How To Squeak By On $5 Million

Getty Images Would your financial worries be solved if you just had more money -- say, $1 million? Maybe. But according to a recent study by the folks at UBS (UBS), even millionaires -- multimillionaires, in fact -- fret over things like making ends meet and having enough to achieve their life goals. The news from Wealthville is rather surprising. Researchers found that only 31 percent of millionaires consider themselves wealthy. Even among those with $5 million or more, only 64 percent of them are confident that they'll meet their own goals. For anyone having a hard time making ends meet on their income -- no matter whether you're in the middle class or the upper class (or extreme upper, upper class) -- there are ways that you can improve your financial condition. Don't Let Your Cash Sit Around and Languish Whether you have $5,000 or $5 million in the bank, it's important to think sensibly about your cash. It makes sense to keep some of your assets in cash, especially in the form of an emergency fund. But according to the UBS study, at least 47 percent of those surveyed say that "It's important to me to have cash because that's money I know I am extremely unlikely to lose." Whoa, back up. That's dangerous thinking that shows these folks haven't considered the effect of inflation. While the conventional way to think of inflation is as an increase in prices over time, the smarter way to think about it is that inflation is the erosion of your purchasing power over time -- historically, about 3 percent annually. Here's what that means: If you sock away $1,000 for 20 years during which inflation averages 3 percent, it will end up only able to buy you $554 worth of things (in today's dollars). To have $1,000 worth of buying power in 20 years, you'll need to sock away about $1,800. (Play around with different scenarios with this inflation calculator.) So while nearly half of those surveyed see cash as a risk reducer (that preserves their wealth), they're actually exposing their money to even more risk (shrinking over time). The lesson for all is this: Don't keep much more than you need to in cash. Instead, seek out long-term wealth-growing assets. Smart Saving/Spending Strategies for All Walks of Life