On Saturday, an auction in New York featured items once owned by Bernard Madoff. The auction raised over $900,000, beating expectations. Once combined with proceeds from another auction later this week, it’s likely that this money will go to investors who were burned by Madoff’s Ponzi scheme.
Here are some of the items that received winning bids this weekend:
- Two pairs of Ruth Madoff’s diamond earrings: $140,000
- Bernie’s Mets jacket: $14,500
- Three duck decoys: $11,500
- Madoff branded boogie boards: $1,000
- A life preserver: $7,500
Serving 150 years in prison could likely be, from an asset value standpoint, one of the best things to happen to Madoff. Of course, he won’t be able to enjoy the benefits of his celebrity status. The benefits of this auction and Tuesday’s auction of larger assets such as Madoff’s boats will go to his victims. One of these victims is allegedly Zsa Zsa Gabor. She owes $120,000 to the IRS and claims her inability to pay is due to Bernard Madoff who took $7 million of her money through the Ponzi scheme.
Zsa Zsa will assemble the money with the help of her ninth husband and will do what many people do when they owe the IRS money: They will set up a payment plan on pay the debt over time.
Watch eBay and other auction houses; perhaps some of these items will continue to fetch higher prices due to their association with the most popular investment scammer in recent history.
Madoff’s Mets jacket sells for … $14,500, Les Christie, CNN Money, November 15, 2009
Zsa Zsa Gabor says she was victim of Bernie Madoff, Jessica Hudson, Examiner.com, November 15, 2009
Consumerism Commentary was included as an Editor’s Choice in the 229th edition of the Carnival of Personal Finance earlier this month with Seven Zen Principles to Guide Your Money and Your Life.
It is a shame that people are still fascinated with the idea of being a millionaire. According to an online etymology dictionary, the word “millionaire” was first seen in print in 1826, a year when having a net worth of one million dollars was an amazing accomplishment. An inflation calculator puts this into perspective; $1,000,000 in 1826 has the same buying power as $19,359,086.05 in 2009. There is nothing wrong about aspiring to become a millionaire as long as you realize that over time, the cachet of this status decreases and the number of millionaires increases.
Financial authors still look to millionaires as examples for the rest of us. Books like The Millionaire Next Door by Thomas Stanley and William Danko point out that most millionaires have self-made wealth, are business owners, and have a mostly frugal attitude towards spending.
A net worth of one million dollars in 2009, even if this does not include money tied up in the value of a primary home, will not provide financial independence for most people in United States. Assuming the one million dollars is invested in the stock market, and assuming financial planners’ recommendation of a safe withdrawal rate of 4% for maintaining value, a retiree or retired couple would be living on $40,000 each year. Considering families in this economy may be wary of investing their total nest eggs in the stock market, 1% or 2% may be a safer withdrawal rate.
One million dollars is not going to provide enough income each year for full retirement unless investment income is augmented by income from working, which defeats the purpose of traditional retirement, drastically reducing expenses to the point where retirees might need to redefine their planned retirement adventures, or moving to a country with a lower cost of living. For these reasons, my Number is well north of the one million figure. Note that I don’t call any certain number a goal, a real goal is not a number but the purpose behind acquiring wealth.
Rather than looking at the habits of millionaires, many of which are helpful but commonplace, I’d like to see more books focusing on the habits of those who have amassed wealth in the eight or nine digits. A quick look at the list of the world’s top billionaires (see Wikipedia) shows that like millionaires, the richest people in the world built their wealth by being atop the world’s largest corporations, and in Warren Buffet’s case, great investment prowess.
I prefer to focus on those who have achieved my Number, somewhere above “millionaire status” but below the stratospheric net worth enjoyed by the richest in the world.
Photo credit: TEDizen
We spend our life in modern society accumulating Things and possibly accumulating money. When you take a step back and look at life on the larger scale, money is not a goal in isolation. We strive to accumulate wealth not to die with our names in various banks’ computers associated with high numbers. There must be something else we intend to do with that money, as it is only a tool, a means to an end.
Among the ability to buy and accumulate Things, having money allows us to have more options. Having money allows us to have children — although the lack of money rarely stops people from procreating. Parents who have unspent money may decide to transfer their wealth to their children as they approach or reach the end of their lives.
The decision to leave money to children is personal, and there are many arguments both for and against. But assuming you’ve made the decision to pass wealth to younger relatives, how do you decide how much each heir should receive?
One option would be to divide your estate equally among all recipients or equally among recipients of the same level. For example, with $30 million to distribute and two children and four grandchildren, you could leave $5 million for each heir. Another option would be to leave $8 to each of your two children and $3.5 million to each of the grandchildren. Either one of these options might be considered “equal.”
What if one of your children is a successful entrepreneur who is wealthy in her own right and the other is a successful non-profit manager who has not earned a fortune on their own but has struggled for an important cause? Would it still be right to leave equal amounts to each child? What would you do if one of your grandchildren is developmentally disabled and would benefit from several million dollars to cover a lifetime of health care expenses?
“Equal” is not always the same as “fair,” and it’s usually easier to determine what is equal than to determine what what is fair. How would you decide to allocate your wealth among your heirs? This dilemma could be avoided by giving your fortune to charity. However, assuming you’ve decided the money could be well cared for in the hands of offspring or other heirs, what would you do?
