool, playground slides, tennis court, whatever it is, okay, maybe you have to spend more than a million. But do you really need 1.6 million extra to feel wealthy, even though you already have a baller pad that's four times more than the median home price?

I don't know, it's subjective. I would say no. I would say you can get a great house for $600,000, $700,000 in Houston, and you have $2 million. That's more than enough. I would think 1 million, 1.5 million is more than enough. I think if your wealth reality ratio is between 2 and 5, you're financially satisfied with the opportunities you have.

As your ratio reaches a 10, you become less and less satisfied because you're longing for way more than you need. The cost of living is low, so why do you need so much more to be wealthy? You don't. And despite my logic, I got some wonderful disagreements from readers.

To no surprise, those who disagreed with my ratio don't hail from the happier cities or the more financially satisfied cities. And the one who did disagree with me and who does live in San Francisco wants to move out to afford a nicer home. He mentioned San Francisco felt like one big rat race to him, but I warned him that the rat race is probably more intense in cities whose residents feel they need 10x more than the median price of a home of their city than just 3x.

But he believes the grass is greener on the other side, so I hope he does move and will one day report back whether relocating to save money was worth it. So the cool thing about the financial samurai wealth reality ratio is that it can help you understand yourself. Wherever you want to go, also, it can help you figure out how much net worth is required to feel wealthy.

For example, one reader asked, "How would I use the wealth reality ratio to help ascertain how much wealth I need to feel wealthy in Honolulu, Hawaii?" Well, it's quite easy. So the median home price in Hawaii is about $890,000, very similar in Honolulu. All you would have to do is multiply by the multiple range of other comparable cities.

So the range in my chart is 3x to 10x for the 12 largest cities in America. Therefore, Hawaiian residents would need between $2.67 million to $8.89 million to feel wealthy. However, given Hawaii is the best place on earth, anybody who's been there will agree. One could argue a multiple of three at the most works very well.

Hawaii weather is amazing, the beaches and mountains are free. Overall, Hawaiian residents live longer and are less dressed and are more healthy. So you could say three is the max. So if three is the max multiple, you would take the median home price in Hawaii or Honolulu, if that's where you want to live, and you'd get $2.67 million to feel wealthy, right?

But a wealth reality ratio of two, equaling $1.78 million, is probably plenty if you're living in paradise. The nicer the area the city you're living in, the less money you need to feel wealthy to feel happy. So this is one useful way to help anybody thinking about relocating somewhere, how much net worth is required to feel wealthy.

Now you can use the financial samurai wealth reality ratio, determine your own financial satisfaction, right? Let's say I'm a little delusional and I think I need 50 million to feel wealthy, even though I live in a $1 million house and spend less than $200,000 a year. My wealth reality ratio would equal 50.

Now clearly I think that's way too high. I'm never likely going to be satisfied with my wealth because I'm probably never going to get to 50 million when the median home price of my city is 1 million. So instead, I should probably shoot for a minimum net worth of between 6 to 10 million, because 6 to 10 million is equal to a wealth reality ratio of 6 to 10.

And if I already have a minimum net worth of between 6 to 10 million, then I need to learn to be more appreciative of what I have. I think if you have a wealth reality ratio of between 1 to 3, you are extremely satisfied financially. Between 3.1 to 6 means you are satisfied financially, between 6.1 to 10 means you are slightly dissatisfied with your finances, between 10 to 20 means you are dissatisfied with your finances, and with a wealth reality ratio over 20, it means you are highly dissatisfied with your finances or you're delusional or it's a combination of both.

And here's another interesting use of the wealth reality ratio. As an investor, you might identify a city such as Honolulu and say, "I love Honolulu. I require a low wealth reality ratio to be happy, but I want to maximize the returns on my capital. So what should I do?

Maybe I should look at investing in the least financially satisfied cities." And those cities again are Houston, Dallas, Chicago, Atlanta, Phoenix, a little bit Washington DC, not so much, because these residents are desiring more wealth. They have the fire and the desire to hustle for 10x more wealth to feel happy.

And so that might mean that they're going to work harder, be more innovative, more companies are going to come, and there's going to be better job growth and more wealth creation. It's kind of like being a hiring manager. You want to hire the hungriest person who's going to work the hardest to generate the most amount of profits and revenue for your company.

You're not going to want to hire the one who's really easily satisfied and just shipping it in, not coming into the office, logging off exactly at 5pm or whatever it is. You want that hunger. So you want to invest in the least satisfied people because they're the hungriest to want to build more wealth.

So something to think about folks. And the final point I want to make about this exercise is to encourage all of you to think in derivatives. Don't just look at, oh okay, those are the survey results of how much you need to feel wealthy, and you look at it in a vacuum.

No, you want to look at it across various data points. This country is large with different levels of cost of living, and you want to think about how you can come to different conclusions based on the data you have. If you can practice looking at data and coming to different conclusions, you can also approach problems and find better solutions.

This is the Financial Samurai Way and the Financial Samurai Mindset. I hope you enjoyed this episode. I'd love a positive review and share it, subscribe. And my book is coming out soon and I can't wait. This is the mindset that I've used to write "Buy This, Not That." So check it out at financialsamurai.com/btnt.

I hope you can pick up a hard copy too because the hard copy has all the beautiful art and the charts. Shout out to the artist Kaleem Kong Savage. And also shout out to the Pomeroy Recreation and Rehabilitation Center to help children and adults with disabilities live their best lives.

They are starting an amazing inclusive daycare center where one-third of the children will have disabilities, one-third will come from lower income households. And they have found that the sooner we are exposed to people with differences, beautiful differences, special differences, the more accepting, empathetic, and inclusive we will be as adults.

Roughly 15% of the world's population has some sort of disability, ranging from mild to very severe. So I think this is the minority group that we need to fight most for. I'm proud to be donating $5,000 of the book royalties to the Pomeroy Recreation and Rehabilitation Center to help develop this inclusive daycare.

And I want to thank you for supporting the book and everything that I've been doing. It's been a long journey but we are finally here and I can't wait for the book to come out on July 19th. Thanks so much!