Category Archives: Wealth

People That Are Rich But Act Poor

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Do you know people that are rich but act poor?

“Why do they do that?”  I often wonder to myself.  At first, I thought maybe they were acting poor to fool people as a joke.  I thought perhaps the rich were laughing at us behind our backs while incognito mode.  Or maybe when they do business with us, they can play the “I’m just like you” card, “I’m just trying to feed my family”… give me a deal buddy!

Overspender

I’m Broke?

Next, I thought maybe they were trying to blend in with their friends, kind of like a chameleon.  Perhaps they are afraid of what their friends would think, knowing that they are rich.  This makes sense, I think if I had rich friends I would be jealous and spiteful, maybe?  Or perhaps, they want to fit in with their family, and avoid brother “Billy” from asking for money to borrow and never pay back.

The reasons above might ring true, but personally, I think they act poor because that is how they were raised and it’s the habits that they are use to.  I believe that you are a product of your childhood environment, not matter how rich or educated you become.  Sure, they can rich-speak with their rich fiends, but probably they still think internally in the class environment that they were raised in.

Ironically, it works out well for them financially because they still fit in with their upbringing background, plus this enables them to save and even invest more money.  Of course, this means that they become richer and richer since they don’t have to support a highfalutin lifestyle.

I often wonder if I was in the same situation, if I act poor even though I were rich.  I always thought that if I were rich, I would definitely travel more (and I still do think this), but maybe to fit in, I wouldn’t do it as much as I initially believe I would?

What do you think of people like this, and would you do the same behavior and act poor around your friends and neighbors?

-MR

Tools To Help Me Become Financial Independent

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In theory, I should be able to obtain at least 1 million dollars 10 years from now.  As long as I stay frugal, and invest using principal of dollar cost averaging, and occassionally rebalance my portfolio (this is currently my biggest weakness), then I should be able to conquer that million dollar milestone.

How did I start believing that I could achieve financial independence? 

I started by reading “The Millionaire Next Door” when I was young and just starting college.  The problem with the book (at least the edition that I read), was that the numbers were a little dated, but the principals still rang true!

What is helping me focus on my goal of becoming financial independent?

  • Automated investments.  Using this technique, I’m saving for my Retirement and my kid’s future college expenses.
  • Statistics on the rich and the bell curve distribution of wealth in American…  This feedback helps me gauge whether I’m behind or doing okay.
  • Spreadsheets to track my progress.  Today, there are online site that can accomplish this now, like www.mint.com and www.networthiq.com.  I also keep a milestone spreadsheet just for motivation.
  • Quality books like “The Millionaire Next Door”.  Examples of the wealthy in “The Millionaire Next Door” gave me hope.  After reading this book, I realized that one don’t have to be born into wealth to achieve it.  In the past, I read about the exceptions, but I always thought that I’d have about as much a chance of getting rich that way as I would getting rich via winning the lottery…, pretty slim.  “The Millionaire Next Door” gave me hope and enabled me to Believethat in it was possible after all!
  • Picking the perfect risk model for my core investments (especially those in my 401(k)).  Although, I still do play with a little bit of cash in speculative investments.
  • Saving more than 20% of my salary.  It takes a little bit of sacrifice now to payoff later.

What tools are you using to obtain the financially independent goal?

-MR

Wealth Pyramid Update – 2010, April 26

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I decided to review my progress on the Wealth Pyramid (also called my Financial Pyramid) that I created below.  You can also view the pyramid as levels, or even a journey down the sidewalk of success.

Back to me!  So far, I’m still at the “Action Plans For Wealth Development” level!  While I have some of the elements automated (401k, Life Insurance, etc), I’m still working on the non-retirement wealth accumulation part.  I’ve been waiting for my tax return to be deposited in my checking account before I start this piece, but that has happened this past weekend.  Now I need to focus on where to put that money.  Hopefully, I’ll blog about my decision by the end of the month.

