The Definition of Wealthy: Living Small

- Guest Post By James Berman, author of Lessons from the Lemonade Stand: A Common Sense Primer on Investing

Over my years as an investment adviser, I’ve had several clients ask me “Am I wealthy?” as if I can provide an answer somehow they themselves could not. Like the psychoanalyst — and no doubt to my clients’ extreme annoyance — I ask them in return: “Do you feel wealthy?”
They rarely do. And that goes for the clients with half a million, five times that much and 20 times.

Beyond money for basic needs, wealth remains more a psychological construct than a factor of dollars and cents. And a comparative one at that. As the old saying goes, you’re “rich” if you make more money than your brother-in-law. The categorization of the 1 percent is a grand effort at comparison. Aside from the political rhetoric, who hasn’t thought about what percentile they inhabit?

The deeply ingrained and evolutionarily hardwired need to compare ourselves to others and strive to eclipse them is at root a healthy instinct. When it morphs into bitter envy or reckless acquisition, it stops being good for the pocketbook or soul. As billionaire and Warren Buffett-partner Charlie Munger says: “Out of the seven deadly sins, envy is the only one that you will never have any fun with.”

Catch-22 author Joseph Heller was reportedly once talking to Kurt Vonnegut at a Shelter Island cocktail party. Vonnegut pointed to the mogul who was hosting the lavish event at his summer compound and asked Heller if it didn’t bother him that the guy made more in a single day than he had made in a lifetime on his hit novel Catch-22? Heller replied: “I have something he’ll never have. Enough.” Whether or not that was just an author’s disingenuous and clever turn of phrase (and Heller was actually supremely irked as most humans would be), there’s a merit in knowing when enough is enough. As the Buddhists say, contentment is the greatest wealth.

When people are consumed by envy, they make bad investors. I see it every day. The obsessive need to make more than others can lead to excessive risk-taking, over-leveraging and poor judgment. The desire to make more quickly can induce people to trade frenetically and gamble fruitlessly, forsaking the only reliable method of making money on their capital: investing it patiently for long-term growth. Most people should align their assets to make a decent risk-adjusted real return above and beyond the inflation rate, not swing for the fences and strike out in a feverish effort to get ahead. If an investment adviser or broker ever tells you they will make you rich, walk the other way. The most any responsible adviser can do (or at least offer to do, even if they eventually exceed these expectations) is grow your money slowly over time.

A key to acquiring wealth is preventing living standards from rising along with income. Those who let their needs swell commensurately with their wallet never feel rich. They become trapped by the trappings. Fancy vacations, multiple homes, boats and other toys, all become perceived needs. As soon as they become needs, they become traitors and quislings, eventually stealing the very happiness they once engendered. The most extreme practitioner of living small as the money grows is Warren Buffett himself, who still lives in the same house he bought in 1957.

My favorite, usable definition of wealth is having one more dollar per day than you actually need, earned through work you enjoy. And an eventual retirement unfettered by financial cares. Or by envy.

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Genre – Business & Investing 

Rating – PG

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