As featured in The Wall Street Journal, Money Magazine, and more!

Wealth and Affluence

There was once a time when the word “millionaire” carried cachet. According to the Oxford English Dictionary, the word was first used in French in the early eighteenth century and in English nearly a century later. Regardless of your station in French society in 1719, achieving a net worth of one million livres was notable.

The same would be true for one million U.S. dollars a century later. Only a small percentage of society could be listed within a roster of millionaires.

Millionaires are easier to find today. Inflation and the erosion of the dollar’s value — continuously, over the course of multiple decades — has put the goal of acquiring a million dollars within reach for more Americans. Of course, the club is no longer the exclusive party it once was. When the term became popular, the millionaires were most likely the heads of multi-national corporations. These are the same folks who are most likely to be multi-billionaires today.

Of course, a million dollars is still an admirable financial target. (I say “target” because I’m hesitant to call any financial milestone a goal. Goals are related to why one might set a financial target, not the target itself.) Outside of real estate equity, though, most households won’t have assets worth one million dollars.

It Isn’t Worth What It Once Was

This next part may sound odd, especially considering this is a country where 50 million people are living in poverty, according to the U.S. census. However, a net worth of one million dollars isn’t really a demarcation line between the rich and the not-rich.

Retiring with a net worth of one million dollars in investable assets might allow you to withdraw $50,000 a year for 20 years using the simplest calculation. That’s fine, except that an annual income of $50,000 while living in the United States would probably not provide the lavish lifestyle historically associated with the idea of the millionaire.

If you want to live the life of the upper class, you’ll need a net worth well north of one million dollars. That way, you can generate an annual income of six or seven digits.

Related: How Much Do You Really Need to Retire?

Millionaire Mystique

Yet the concept of the millionaire still carries some mystique. The success of the book The Millionaire Next Door by Thomas J. Stanley and William D. Danko is evidence of this.

The 2010 edition of book is ranked #1 in wealth management by Amazon, even today. The book’s subtitle is “The Surprising Secrets of America’s Wealthy,” which is interesting. The authors didn’t seek out the “wealthy” for their advice and tips for this book. They interviewed mere millionaires.

The premise is that today’s millionaires achieve their status by living below their means, spending less than they earn, and making financial choices that weigh future possibilities against today’s media-driven desires.

The authors show that the neighbor with an old car still running well is more likely to be financially secure than the neighbor whose fancy car requires unaffordable lease payments. People become millionaires by owning small businesses rather than working for a large corporation in middle management.

There is nothing wrong with this advice. It may inspire some readers to get started making better financial choices. However, it won’t lead to “wealth,” as represented by the socially-inherited concept of the millionaire. If we want the best advice for creating a lifestyle in which money is no longer a concern and the fulfillment of desires is not limited by wealth, ignore the millionaires and look to the multi-billionaires.

Learn More: How to Build Wealth and Make Life Easier

Look Toward the Top

Forget about the neighbor who owns the auto repair business. Don’t waste your time looking for advice from financial bloggers like me. While keeping in mind that wealth itself is not a goal — your goal should be what you want to do with your life when you have access to as much capital as you need — take a look at the Forbes list of the wealthiest Americans. Two categories stand out.

First, there are the business owners who started their companies small. Millionaires kept their businesses small, while these individuals, like Bill Gates, Larry Ellison, and the Waltons, took their businesses a few steps farther.

Next, the list includes people whose business is investing in businesses, like Warren Buffett and George Soros. Use your money — as well as other people’s money — to create wealth.

This is easier when you have a lot to give. Warren Buffett gets sweetheart deals on his investments because a billion dollars from Berkshire Hathaway is more newsworthy, media-positive, and encouraging to other mimicking investors than a billion dollars from a conglomerate of Chinese or Middle Eastern investors.

Don’t be fooled. You’ll need to work incredibly hard and be blessed with an inordinate amount of luck to become this wealthy. Paving your way to one million dollars, however, isn’t quite the challenge it once was.

Aim Higher

“Aim high” was the recruiting slogan for the U.S. Air Force, and it applies here.

Lionizing millionaires seems like a good way to come up with financial advice that applies to a mass audience. However, I can almost guarantee that today’s recent college graduate planning to retire with assets worth one million dollars forty years in the future will be gravely disappointed. It won’t be because he or she couldn’t meet that goal, either. It’ll be because the sum isn’t going to provide the financial security expected.

