Are you concerned about your ability to maintain your current financial position? I am. Sure, I have an emergency fund, a significant cash cushion beyond the emergency fund, and steady income.
But I have taken on risk. My long term investments are invested in the stock market which has proven to be more than a little volatile lately. If I needed to access those funds, a market downturn and early withdrawal fees would be damaging.
My income is constantly at risk; at the office, my employer might decide our entire department can be outsourced. My side business income is almost entirely dependent (directly and indirectly) upon the good graces of a certain search engine to provide income-producing visitors.
Thus, I’m not surprised that 78% of working-class millionaires, individuals with steady jobs to earn a living and a net worth between $1 million and $10 million, are also nervous about maintaining their wealth. The main differences between myself and the “working rich” besides my significantly lower net worth are purchasing habits. Though followers of The Millionaire Next Door might disagree, multi-millionaires are consumers of luxury products. I am not. I’m prone to a few luxury items once in a while, but even when doing so, I look for reasonable deals and I’m not swayed by luxury brands.
21% of working-class millionaires have started to cut back their luxury spending, although they will continue to give to charity and provide the best education for their children.
But few are trading down to Target. They’re just buying fewer expensive items than they used to. Middle-class millionaires won’t stop shopping anytime soon. They’ll still be grabbing the tech gadgets they love so much, like BlackBerrys, iPhones, GPS systems, computer accessories and software. Why? Those products, in addition to exuding status, also serve practical needs. They will also go ahead and get nice things for the home, like that big-screen television set or top-grade appliance. And they won’t pinch pennies on education and health care, things they consider to be of prime importance.
Are you concerned that you won’t be able to retain the level of wealth to which you’ve become accustomed?
The Working Rich Are Nervous [Yahoo Finance/Forbes]
Updated February 6, 2012 and originally published February 27, 2008.
{ 3 comments… read them below or add one }
Perhaps I’m an optimist, but I’m not at all worried about maintaining my level of wealth. In fact, I see the current time as a prime opportunity to increase my wealth. I can buy stock/ETFs and even real estate at a discounted price. Because I have 15 or so years left until retirement, I have plenty of time.
So for now, I’m not doing much differently than I’ve always done which is continue to invest as well as pay down my mortgage in addition to focusing on ways to increase my income. If my means are higher and my expenses remain constant (or decrease), then my net worth will only increase.
Investing in markets is always risky but the good thing is that if you’ve managed to save up a good chunk of money loosing your job doesn’t mean you instantly become destitute. I think that the main reason that working millionaires are cutting down on their spending is because this recent market downturn has forced them to realize just how much unnecessary spending they’re doing.
I’d be in big trouble very fast, within about 6 weeks, if I lost my income. It is something that I think of occasionally, but I think I’m doing pretty good for someone my age (not quite 25). I haven’t really had enough time to build up much of a cushion. Thankfully I have a very stable job. I do think that $1 million isn’t much these days. To replace my income (and benefits like health insurance) it would take at least $2 million in assets. To be completely worry free in my current lifestyle I think it may take as much as $5,000,000, and I can easily see (and even understand?) those on the coasts needing $10,000,000. But, I’m sure most of us would be able to adjust to a much more conservative lifestyle if the *$&% really hit the fan.