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 needed to make some changes. 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? Don’t laugh.
It was a serious problem. It was also a complex wealth problem because none of the things he needed to sell was likely to find generous buyers at the time. He was wondering if he could 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%.
That was when I had an epiphany.
And that’s what the Burns family had, and still has. Although our net worth and income is only a small fraction of what the man of complex wealth had, we can 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.
Simple wealth is better. It’s about ease. It’s about comfort. And it’s about a sublime sense of confidence.
Simple wealth is also easier to achieve. You don’t have to be in the top 1% to have simple wealth. You can be far lower on the official wealth pyramid.
If you visit the dqydj.com website, for instance, you’ll find that being in the top 1% of wealth requires about $10 million in financial assets. That excludes your home equity. That’s a pretty intimidating number. By definition, few families have a net worth close to that.
Complex wealth is pretty easy to recognize. It’s someone who has enjoyed financial success and has surrounded himself or herself 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 it will pay 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, families with complex wealth are only a few weeks or months of bad financial weather away from a train wreck.
You avoid the train wreck by seeking simple wealth.
Follow these steps
How do you achieve simple wealth? Here’s my list of the major steps to getting there.
• 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.
It’s simple. But hard – and worth it.