Ten Tenets for "Arranging Your Rich" - Part 1: Rich is Relative
Paul Michael wrote a great article about the idea that "rich can be arranged" .
I liked that idea so much that I started looking at exactly how one starts the arranging process. And so, I asked myself, "how can I arrange my wealth today?" Not just ideas that would generate some money but more the approach itself. Does my outlook matter? Do I have a plan? Would it matter if I did?
After much thought and a Snickers bar, I realized that there are in fact some guiding principles to arranging your own wealth. Ten, in fact. Ten important "tenets" to keep you grounded and on track as you begin the "arranging" process.
However, being the wordy person I am, these tenets turned out to be much longer than I had anticipated, making for a rather lengthy read. So, to break things up and to give you something to look forward to, I'm going to post one a day. Think of it as a 10-day course to arranging your "richness" :)
Ready to get started? Here's Tenet #1:
Rich is relative.
A few weeks ago, someone got the bright idea to ask the political candidates to define "middle class". You can imagine the range of answers and if you accept them all, then middle class is anywhere from $25,000 to $200,000 a year (no specifics on number of family members or other variables).
And the truth is, they're all probably right. Most of the population sees themselves as being "middle class", even if their neighbors don't agree.
Because except for the really wealthy, most of us struggle financially in one sense or another. Maybe we can afford expensive cars and homes but we don't have much in the way of retirement and college funds. Maybe we enjoy many of the luxuries life has to offer but we're also ridiculously deep in debt. Maybe we just live in pricier neighborhoods or spend more in gas on our commute. Whatever it is, most of society is painfully familiar with the worry that comes with making ends meet.
Want to test that theory? Read Catherine Shaffer's post, Is Six Figures Really That Much ? and you'll see what I mean. Where one family struggles with a six-figure income, another family scoffs because they're making it on less than $50K a year.
Which means your "rich" isn't necessarily my "rich" and vice versa. But what it also means is that our definition of rich goes well beyond cold, hard cash.
Because after all, its not really the money that we want. Its what the money can buy. No one really drools about having a million dollars in the bank without thinking about the things they could do with that green.
Which means that "rich", is more than just having money, its also equally about being able to enjoy that money.
But the problem with money is that there just never seems to be enough to enjoy. Regardless of how much we make, we still seem to struggle.
With the exception of winning the lottery or inheriting millions from a long lost relative, most of us experience a short, slow growth. A raise here, a bonus there and over time, our income will grow from $20,000 to $30,000 to $40,000 in small, barely noticeable increments.
But so does our spending. And that's why your perceived "rich" will never quite be enough.
I'm going to date myself here but when I was all of 19, I got a job as an underwriter trainee making just over $13,000 a year. We didn't have a ton of bills, no mortgage, no kids, just a car payment and a stereo system we financed at one of those rent to own places (that's another blog in itself).
But while we weren't broke, we weren't rich either so I did some calculating. "If I could just make $20,000 a year," I told my man, "we'd be rich".
Well, guess what? $20,000 came and went but it was no big milestone in my financial life. Because by the time my big "rich" marker rolled around, I had increased my spending to match those annual raises. I wasn't rich... I was just living within my means and working longer hours to do it.
And there was the real sticker - not only was I not rolling in dough, but I was working harder and longer to achieve the same basic results.
And this is why rich is so relative. Not only do you need to define how much your rich is, but you also need to define the "richness" you'll expect to gain from your added wealth.
Want me to say that again?
Let's say you think that $100,000 a year would be your "rich". Ok, fine. But what do you have to do to make that $100K? Is it going to take more time out of your day? I mean, you could work three jobs and probably give your income a nice boost, but is it worth what you're giving up?
If you think that having more money means that you'll have more freedom to travel or take a cooking class or whatever it is you want to do, think again. In the corporate world, more income typically also means more responsibilities and you'll be expected to stay until the job is done. So, before you start following the almighty dollar, be sure that your strategy for arranging your rich doesn't require you to give up what little free time you have now.
Secondly, if you're going to shoot for $100,000, then you need to decide what that extra money will do for you. Remember, you're not likely to get it all in one lump so you need to be able to earmark those added funds so that they don't get lost in your day-to-day expenses. If you don't, you'll come to rely on the extra cash and you'll adjust your spending to match it. And that means that at the end of the day - like me - you'll be working longer and harder to achieve the same basic results.
The bottom line? If you want to arrange your rich, forget living within your means. Learn to live below them and learn to balance your net worth with your life's worth.