How to Live Rich

by David Munn, CFP

A few years ago a blog post by Todd Henderson, a corporate law professor at the University of Chicago and a neighbor of President Obama, had many people questioning, “What is rich?”.

In response to Obama’s plans to raise taxes for those making over $250,000, Henderson, who admits to being in that group, wrote, “A quick look at our family budget, which I will gladly share with the White House, will show him that, like many Americans, we are just getting by despite seeming to be rich. We aren’t.”

As a financial planner who has worked with quite a few individuals in that tax bracket, I don’t have any doubt Henderson is telling the truth.  In fact, I’ve seen couples in their 50’s earning more than $400,000 with cash flow problems.  And we’ve all heard of millionaire celebrities who ultimately ended up broke.

Most people, at one point or another, struggle financially.  They deal with constant anxiety and frequently no end is in sight. There never seems to be enough money to satisfy all our needs and desires.  And so often it seems if we could just have a little bit more income, then we would be comfortable. 

But that’s not always the case.  Regardless of your income, more than likely there are people earning less than you who are more comfortable financially and people earning more than you who are less comfortable.  If you want to break out of your financial funk, you should forget about income and focus instead on factors that actually make a difference.

First, change your mindset by considering the following:  Recognize that money is ruling your life and that’s not the way it should be or needs to be.  Stop worrying about keeping up with your neighbors or appearing to be wealthy and start planning and prioritizing.  What are your goals? What are your values?  Specifically identify what you want to achieve and the life you want to live.  Then figure out what it will take to get there.

When you have a plan and appropriate advisors in place, you can stop making bad financial decisions.  Your spending decisions will most likely align with your objectives

Secondly, get out of debt.  The biggest obstacles I see between individuals and the financial freedom they crave are swollen mortgages, never-ending car loans and credit cards.  All three, with limited exceptions, are the result of attempting to live beyond one’s means.  And more income would not solve the problem, because most probably would use it to buy a bigger house, nicer car, or start shopping for real estate on the coast.  These are lifestyle decisions, but rather than resulting in happiness, they typically end up draining your life and style because of the anxiety and oppression they bring.  With large debt obligations, your options are limited.

There is a perception that it is better to purchase a dream home or car early in life--financed with a mound of debt—in order to start building equity.  But the numbers (which you may have heard don’t lie) tell a different story.  Financially—and emotionally, in most cases— the best route to purchasing your dream item is to start small and build equity quickly either by paying down debt or investing, then upgrading when you are in a more comfortable situation.  This works because of the third key:

Strive to own the company, not the product; be the lender, not the borrower.  There is a verse in the book of Proverbs that says, “Just as the rich rule over the poor, so the borrower is servant to the lender.”  Unfortunately, far too many people have learned this lesson through foreclosure or bankruptcy.  Borrowing is not a position of power and it’s generally not an effective way to build wealth either.  Why is the bank lending you money in the first place?  Because they are profiting off you. 

Investing, either through buying companies (stock) or lending money (bonds), is simply making your money work for you.  The alternative is you continue to work for your money and your money works for someone else. 


Disclosures:This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.These materials are not intended as any form of substitute for individualized investment advice.The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.Munn Wealth Management can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein. These materials contain references to hypothetical case studies.These are presented for the purpose of demonstrating a concept or idea, and not intended to be interpreted as representing any specific person.Such representations are not intended to substitute for individual investment advice, even if the case study appears to have similar characteristics.1323DDJ