Imagine if a federal law mandated that everyone’s finances must be transparent. In other words, we would all know each other’s assets and liabilities with just a click of a mouse. Of course, that would never happen, but if it did, I steadfastly argue that the way we spend and invest our money would change considerably.
Regrettably, as my good friends in Texas like to say,
“Too many folks are all hat but no cattle.” Said differently, these “pretenders” talk a big game but have nothing to show for it. On the other hand, there are the “invisible wealthy” individuals who have no fancy cars, no $5,000 watch, and no McMansion. I suggest that these “undetectable” wealthy people are truly the most financially savvy. They prefer to fly under the radar by making no ostentatious display of wealth, as they prefer to remain anonymously wealthy rather than deceptively poor. In contrast, the deceivers parade a remarkable display of wealth and happiness while often living paycheck to paycheck. These charlatans take great pride in wanting everyone to know what they have accomplished, to the point of making dangerous financial decisions.
A fascinating book in my library is The Millionaire Next Door. An executive summary of the paperback might align with one of my favorite quotes from author Dave Ramsey, “People buy things they do not need with money they do not have to impress people that they do not like, or even know”. Said another way, too many of us spend an excessive amount of money on things that do not matter while spending too little on things that do. To underscore Ramsey’s notion, check out the following tidbits that Stanley uncovered from his 20 years of research on the wealthy:
• People who are not millionaires drive 86% of luxury car sales.
• Millionaires pay about $16 (including tip) for a haircut.
• Nearly 40% of millionaires buy wine that costs about $10.
• Fifteen percent of “homeowners” with outstanding mortgage balances of $4 million or more are at least 90 days overdue with their payments.
This is how I see it: excessive consumption is a disease akin to addiction. We live in a society of “overextension”, which means that too many of us choose to live better today at the expense of our tomorrows. I refer to this phenomenon as the pain of discipline vs. the pain of regret. As famed American entrepreneur, author, and motivational speaker, Jim Rohn said, “The difference is discipline weighs ounces while regret weighs tons.” To emphasize this point, Stanley adamantly argues that we must buy smaller homes and own older cars if we genuinely want to be among the invisibly wealthy. Otherwise, we will likely become members of the UAW (under accumulator of wealth) club! A common characteristic of the organization’s members is their excessive use of debt. Look at it this way; do you know anyone who got into big financial trouble because they did not borrow enough money? What about vice versa? Nuff said!
There is arguably no better feeling than having financial freedom, which is being debt free. It is easy to get there if we are diligent, make smart financial decisions, and defer gratification. Like most things in life, it is all about moderation. I am not suggesting that we all become a recluse miser hoarding all of our money while sacrificing many of life’s pleasures. However, what I am proposing is that we need to find a reasonable balance between consumption and building wealth so that that we do not succumb to the enormous pain of regret. Perhaps a good rule of thumb to keep us moving in the right direction is to use Stanley’s Wealth Equation (.10 x age x income = expected net worth). For example, if a 50-year-old individual earns $250,000 a year (.10 x 50 x 250,000) he/she should have a net worth of at least $1,250,000. For many of us the results are a wake-up call and for others, it is a comforting feeling. The bottom line is that I learned a long time ago that the grass is indeed greener on the other side of the fence, but there is an excellent chance that a pretender painted it!
Harry Pappas Jr., CFP®
Managing Director-Investments, Certified Estate and Trust Specialist™, Certified Divorce Financial Analyst®
Pappas Wealth Management Group of Wells Fargo Advisors, 818 A1A N, Ste. 200, Ponte Vedra, Florida 32082
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