{ 24 comments }

Retirement does not always go the way people expect. While no two experiences are exactly the same, over time it seems that people’s financial situations in retirement tend to fall into one of a few distinct categories.

As you think ahead to how you want your retirement to go, keep the following categories in mind. They offer useful examples of what to avoid and what you might want to emulate.

1. Keeping up appearances.

Even though people tend to think of their finances as personal business, their wealth is often presented to the outside world in a variety of ways. While you probably won’t walk around sharing the latest information on your savings account balance with everyone, the car you drive, the house you live in, and the clothes you wear all provide clues as to your financial well-being, even if you don’t think of yourself as particularly status conscious.

Unfortunately, the public face of wealth can create a form of pressure that leads to poor financial decisions. One reason people sometimes spend beyond their means is to keep up public appearances — whether that entails trying to compete with friends and neighbors or trying to maintain a prior standard that you can no longer afford.

Another example of how trying to keep up appearances can be a distorting influence is that breadwinners often want to spare their spouses and children from any financial anxiety. Thus, they may hide any financial setbacks or be reluctant to admit the true limitations of their incomes. As a result, family members conduct themselves on the assumption that they can afford more than is actually the case, when they could be playing important roles in trying to economize if they knew the truth.

People can be particularly vulnerable to these behaviors in retirement, when not having wage income makes a financial reversal more difficult to overcome. Taking pride in your financial well-being is understandable; but remember that the longer you maintain an inflated illusion of your wealth, the worse the blow to your pride will be when the truth finally does come out.

2. Gambling and losing.

People in retirement are heavily dependent on the success of their investments, and this leads some people to take dangerous risks in order to try to improve their financial status.

Especially now, with savings account and CD rates so low, people are resorting to riskier investments to try to earn a decent rate of return. Earning next to nothing in a deposit account may be frustrating, but it’s not as frustrating as suffering damaging losses.

Some element of investment risk is necessary to earn the growth necessary to stay ahead of inflation, but don’t make investments without being fully cognizant of their downsides. Risk management is critical in retirement because drawing money out of your accounts to live on can amplify the impact of downturns, and your near-term spending needs mean that you don’t have as much time to recover from losses as when you were still working.

3. Downsizing.

Some people are able to afford retirement because they downsize many aspects of their lifestyle — smaller house, fewer dependents, less entertainment, etc. This need not be a matter of financial necessity. Often, a simpler lifestyle can be appealing to people in their later years.

One caution about planning on downsizing in retirement is to make sure you properly account for what your specific expenses will be, rather than just blindly assuming you’ll be able to live on a fraction of the money you needed when you were working. Also, remember that health care can grow to be a huge expense in retirement, especially if you have to move into a managed care facility.

4. Second careers.

Another way of affording retirement is to keep some income coming in via a second career. Some people do this out of necessity because they do not have enough money for retirement, but in many cases people like to keep working because it occupies their time and makes them feel useful.

Semi-retirement can be a perfect way to take things a little easier without completely withdrawing from the working world. As a retirement funding strategy though, don’t assume you will be able to keep working for as long as you want. Health issues or dated skill sets can make it harder to continue working as you grow older.

5. Conservation.

Ultimately, retirement is about conservation of your financial resources — making sure that what you have can be stretched to last over the remainder of your life. The problem is, no matter how carefully you plan ahead, there are some things you just cannot know in advance. Unexpected expenses, substandard investment returns, and your longevity can all make it more difficult to make your money last.

The answer is that conservation of financial resources requires frequent adjustments. Rather than being a course you can set and forget, managing your finances requires regularly refreshing your plan to see how the latest information on your financial status affects how much you can afford.

Planning for retirement

Retirement is not defined solely by finances. How you choose to occupy your time and whom you spend that time with are critical factors in post-career happiness. However, it cannot be denied that money is also a big influence on that happiness. For one thing, it dictates your level of comfort and the number of options you have. More than that, though, there is the psychological impact of having to live with the consequences of decisions you made throughout your career and beyond.

A lot goes into this. As you think back in retirement, you may be able to trace your financial condition all the way back to decisions you made about your education, and then to the effort you put into your career, how sensible your spending was, and how wise an investor you were. You might not always have made the right choices, but psychologically the important thing is to be able to look back on those decisions without regret. Being able to do that begins today, by putting care and discipline into decisions you make about your finances.

