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Wealth and Affluence


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.

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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.

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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.

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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 of California, Berkeley, led this research and shared his findings in a recent TED Talk, which you can view below. If you’re not reading this article on Consumerism Commentary, you can watch the video here or at the TED website.

In one of the experiments, the researchers created a rigged two-player game of Monopoly for one hundred pairs of subjects. By virtue of a coin toss, one subject in each pair was chosen to play by an advantaged set of rules, while the other would play by the standard set of rules. These are the privileges afforded the advantaged player by design:

  • The advantaged player begins the game with twice as much money.
  • The advantaged player collects twice as much bonus money for passing “go.”
  • The advantaged player rolls two dice rather than one, as the disadvantaged player rolls.

With hidden cameras, researchers were able to observe the attitudes of the players. The rich players smacked their playing pieces around the board aggressively, consumed more snacks, and celebrated their successes. The aggressive behavior wasn’t limited to their relationship to inanimate objects; the advantaged players acted ruder towards their competitors. One of my favorite quotes from the recorded gamin sessions came from a rich player: “I’m pretty much untouchable at this point.”

The games were limited to only fifteen minutes. Unlike non-rigged Monopoly sessions, these games wouldn’t have lasted much longer than fifteen minutes anyway. When the games were over, the researchers asked the rich players to reflect on their success. The winners attributed success to their skill, completely ignoring the fact that the game was obviously rigged. Their success was, in their opinion, due to the choices they made in buying properties.

Had the coin flip at the outset of the game produced the opposite result, this game-playing skill would have gotten these winners nowhere. Had they started out with half the wealth of their opponents as measured in Monopoly money and were forced to move around the board slowly, they would be in the losing position — most likely blaming the situation on their environment, not their supposed lack of skill.

The video includes additional demonstrations that show how an increase in wealth correlated to decreases in compassion, empathy, and even willingness to obey the law. At the same time, the increase in wealth is correlated to increases in selfishness and narcissism.

From Scientific American’s report on the study:

But why would wealth and status decrease our feelings of compassion for others? After all, it seems more likely that having few resources would lead to selfishness. Piff and his colleagues suspect that the answer may have something to do with how wealth and abundance give us a sense of freedom and independence from others. The less we have to rely on others, the less we may care about their feelings. This leads us towards being more self-focused.

Will taking on those personality traits and attitudes associated with wealth help to bring about financial success? If you start acting greedy, will you be more likely to grow your wealth? Many authors have suggested thinking like one is wealthy in order to become financially successful. When wealth is revered as a goal, those who have achieved it are revered as well. And they’re more than happy to share their insights with the rest of the “average” world listening. You’ll rarely hear any expert advice from the wealthy that touches on luck, circumstance, or privilege; the key to wealth lies in hard work, perseverance, and making smart decisions.

Those great attributes for attaining success don’t work for people who are living in poverty, but they sell a lot of books.

There is virtue in taking responsibility and blame for your circumstances, whether those circumstances are positive or negative. It helps you identify aspects in your life than you can change to improve your situation. There’s a tradition of blaming bad situations on external forces — the economy, your employer, your parents’ skills — while taking responsibility for good situations, just like the research subjects did in the Monopoly experiment. It takes objective analysis to separate yourself from the situation and truly evaluate the forces that played a role in any particular situation.

Taking responsibility for the good and assigning blame for the bad is a variation of a defense mechanism. If good situations are a result of our choices, they can be repeated, and success will continue despite of the world around us. If bad situations are someone else’s fault, there is nothing inherently wrong with us; given the right opportunity, we will succeed, too.

Not every financially independent person displays these negative personality traits, and not every wealthy person cares little about the world around him or her. You can see that in highly-publicized examples of wealthy individuals making selfless choices.

  • Bill Gates, the privileged founder of Microsoft, formed the Bill and Melinda Gates Foundation to tackle many societal problems around the world.
  • Warren Buffett, along with the aforementioned Gates, launched the Giving Pledge in 2010, encouraging some of the world’s richest individuals to give away their wealth to charity.
  • Mark Zuckerberg of Facebook donated $1 billion last year, 5% of his total net worth.

Lest the reader believe that this research and other studies by this author pertaining to social class are too critical of the wealthy, Piff does point out when the attitudes of the rich have positive outcomes for them, and for those who adopt the same principles. The wealthy believe, due to their control over their situations, that the quality of their health is in their control. They go to more appointments with doctors and take advantage of preventative medicine, while others who believe they have little control over their health end up in emergency rooms for problems that could have been prevented.

This is a stratification based on wealth, but also based on access to medical professionals and trust of the health industry. The realization that we can control many aspects of our lives results in better health, but also increased wealth — relatively.

The word entitlement is usually used in American society when talking about welfare benefits or other governmental assistance for the poor. It’s often used in a pejorative sense, implying that those who receive these benefits don’t deserve them because they lack the motivation to improve their situation. There is also the implication that wealth redistribution (in that particular direction) is bad for society because it encourages complacency. What the studies about attitudes of the wealthy and the average show is that those with power and money consider themselves entitled.

With a high level of self-efficacy, the wealthy believe they earned their success through hard work. They perceive the poor through that lens, as if that difficult situation is a matter of level of effort, while the poor look through their own lens of opportunity, seeing the wealthy as have been provided advantages by society.

It’s difficult to take a large step back and look at the progression of my life as if I were an outside observer trying to understand an individual. I maintained a low sense of self-efficacy for a while, and a former boss of mine continued to chastise me for it. I wasn’t disadvantaged — in fact, I had a relatively advantaged background, able to explore my passions without completely devastating my finances — but I was not very well-positioned to handle the small amount of money I was earning with great decisions. I was making the most of a bad situation, which could have been much better if I had made a few better choices. I thought I’d be able to pursue a degree in education and a job in non-profit, but I didn’t have the financial grounding to make that possible.

After a few difficult life lessons from experience, I opened my eyes a little bit more and started taking control of my situation. Again, I wasn’t living in poverty. I was smart and marketable to employers. Things were going to get better for me once I put the effort in, but these advantages aren’t available to everyone. The question is whether my approach towards other people has changed in the years following as I drew closer to financial independence. I’d like to think that it hasn’t, but I’m sure I’m not immune to the subconscious changes.

Watch the video above to see how the feeling of wealth can affect an individual’s attitude towards another person. Have you seen evidence of wealth being correlated to meanness? Is selfishness an essential personality trait for attaining wealth?

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