Once I get the “Action Plans” level running, it will be a short jump to the “Asset Accumulation” phase, where unfortunately, I’ll be stuck at this level for at least a few years.  Now that my house is paid off and I’m totally debt free, I’ll have extra money for Asset Accumulation!

I don’t expect to get to the Financial Independence level for at least 10 years, and that’s if everything goes well.

Realistically, I don’t even expect to get to the top two levels (Gates and Wealthy), but the picture wouldn’t be complete without them, so I added them just to be whole.

For a better analysis of each level, check out my original post which explains each level in greater detail…  Click “here on My Financial Pyramid“.

Now on to my “Wealth Strategy Pyramid”!

I like to think of things from different angles, it helps me get a more three-dimensional feel for abstract thoughts.

Bests,

Don

Asset Class Diversification For The Middle Class

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Yesterday, I blogged about my high net worth friend that has over 5 million in assets in my post Ways To Invest Money Once You Have Over 1 Million in Financial Assets.

After reading a comment left by another blogger, I now realize that my friend already has a decent amount of asset class diversification.

The following list contains the ways that he is already diversified:

  • Real estate (mostly business related and a vacation rental property)
  • U.S. Treasuries Bonds.
  • Local Municipality Bonds
  • Solidly rated Company Bonds
  • Investments in other small businesses.
  • Mutual Funds and ETFs (Exchange Traded Funds)
  • Cash and Money Market funds
  • Gold and other precious metals
  • Preferred Stocks (or preferred ETFs or mutual funds)
  • safe Dividend Yielding Stocks
  • Moderate risk, but high growth individual stocks
  • Financial preservation, I would guess he has life insurance for his wife and kids?

how can we lower our investment risk with some of the asset class diversification like HNW (High Net Worth) Individuals have, as a middle class member?

  • Real Estate:  We can invest in REIT stocks or ETFs. I don’t think we truly get the full leverage that we would need to become rich, but at least we would have that diversification via the Real Estate route.
  • U.S. Treasuries:  He buys the $10,000 issues because of the higher yield rates, maybe we should buy one of these, or buy $1,000 issues for a lower yield rate?
  • Local Municipality Bonds:  My HNW friend buys these too for the tax benefits.  I don’t think they would benefit me much at this point in time.
  • Solidly rated Company Bonds:  He does this, but so can we. I plan on using the age based approach to determine my amount of bond ownership
  • Small Businesses:  His small businesses are large to me, but from a U.S. perspective they are small. I’d recommend starting with a lost cost business like selling on Amazon or Ebay, or blogging (I haven’t made much money with blogging, so amazon or facebook marketplace might give you more bang for your buck quickly).  After playing with the small stuff for a few years, jump into something that you have a true passion about.
  • Mutual Fund & ETFs:  Most of my HNW friend’s money is in mutual fund and ETFs (and so is mine).  This is a good way to go especially with index funds…  Today it makes more sense to go with an ETFs instead of mutual fund!  Usually, ETFs have much lower expense ratios too… or at least the ones I own do…
  • Individual Stocks:  My HNW friend has me beat here.  He buys for the long term, and not the high risk, high growth stocks that I buy.  He has outperformed me in this area!  Surprisingly, he has just a hand full of these stocks. (he’s owned stocks like soft drink and entertainment stocks).
  • Preferred Stock or ETFs:  I’m just starting to dabble in this, but mostly you buy for the yield so in many ways it’s properties are somewhere between common stock and bonds.

In past articles, I mentioned the Age-Based allocation method for bond and stock ownership, and just in case you aren’t familiar with this approach, there it is:

  • SOP: Stock Ownership percentage (of your investment portfolio) =   120   –   (your current age)
  • BOP: Bond Ownership Percentage (of your investment portfolio)  = 100 – (Stock Ownership Percentage number)

So if you are 25 years old, your SOP would be 95% and your BOP would be 5%  Since my friend doesn’t need as much risk in his portfolio, he has a high BOP number than most that are his age. Those of us in the middle class though, we need that growth…

Most of us will never own a small business, and many will not own real estate other than our primary home.  But, like my HNW friend, perhaps we should…

Good luck!

-Don