Many years ago, back in the financial crisis, I listened to a heart-rending story from a wealthy man. With the decline in his net worth, he told me, he had to make some changes. For instance, should he sell his Aspen house or his California beach house? He was definitely going to keep his house in Texas. And what about the jet he had for going between the houses?
Not a Laughing Matter
Don’t laugh.
It was a serious problem. It was also a complex wealth problem because none of the things he needed to sell were likely to find generous buyers at the time. He was wondering if there were some way to squeeze more income out of his substantial financial assets. That way, he might defer selling his expensive stuff.
No, I told him, he couldn’t do that without big new risks. There was no magic bullet, even though he was easily a member of the top 1 percent.
My Grand Epipany
That was when I had an epiphany.
Trust me, epiphanies are not part of my daily life. But I suddenly realized that there were two kinds of wealth. There was Complex Wealth, which is what he had. And there was Simple Wealth.
And that’s what the Burns family had, and still has. Although our net worth and income were only a small fraction of what the man of Complex Wealth had, we could easily meet our goals, give generously to charity and be helpful to our adult children. Our income exceeds our spending. Debt is not a concern because we no longer have any.
Don’t get me wrong. This epiphany was not about feeling superior or smug. It was just a brilliant light going on. Wealth is not what we think. It’s not what’s advertised. It’s not the TV image.
Defining Simple Wealth
Simple Wealth is better. It’s about ease. It’s about comfort. It’s about a sublime sense of confidence.
Equally important, Simple Wealth is easier to achieve. You don’t have to be in the top 1 percent to have Simple Wealth. You can be far lower on the official wealth pyramid.
If you visit the www.dqydj.com website, for instance, you’ll find that being in the top 1 percent of wealth now requires about $10 million in financial assets. That excludes your home equity. That’s a pretty intimidating number. By definition, very few families ever have a net worth close to that.
Spotting Complex Wealth
Complex Wealth is pretty easy to recognize. Someone has enjoyed financial success and has surrounded himself – or herself — and family with all the things that announce success. That would include multiple large homes in fashionable places, an abundance of luxury cars, huge but seldom-used kitchens, a boat or an airplane, etc. If you have any doubt, just check out sources like the Robb Report, Town and Country, Architectural Digest, or the latest Sotheby’s luxury home catalog.
It would also include Complex Spending. High Complex Spending. Most likely, an abundance of debt would be attached. The debt is taken on because (1) next year is always going to be better and (2) Complex Wealth always believes it can earn much more on its investments than will be paid in interest.
From the outside, Complex Wealth almost always looks solid and secure. But it isn’t. While it accumulates assets, it may be accumulating debt and spending faster. That’s what makes it vulnerable.
Just as millions of working families are only a paycheck away from disaster, Complex Wealth is only a few weeks or months of bad financial weather away from its train wreck.
Finding the Simple Wealth Gravy Train
You avoid the train wreck by seeking Simple Wealth.
How do you achieve Simple Wealth?
It’s simple. But hard.
Here’s my list of the major steps to Simple Wealth.
— Spend less than you earn.
— Put your savings into assets that earn, not personal assets or status assets.
— Don’t let anyone convince you that stuff – any stuff – is an “investment.” It isn’t. It will be worth pennies on the dollar in resale value.
— Avoid what some have called “the hedonic treadmill,” the constant upgrading of each and every possible consumer item you purchase.
— Learn to enjoy having ready money, what poet Lord Byron called “Aladdin’s Lamp.”
— Set a goal of having a generous surplus income when you retire.
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Related columns:
Scott Burns, “The 2020 Wealth Scoreboard and Social Security,” 10/31/2020 https://scottburns.com/the-2020-wealth-scoreboard-and-social-security/
Scott Burns, “The Simplicity Manifesto,” 3/31/2019 https://scottburns.com/the-simplicity-manifesto/
Scott Burns, “Our Wealth Scoreboard,” 8/12/2018 https://scottburns.com/wealth-scoreboard/
Scott Burns, “The Minion Measure,” 11/20/2018 https://scottburns.com/wealth-the-minion-measure/
Sources and References:
PK, “Net Worth Percentile Calculator for the United States,” https://dqydj.com/net-worth-percentile-calculator-united-states/
PK, “Income percentile by Age Calculator for the United States,” https://dqydj.com/income-percentile-by-age-calculator/
PK, “Household Income Percentile Calculator for the United States in 2020,” https://dqydj.com/household-income-percentile-calculator/
PK, “Income percentile by State Calculator for the 2020,” https://dqydj.com/income-percentile-by-state-calculator/
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Scott Burns, Ranch entrance near Pedernales Falls State Park
(c) Scott Burns, 2021
2 thoughts on “Simple Wealth”
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I simply cannot believe that every 100th household in America has a net worth of $11M.
That utterly contrary to everything I see and experience.
If you spend some time with the DQYDJ data, putting in different net worth amounts, you’ll find that net worth is a massively exponential curve. A net worth, including home equity, of $2 million is at the 93.5 percentile. Drop to $1 million and you’re at the 88th percentile. $250,000 is at the 65th percentile.
And what you see depends very much on where you are.