{ 2 comments }

Any self-help guru would agree that how you think about money shapes your behavior with money. If you want to improve your financial situation, whether to get out of debt or to reach financial independence, your relationship with money is the first thing that must change.

If you believe you will never be able to climb out of poverty, it’s going to be much more difficult to achieve that goal. Of course, there is much more than goes into reaching your financial goals than just thinking about money differently. One can’t wish oneself out of debt, even by wishing intensely. The proper mindset is just the first step, but offers no guarantee of success.

Additionally, changing a mindset that’s been around for decades — or generations, even — doesn’t just change overnight. It’s a lot simpler to consider a changed mindset the key to achieving financial goals than it is to actually believe that everything you’ve been taught about money is wrong.

My current financial situation bears little resemblance to my life ten, fifteen, and twenty years ago. I’ve progressed through five different phases of my life — so far — as delineated by my approach to money. Each time I changed my mindset, my life improved and my financial situation became more stable, but it’s unclear which came first.

As I look back, I can identify these five phases.

Money mindset phase one: ignorance. As a kid and young adult, money played almost no role in my life decisions. I decided to study music education because I was passionate about teaching music, and I decided to go into nonprofit because I wanted to help even more young people in the arts. I never met any resistance from my parents, but I also didn’t think about whether a career in nonprofit was something I could handle without making incredible sacrifices.

Before long, living on my own after college, my finances were in shambles. But I ignored all my problems, including speeding tickets I couldn’t afford to pay. My life snowballed out of control, and even though I had started to realize I was in serious financial trouble with an increasing load of debt, my life culminated in losing my apartment, my job, my car, and my girlfriend all within the span of about a month.

Money mindset phase two: saving money and getting out of debt are worthy goals. This rock bottom led to my first major mindset change. Moving back in with my dad for a few months, I needed to get myself going in the right direction.

  • I left the world of education and nonprofit and found myself a temp job at a financial firm, accessible by public transportation, and began earning more money than in the nonprofit.
  • I began reading more about living below your means on the Motley Fool discussion boards.
  • I created a basic outline for a budget and started tracking my finances every day.
  • I started Consumerism Commentary to anonymous publish my financial progress and to keep myself accountable for my financial decisions.

I was finally saving for my future, investing for retirement, and focusing on better goals for myself. The mindset during this period was about making smart financial decisions and figuring out how to slowly build wealth over the long-term.

During this time, I also started focusing more on finding other ways to earn money. With a long history on the internet and having learned how to design and publish websites in 1994, I found ways to supplement my day-job income.

This would have been fine. Had I stayed in this position and mindset, I probably would be able to live comfortably, even if I would never have a sizable nest-egg, and even if I would never be able to live off my investments alone.

Money mindset phase three: I can build something of value. When I started Consumerism Commentary, I had all ready been blogging and operating websites for years. I had never considered the idea that websites could make money or be viable businesses on their own. The thought of being a “full-time blogger” would have seemed ridiculous at the time.

Before long, it became clear that there was a possibility of building a business out of all the time I was spending writing. Advertisers were interested in reaching the audience I had built, and these companies willing to pay for the privilege. Slowly, I started dabbling with advertising, while always maintaining some kind of ethical guidelines, so I wouldn’t feel too dirty at a time when very few people were earning money.

As the business progressed, I could see that there was a possibility that I wouldn’t have to rely on working forever in order to afford my living expenses. The business kept growing, and not only did I have cash flow, almost all of which was saved in bank and investing accounts, but I was building an asset that might have value to someone else, as well.

At no time throughout my life has money actually been a driving force behind how I live my life. I didn’t start writing online because I wanted to get rich. I didn’t want to sell my business (which I did in 2011) because I had dollar signs in my eyes. Being wealthy has never been a goal for me — but I’ve always liked the idea of never having to worry about whether I can afford something that I’d like to do.

Money mindset phase four: hold onto your assets. I’ve had a few bad experiences as a result of success. And part of this fourth phase still sticks with me today. During this period, as my cash flow from business revenue grew and I sold the business, I was concerned my assets could either disappear suddenly or they could dry up over time.

I did very little to change my lifestyle, and I was during this phase still trying to save as much as possible for the future. While I could have afforded it, I had no interest in buying fancy things or traveling the world. This is a scarcity mindset, but at this point in my life, I should have been past this.

