‘If there is any one secret of success, it lies in the ability to get the other person's point of view and see things from that person's angle as well as from your own’ Henry Ford
I remember arguing as a teenager with my mom about something, and she often would end our conversation with a phrase: ‘Well, if you’re so smart, why aren’t you rich yet?’ I never knew what to retort and gradually started thinking what makes the rich different from the rest. In fact, there is one thing that makes the former different from the latter. According to the recent report of the US Census Bureau, there is a rather strong correlation between income levels and education. For example, presumably:
• US high school graduates should make $1.2 mln.
• Bachelors - $2.1 mln.
• Masters - $2.5 mln.
• Doctors - $3.4 mln.
• Professionals - $4.4 mln.
The matter is that results of different research suggest that people that make most are not necessarily the richest…!?
How can real wealth be defined?
When identifying whether a person is really rich, their income AND expenses should be taken into account. For example, we usually have an idea that millionaires are people driving a Bentley and living in large houses. Thomas Stanley’s research suggests that the rich (people worth $10 mln or more) often match this description. However, most millionaires (people worth $1 mln or more) lead an absolutely different life. Dr. Stanley discovered that most millionaires:
• live in a house worth max. $400,000;
• own no other real estate;
• have never owned a yacht;
• prefer wearing cheaper brands to a Rolex;
• do not collect wines;
• drive Toyotas rather than BMWs;
• do not buy suits priced above $400;
• spend very little on luxury items with prestigious brands.
Of course, this is not a traditional image of the millionaire. You might be wondering who actually buys all these Mercedes, wallets from Louis Vuitton and vodka $200 per bottle. According to Dr. Stanley, this is done by the ‘pseudo-rich’, i.e. people who want to be and behave like the rich but in fact are not. Most of them are well-educated kind people, possibly bringing home six-digit salaries but in fact they inappropriately use their wealth because it is practically impossible to spend a lot of money and, at the same time, save up an impressive capital (saving or the ability to preserve is a key thing in investing).
In an attempt to keep up with the Joneses and Smiths
Many believe that the more you spend, the better your life is. Of course, we do not mean people that live beyond the poverty line (naturally, their life would be better if they could spend more). We mean the middle class and above, i.e. people who can afford to live beyond their means at first, but then ends up in a serious situation, particularly during an economic downturn. According to Dr. Stanley, the ‘pseudo-rich’ are concerned about their position in society. They are really convinced that financially well-off people buy expensive and prestigious things to demonstrate how successful they are to others. They also believe that people who do not buy prestigious brands are not successful. But real millionaires see the world differently. Most of them became rich not through a lottery or inheritance but as a result or arduous and consistent work, preservation of profits and minimization of expenses. Real millionaires are not extravagant. They understand that it isn’t the car they drive or the watch they wear that gives them real joy and satisfaction in life. It is the time they spend with their family and friends and the things that they do. On the other hand, they cannot be described as miserly when it comes to education of their children or grandchildren and charity. There is data that in late 2010 about 7% houses bought in the US were worth $1 mln or more! But none of the new owners of such expensive housing got a Grammy award, played in the NBA or set up a software company…
Obviously, thrift and modesty are still alive in many places of the country. And as long as millions of consumers blindly follow the ‘pseudo image of success’ by buying expensive stuff they sometimes cannot afford, thrifty investors continue enjoying their financial freedom and staying in a calm state of mind. They know that true success is not about buying, but about self-realization and independence. They can afford to do practically anything, anywhere and anytime they want. These people are not necessarily smarter than you. They simply know how to use their money, time and effort.