Even though I share my financial reports every month, I don’t see increasing my financial wealth as a goal. The accumulation of money is not a destination. I am not aiming for any particular measure of financial worth, such as ten million dollars of net worth or one million dollars of passive income each year. While these milestones would be nice, they, or any other financial metrics, are only means to an end — or to no end.
Money is only worth what you can do with it. What is the point of accumulating a higher balance in a banking account or a higher value of investments if you never put that money to use? I will concede:
- Leaving money alone to appreciate through compound interest or investment gains is a great way to build wealth over time.
- Saving as much as possible when you are young allows you to have more options as you proceed along your journey through life.
But money has very little meaning now on its own. There is no money, there are only bits and bytes in banking institutions’ extensive computer server farms. You trust that when your banking institution says your bytes have changed to award you a higher number, you can connect that account to someone else and transfer your bytes to pay for an expense. In rare cases, you may even wish to turn those bytes into pieces of paper or coins.
So when I hear that someone’s goal is to have a nest egg of ten million dollars, it is an empty goal. This goal is nothing more than having bits and bytes in a certain configuration on a certain server in a database record associated with your identity. I accept that it will be difficult to get the bytes to arrange in that fashion, but look beyond this. What would you like to do with that money?
You may feel happy or proud when you reach this or any milestone you set for yourself, but wealth doesn’t do any good sitting in your bank account. I mentioned above that saving more now provides you with more options in the future, so rather than looking at a number, start deciding which options you would like to pursue. Here are a few in no particular order. Assign your goals to the reasons you are saving money, not the money itself.
Providing the basic necessities for yourself and your family. Many people build wealth simply so they can survive, sometimes with just the necessities and sometimes in the style to which they are accustomed. These financial needs, including shelter, food, water, and health, need to be taken care of before you can consider doing anything else with your money. If you plan to stop working and expect your income to cease, saving for the necessities is essential.
Leaving money to your heirs. If you don’t have children, perhaps this is not a concern. But many people do have children and would like their wealth to pass along to the next generation. Not everyone with children will choose to set aside money for their children. I have heard arguments claiming that children are better off without trust funds and what may be excessive support from parents, but I feel that children can succeed with as many options available as possible.
Education for yourself and your family. Analytical people suggest basing decisions about education based on your financial return on investment. If you spend $100,000 for a degree, or much more if you have loans with interest to pay, how quickly will your new degree allow you to recoup those expenses? Well, thankfully not everyone believes that the only value of education is the ability to earn an increased income. A life without teachers, non-profit organizations, researchers, and artists would not be worth living. Saving for future education expenses, for you or your children, will reduce the difficulty in affording an educational program that does not put one on track to become a hedge fund manager.
Be a positive force in the world. There is at least one issue that is important to every adult. Money allows you to change the world if you concentrate your funds towards that issue. For example, Bill Gates believes that it is despicable that people throughout the world are still dying of malaria, a preventable and treatable disease. Through the Bill & Melinda Gates Foundation, an organization whose existence is possible due to his financial success, Bill uses his wealth to help eliminate needless death in Africa.
It’s admirable to want to increase your wealth, but that can’t be a goal. It’s one step on the way towards other goals. Money is nothing by itself, particularly if it is sitting in your bank account.
Why do you save money?
Let’s face it: if she (and her husband) can, you can, too! While acknowledging that a million bucks ain’t what it used to be, Liz, a columnist for MSN Money, shared her secrets about how her family’s net worth climbed to $1,000,000.
There were no game shows or “reality” TV appearances. According to Liz, here are the elements of her strategy:
You’ve got to want it — and plan for it. “There are few accidental millionaires in the world. People who achieve financial independence, however they define it, make getting there a priority in their lives.” She started investing in her company’s 401(k) in her mid-twenties and chose cheaper trips rather than expensive vacations.
Live within your means. Spend less than you earn, pay yourself first, and set up automatic transfers and investments.
Invest regularly and don’t stop. If you react to market movements, you end up buying high and selling low.
Be smart about debt. Avoid high-rate debt and use low-rate debt to your advantage. “We chose an old-fashioned, 30-year, fixed-rate mortgage because the low payments allowed us to invest more for retirement while still allowing us to gradually pay off our debt. I’m not saying it’s the best mortgage for everybody, but it’s working for us.”
Own a house — and don’t waste it. “There’s no question that owning a home in Southern California got us to the million-dollar mark a few years earlier than I’d projected.” Bingo. Most millionaires have reached that level due to home ownership. It’s one thing to be a millionaire “on paper,” and another to have $1,000,000 of cash at your disposal at any time. “Homeownership isn’t a no-brainer. You can always mess up by buying more home than you can afford, draining your wealth away with home-equity loans or trying to speculate in an unstable market.”
Invest in yourself. “We’ve discovered (duh) that it’s easier to meet your goals, and have money for fun, if your income is rising. So we’ve invested in education, launched our own businesses and looked for new ways to generate cash. In today’s ever-changing economy, you have to be ready to learn new skills and take new directions.” As you can see, income plays a very important role in building your net worth. Keep that in mind when someone tells you, “It’s not what you earn, it’s what you spend.” It’s both. It may be hard to change your income if you believe it is already maximized, but chances are, it’s not.
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