How do you know if you’re rich?
Do you take the wages of the entire world and plot your yearly wage on that continuum?
Viewed on this spectrum almost everyone in America is filthy rich.
Is it a question of how much money you make? Is it a question of your net worth?
I think the only logical answer to this question is an obvious one.
It is how close you are to financial independence.
In other words, it’s your savings percentage.
The savings percentage is powerful because it is predictive.
Simply knowing someone’s salary is not that predictive of future wealth.
Case in point, Compare these four individuals, which one is rich?
1. Rodney Seersucker.
Occupation: stockbroker.
Take home income: $375,000/year
Hobbies: shopping, golf, fast cars, cocaine.
Yearly spending: $385,000/year.
2. Thad Colgate:
Occupation: trust fund baby.
Take home income: $500,000 a year.
Hobbies: Wine collecting, polo, yachting, travel.
Yearly spending $500,000/year
3. Herman Krupski
Occupation: elementary school teacher.
Take Home income: $40,000/year
Hobbies: Guitar playing, mushroom hunting, gardening, ultimate frisbee, reading.
Yearly spending: $18,000 a year.
4. Joe Dakota
Occupation: NFL defensive end.
Take-home income: $14 million/year
Hobbies: Strip clubs, bling collecting, Gambling, investing in friends businesses.
Yearly spending: $14,000,000/year
If I were to rank these gents from richest to poorest it would be in this order.
1. Thad Colgate.
Although his spending is out of control relative to his income, Thad won the genetic lottery and was born into an incredibly rich family.
So his $500,000 a year, really represents the investment earnings on the $13 million Nest egg bequeathed to him by his stodgy pennypinching oil baron grandfather. So while he’s not getting richer, he’s not getting poorer either.
More importantly, the $13 million is forever out of his reach. He can not blow it.
In a sense Thad was retired the moment he was born.
Nice work if you can get it. But let’s face it, you can’t.
2. Herman Krupski.
Sure, he doesn’t look that cool Biking to the work in the rain on his Worn out Schwinn 10 speed.
And he lives with his wife and daughter in a 1000 square-foot garden apartment in a Connecticut suburb.
But good God, he is saving 55% of His take-home pay each year. And he is investing the rest in the stock market. Way to go Herman.
At this rate he should be financially independent 14.5 years after starting his job. Not bad.
And come to think of it, he’s in pretty good shape, and a smart dude, and a generally happy guy.
Seems like a good role model to me.
3. Rodney seersucker:
Although Rodney is on the fast track to bankruptcy, he’s got a couple things going for him.
Number one, he’s got a high-paying job, that he might be able to keep for a long, long, time.
Number two, he is a stockbroker! At some point he’s bound to realize how the market works and put all of his savings into a low-cost passive investing strategy.
He just needs a midlife crisis and to stumble onto the right blog. Once he gets his head straight, he can turn it all around pretty darn quickly.
He truly has a shot at going from zero to hero.
4. Joe Dakota.
Joe, you poor sap you.
If your concussion damaged brain allowed you to see straight, you would realize that you could spend $1 million a year, and still be financially independent in less than three years (Before your contract is up!)
Unfortunately, you’ve been coddled from a young age. You’ve been told you were special because you’re fast and strong. (And you are.)
But you never even learned basic math skills.
And you’re not intellectually curious.
And your career is bound to be a short one. This means you don’t have much time to turn it around.
And that’s why there’s a better than even chance you’ll be bankrupt five years after your short NFL career ends.
Even though your salary is astronomical, let’s face it, you are poor.
And this is truly how I see the world.
When I see one of my friends driving a new sports car, I worry about them. Can they really afford it?
And when I see them bringing a brown bag lunch to work filled with an apple and a turkey sandwich on whole wheat bread, I am jealous. They are so much more hard-core than me. (After all I just blew another seven dollars of my retirement money on a falafel lunch.)
I’m far from religious, and completely unchristian.
But I think this may have been what Jesus was driving at when he said “Blessed are the poor, for they shall inherit the earth.”
Wasn’t he talking about The powerful effect of a robust savings percentage on ones financial outlook? Does any other explanation really square with reality? (I don’t see a lot of poor people worrying about the estate tax, or eying the Nieman Marcus catalog.)
Jesus was, after all, a poor Jewish boy raised by a carpenter.
And you know what, so was I.
(Granted, this fact is irrelevant, ((especially to an agnostic like me)) but it is true.)
So there you have it. Wealth is a paradox. If you look rich you probably aren’t. And if you look like a schlub, you could be well on your way.
So may your shirts be ill fitting. (You’re welcome.)
