Aug 01

I’ve been hearing the word millionaire more and more in the news and political discussions. According to Google Trends,  it’s just me, the word started to gain more attention in late 2008 as the move Slumdog Millionaire was released, but has been steady the past few years.

The Bare Naked Ladies (if you don’t know the band, they are neither) song If I had a Million Dollars released in 1992 still made a million sound like a lot, but the Black Eyed Peas got it right with their “I Want to be a Billionaire.” That’s the kind of money that gets you closer to being on the cover of Forbes. A million? Not so much. Is a million still enough to make you a millionaire or is $5 million the new million?

It really depends what dates you choose for comparison. The Inflation Calculator tells me that the same million when I was 10 years old, in 1972, is only worth $191K as of 2010 (the latest year you can enter in the calculator.) This means the same million I dreamed of as a 10 year old would take just over $5 million today to buy the same goods. A million may still be a nice chunk of change to accumulate, but more as a milestone than an end goal. When we talk about our Number, the amount we need to save to generate enough money to retire, we typically use 4% as a safe withdrawal rate. If that’s the case, a million dollars looks more like a lifetime stream of $40,000 per year. If you add social security to this figure, maybe from two earners, you might be closer to $60,000 which for most of us can actually provide a comfortable retirement. But to the 40 year old who hasn’t yet sent the kids to college, paid off the house, or decided what he wants to be when he grows up, that million isn’t the “quit your job and retire” that it used to be.

By the way, income and wealth are two different things. There are people making over $250K a year who burn through every last penny, and there are couples making under $100K, yet have savings well over a million dollars. When I hear the talking heads talk about the high earners as being millionaires, I think they’ve chosen the wrong words.

written by Joe \\ tags: , ,

Apr 02

Charles Dickens’ David Copperfield was first published in 1908*, and this quote is from that book:

Annual income twenty pounds, annual expenditure nineteen nineteen six,
result happiness. Annual income twenty pounds, annual expenditure
twenty pounds ought and six, result misery.

-Wilkins Micawber in Charles Dickens’ novel David Copperfield

I don’t know if Dr Thomas Stanley, author of Stop Acting Rich, is aware of this quote, but after read his latest book, I suspect he’d agree wholeheartedly with the sentiment.

If you are looking for investment advice, this is not the book for you. Dr Stanley does not offer stock tips or advice on retirement planning. He has spent the better part of the last three decades studying the habits and writing about millionaires. His conclusion is that “most people will never earn enough money to become wealthy and to be hyperconsumers at the same time.” Stop Acting Rich offers examples of how the millionaires Dr Stanley observed lived, and teaches us how to make the distinction between the Income Statement Affluent (IA) and the Balance Sheet Affluent (BA). We see how it’s easy for a doctor earning $250,000/yr to live a lifestyle that has every dollar spent and maybe then some, yet a teacher or engineer whose family income may be ‘just’ in the mid-$100K but living beneath their means, managing to save their way to wealth.

Through the book we are shown brand examples, Timex vs Rolex for the choice of watches for instance. Real millionaires tend to not waste their money on the thousand dollar watches, preferring Seiko or Timex. As a fan of statistics and data, I appreciated the depth of analysis showing the correlation between real wealth and living the glittering rich life with no assets to show for it. In fact, it’s often tough to tell just by looks what someone’s balance sheet looks like. Most rich folk do not own vacation homes, boats, or planes. I recall an interview with Warren Buffet, who trades off year to year for the spot of richest man in the US. Mr Buffet was asked about boats, and he said that he had no interest in them, that when you’re Warren Buffet, you get invited on other people’s boats enough that you can avoid the hassle of maintaining one. He said that he was happy to spend time with his friends in his living room watching the 46 inch plasma TV and eating sandwiches. No champagne, no caviar.

A fair amount of writing is given to the discussion of Grey Goose Vodka and how its purchase correlates to glittering rich. Grey Goose buyers tend to drive prestige makes of cars, wear Rolex watches, drink other high end spirits, and spend more dining out. So as I was reading about this, I checked out my pantry (I don’t have a liquor cabinet) and sure enough, Grey Goose. Last I recalled, we had a bottle of Absolut or Smirnoff in there. I asked my wife if someone brought it over and she told me that the last time her sister was over she asked her what her preferred vodka was. Two thoughts came to mind as I heard this. First, for the bottle that will likely last over a year, $15 or $50 won’t ruin our budget. Second, given the details about how there’s little difference in vodka as it’s known for its lack of taste, my dear sister in law fell for the advertising pitch, and my dear wife, trying to make her sister feel welcome in our home, threw away an extra $20 or $30 to do so.

I enjoyed this book as much as I did prior books in Dr Stanley’s Millionaire series. It helped validate my own choices in cars (Toyota, built in the USA, by the way) watches (Timex) and other purchasing decisions that help keep my family on a path toward a stronger balance sheet. If you’d like to understand what the rich really buy, and wear, and where they go to eat, take some time and read this book, you’ll be surprised.


*Note: One of my faithful readers, Elle, alerted me that the date was 1850. Thanks Elle, I fact check my finance data a bit better than this. I promise.

written by Joe \\ tags: , , , , ,