I’m still not fully beyond money mindset phase four.

Money mindset phase five: abundancy. Through a combination of luck and hard work for over a decade, I’m currently in a financial situation that I never thought would apply to me. Until this year, I’ve been reluctant to touch my investments, and at times I still think I’d rather work for a paycheck than dip into my nest egg to pay for my living expenses.

At some point, I just have to start enjoying my success rather than worrying about whether I’ve written enough articles for Consumerism Commentary each month. But this is hard for me. There is more I want to do, both here and with new projects. I want to keep working. I want to build another company. I’m not ready to retire, so I need to keep going in some form.

A friend of mine who married an heir of at least part of a significant family fortune in New Jersey, someone I’d known since starting at that temp job after I lost my nonprofit job, has been trying to get me to live fully in this fifth phase, but I’m just not there yet.

And perhaps one of the reasons I can’t do this is that I am still concerned about cash flow. Invested mostly in stock market index funds and bond index funds, my cash flow is much less significant than it was while I was building my business, even if it is much less risky.

I need to think about how I can set something up to create a stronger cash flow from my investments — and that’s the type of thinking that often leads people to real estate investments. I doubt I could ever create another website that generated as much revenue as this one did.

So real estate is something I’ll be keeping in mind, but I don’t know if I have the right mindset for it.

{ 4 comments }

I can think of two fairly recent instances in publishing that elucidate just how “the rich” or “the one percent” are different from everyone else, and we should all do ourselves a favor by studying their approach to money so we, too, can be monetarily wealthy.

Steve Siebold wrote a book, How Rich People Think, and the author was a guest of Tom Dziubek on the Consumerism Commentary Podcast a few years ago. Prior to recording the interview, the author sent a copy of the book for me to read and gather ideas for the podcast interviews. I no longer have the book; it was part of a significant collection of financial books I recently donated to a local library.

But as I remember, it was an easy read, filled with a contrasting generalizations about “rich people” and “average people.” Here’s one:

Average people think selfishness is a vice. Rich people think selfishness is a virtue.

Of course, this statement, as far as I’m able to see, is inaccurate, and that’s the most kind. Talk to your average upper-middle-class business person, and you will probably get the idea that they believe that their success is due to their self-centered focus, their drive for personal achievement, and their unwillingness to give freebies. They’re most likely to complain about welfare freeloaders and harbor misconceptions about poverty.

This starts to change once you get away from the people who like to talk about being rich, your millionaire entrepreneurs, business coaches, and people who are more focused on their personal image and brand than actually doing work, and you start looking at the actions of the historically wealthy. Selfishness still exists, certainly, but so does selflessness in many ways. Things look different when you stop listening to what the “rich” say about themselves and start reviewing what the wealthy actually do.

If How Rich People Think idolizes the attitudes of a select collection of wealthier individuals, The Rich and the Rest of Us, by Dr. Cornel West and Tavis Smiley, looks at the rich in a different light. Jay Frosting and I chatted with Tavis Smiley for another episode of the Consumerism Commentary Podcast. This book doesn’t take rich people to task, per se, but follows a “poverty tour” by the authors in which they met people living in or close to poverty in cities across the United States, during which they found average people were not nearly as philosophically poor as painted by Siebold.

Yet, it still did paint a troublesome picture of those in power, who manipulated the “average people” through marketing, advertising, and even regular television programming, into spending money with credit cards to upgrade their own lives to match the lifestyles of those they see in the media. The authors offer this warning:

Every empire, especially shortsighted societies that catered to greedy and powerful rules and dictators at the expense of the poor, eventually crumbled.

Back in the other direction, CNN is the latest media outlet to erect a monument to the wealthy class. But this time, what we see is not too bad, nor is it as self-serving or chest-thumping as Siebold’s book. Here, we left behind your “everyday millionaires,” those millionaires next door who, let’s face it, aren’t rich in today’s terms: the small business owner, the entrepreneur with a side job, the business coach who earns his living from talking about earning his living.

Instead, we look at the historically richest Americans, where the unit of measurement is today’s dollars, so all wealthy men — not surprisingly, they’re all men — are competing on the same playing field. We put aside what they might have written about being wealthy, or any speeches they may have given on the topic, or any out-of-context quotations that mention the words “money” or “wealth,” and just look at what the records show.

