Surprising Info About “The Rich”
October 17, 2014I love facts that challenge the conventional wisdom. That’s why this article from US News & World Report was so enjoyable to read. The “8 Biggest Myths About The Rich” were all things that I’ve heard people say when making assumptions about people with means. Here’s my take on some of the myths and what I’ve seen in my career with investors most would call rich.
They all own homes. That’s what people expect because, well, it’s what people expect. In my career prior to Financial Finesse, I worked with many high net worth (HNW) investors who were not homeowners. The reason most cited for that was that they travel so much for work and for pleasure that it’s easier to have a small home base and simply rent places and have clothing shipped or use hotels for longer duration stays. The clients I talked to about this loved that they paid $0 in property taxes. The property tax bill alone for a “mansion” could easily pay for quite a number of nights in very nice hotel rooms.
The lesson for the rest of us: Maybe buying a home isn’t the right choice for everyone. Don’t feel compelled to buy a house just because everyone else thinks it’s important. Make sure it’s the right choice for you.
They are expert money managers. In order to have money, it makes sense that one would be able to manage it well. I’ve seen that to be false probably more times than it’s true with HNW clients. It’s that the sheer momentum of their assets or income streams can overpower very poor decision making.
But if asset values drop or income streams stop or slow down, it can get ugly very quickly. I’ve been in many meetings with a family and their accountant or attorney or other advisors where we had to paint a very bleak picture of what could happen if some new level of fiscal restraint were not implemented in the near term. It’s not fun telling someone that no matter how “rich” they think they are, they are on a collision course with “broke” if they don’t make some changes.
The lesson for the rest of us: We all need to pay attention to the basics. How much comes in each month? How much goes out? If you know these things, control your expenses and live below your means, you stand a great chance of being a better money manager than some of our wealthiest citizens.
They are big spenders. Sure, we see all the stories about celebrities and athletes who file for bankruptcy when they are in their late 20’s to late 30’s because they spent every dime (plus some!) that they earned. (I think it’s responsible for a lot of celebrity infomercials too, but that’s one guy’s opinion.) Contrary to the high spending lifestyle that we see in the media, the majority of wealthy people remain wealthy because they do what the rest of us should do: live within our means. One of my favorite stories about celebrities right now is from Keira Knightley. She lives on a $50,000/year budget while having a net worth of $50 million. Warren Buffett, the legendary investor worth BILLIONS of dollars still lives in the house he bought 50+ years ago for $31,500.
The lesson for the rest of us: Live within your means. Don’t spend more than you make. Work to get to a debt free lifestyle through reducing your spending and increasing your savings and debt paydown efforts. If you want to emulate the right behaviors of the wealthy, not being a big spender is one of the most important ones.
These are just a few of the myths about the wealthy that are discussed in the article. As you can see, not everything that we believe about the rich is based in fact. The truth is, if you develop excellent financial habits, you may never become one of America’s richest people but you could live a very comfortable lifestyle without a ton of financial stress.