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You're Not As Rich as You Think You Are Print E-mail
(23 votes, average 4.87 out of 5)
Personal Finance - Investing
Written by The Cheap Entrepreneur   
Article Index
You're Not As Rich as You Think You Are
Increased Spending
Income Doesn't Go Up Forever
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My wife and I sat down at the finely crafted twelve foot long table. I figured it must take a significant amount of elbow grease to get that kind of polish.

Our hosts were extremely cordial and very happy to see us but I resisted the urge to ask them what kind of polish they use and whether you could buy it wholesale. I mean these guys were our new investment managers, not the cleaning crew. As I took stock of the finely appointed office, I couldn't help but feel a little out of place. The question that ran through my mind was "why would these guys want folks like us for clients, we're not rich".

One of the elegantly dressed managers proceeded to take out a thick leather book that they had diligently put together. It listed all of our assets and the few liabilities that were still outstanding. They started by double-checking the answers that we had given them, So you have no car loans?{ Nope. What about a mortgage? Nope. Any credit card debt? Yes, but we pay it off each month. So it's just a few piddly student loans? They genuinely seemed perplexed and that made me smile. "Well you have a lot of restraint compared to your income, we don't see a lot of that around here". My wife nudged me under the table. She had bore the brunt of my cheapness or - as I prefer to call it - financial common sense.

They turned to the big "AHA!" page in the leather book. "Congratulations", they said, "you are Millionaires". Impossible, I thought. Millionaires? That's somebody else. I didn't feel wealthy. Sure enough though, we were millionaires, with room to spare.

It wasn't like we had more than a million sitting in cash some place, it was spread out in many different places. We had 401Ks, stock investments, a rental condo, some land, and my biggest single asset was a small company that I owned a stake in. Less than a quarter of our money was liquid and the majority of that was in retirement funds. But as the startling notion that I was a millionaire penetrated my consciousness, I found it all a bit disturbing. Maybe I deserved that wicked nudge my wife delivered under the table. Maybe I had been too cheap. Maybe it was time to live a little.

The only problem was that we weren't wealthy and we weren't going to be anytime soon - unless the company where most of our wealth was locked up was sold to someone.

As we drove the 8 year old Toyota back home, I could sense the glare from my wife. The woman had it in for me. Being cheap was about to get a whole lot tougher. My income was ratcheting up every year, bonuses were solid, and our assets kept going up. A perpetual cycle that even I began to believe would continue unabated. It was 2005 and the sky was the limit. Two years later, the financial Tsunami of September and October 2007 would decimate every one's wealth, but in 2005, it was smooth sailing.

The delusion of wealth plagues a huge segment of the American population and it starts at relatively modest incomes. Many professionals making $60,000 to $250,000 a year believe that they're wealthy - as opposed to well-off. I've seen office clerks that get a $5 an hour raise and suddenly feel like they have a king's war chest. They head to the auto showroom and get themselves a brand new Camaro and start having visions of joining America's elite.

It's easy to look back and compare our pay to previous generations. Most of our parents probably never made more than fifty to seventy thousand dollars at the height of their career. These days, a kid three years out of college might make that kind of money. It sounds like a huge leap in compensation until you consider that mom and dad were buying houses for $65,000 and brand new cars for $5,000.

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Laura  - Nice Article! |2010-08-12 16:27:51
This article reminds me of another one I was reading the other day! wealthy-as-you-think-you-are/

I like your slant a little better though :)
JN  - Inflation doesnt include house, food, energy???? |2010-07-19 12:55:43
Can you explain further what you mean when you said

"When calculating the annual inflation rate, Washington doesn't look at housing prices" and that "food and energy price hikes are excluded because they are "volatile".

I thought each of these was specifically included in the inflation rate?
frugal nomad  - about the inflation index |2010-07-19 14:05:40
During the Reagan years, they took the price increases of Houses out of the index because most people don't buy a house every year. But they do include a housing componen in the index - a rental equivalent.

Certain items are excluded because of volatility - like energy and certain foods prices are adjusted to account for seasonal factors that effect their price.

The point we're trying to make is that the boys in Washington tend to tinker with the inflation index because it's one of the ways voters grade them.

There is all kinds of inflation rates out there, adjusted, seasonal. there is an inflation rate for consumer goods and another one for manufacturer goods.

But the only rate you should be concerned with is your very own personal rate of inflation. If you're a college student and your tuition and room and board goes up 15%, that's your inflation rate - regardless of what your government tells you. If you're retired and ill and medical expenses are going up at 12% a year, that effects your 'personal' inflation rate.

the government has all kinds of incentives to publish the lowest possible reading of inflation. Think of COLA for social security. If they say there's zero inflation well then they don't have to pay more money to social security recipients. They also know that a low inflation rate leads to lower interest rates. And last I heard, they've borrowed 13 trillion. if you owed that kind of money, wouldn't you want to keep interest rates low by publishing low inflation stats?

Jesse W. |2010-07-18 07:39:18
This is so true. Whenever we think we are getting ahead and becoming "rich" we realize that there are many expenses in life that add up very quickly!
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