And CNN was quick to point out that most of these men were not perfect. Some were morally troubled, some allegedly (or definitely) broke the law. But it turns out that if we look at these twenty richest Americans of all-time as a group, there are some trends that stick out.

Most people on this list owned major businesses. Even the only one individual of twenty who inherited all his wealth was a business owner. But these weren’t proprietors of the local automobile repair shop. These weren’t the electricians who start their own businesses and stay there, like your millionaire next door. These are business owners who were involved with the highest technology of the day, whether that may be shipping, railroads, or computers. Not only that, but these were owners of businesses that innovated their technology and changed the world. William Gates III changed personal computing forever. He now changes the world through the Bill and Melinda Gates Foundation.

Marshall Field revolutionized retail shopping. Samuel Walton revolutionized it again. Henry Ford revolutionized personal transportation, and he did so by paying his employees double the competition’s rates. Russell Sage revolutionized Wall Street, and unlike the “greedy traders” we see in literature like The Wolf of Wall Street, he gave away most of his fortune.

Some people on this list owned real estate. Stephen Van Rensselaer was in a position since his birth to come into ownership of over a million acres of land in the New World, bestowing vast wealth on him as real estate in the United States proved to be a good “investment.” Land grant recipients didn’t even have to earn that wealth! But like the technologists and major land owners, he gave back to society by funding what in the 20th and 21st centuries would be public works projects.

But don’t get the idea that real estate today is the same as it was in the 17th century.

Most people on this list have changed the world. Everyone changes the world in some way. Every reader makes a difference in the lives of their families, every blogger makes a difference in the lives of their readers, every business owner makes a difference in the lives of their employees. But those who endeavor to change the world in some marketable way — and succeed — find their way to lists like this one presented by CNN.

If you want to learn something about living your life the way rich people do in order to attract wealth into your life, don’t bother with the self-help literature. Don’t look for motivational books. Skip studying the small-time entrepreneur (like myself). Rather than buying courses and attending seminars about how to get rich, start looking at the actions of those who most inspire you. Discover how to change the world like the wealthiest Americans in history, and try to remain humble like most of them, and you’re on the right track.

{ 1 comment }

Study: Wealthy People Are Mean, Entitled, and Narcissistic

by Luke Landes

No, I’m not attempting to start a class warfare riot. As the title of this article states, recent studies have shown beyond any doubt how wealth or a feeling of wealth leads people to behave in a more self-interested manner. Paul K. Piff, a social psychologist post-doctoral scholar in the Psychology Department at the University […]

22 comments Read the full article →

How to Balance The Future With the Present

by Luke Landes

Financial self-help gurus, professional financial advisers, and bloggers who write about personal finance as a hobby or a job all tend to agree on a few basic tenets. One of these is that saving today can generate more financial freedom in the future. Financial freedom is important because it allows you to pursue activities you’d […]

6 comments Read the full article →

Money Systems That Lead to Success: Always Ask Questions

by Luke Landes

Last Thursday, I drove to the place that was my home for four formative years of my life, my undergraduate university. I’ve written before about how the degree and overall course of study during college isn’t directly related to what I do today. Nevertheless, I still feel strongly about the importance of music and arts […]

2 comments Read the full article →

A Video About Quantum Leaps in Finance

by Luke Landes

This past weekend (including a few adjacent days) I attended the third Financial Blogger Conference in St. Louis, Missouri. I wrote about the experience in detail on my personal website, so check that out for a full report on the conference. Some of the highlights relevant to Consumerism Commentary include winning the Lifetime Achievement Plutus […]

3 comments Read the full article →

Real Financial Progress Requires Quantum Jumps

by Luke Landes

I don’t completely agree with the “get rich slowly” theory. I accept the fundamental advice, like paying yourself first, making conscious decisions about big financial decisions as well as the full series of small financial decisions, and setting long-term goals, but there is a fundamental flaw with taking this theory as the sole approach to […]

11 comments Read the full article →

5 Tips for Protecting Your Windfalls

by Luke Landes

In the fourth season of Arrested Development, the audience discovers the troubled Bluth family received a government stimulus bailout during the recession. Rather than using the “stimmy” to fix their troubling real estate family business operation, they used the money to buy 4,000 acres of worthless land in — well, I won’t spoil it. There’s […]

5 comments Read the full article →
Page 1 of 41234