A lot of life requires avoiding potholes. Even after you become a millionaire you’ll find that there are several hundred more potholes to avoid. If you’re looking for proof of this look no further than your next trip to the airport. Take a good long look a the people flying in business/first class and you’ll see a common theme. People are physically in bad shape and many of them look several years older than they actually are. Despite having money (it is rare to see the majority of people in first or business class on credit card churning), their bodies are already giving out on them. To make matters worse, this is only one pothole of many to avoid. We’ll go ahead and outline them in groups from easiest to hardest to control.
Physical Health: A common thread amongst the out of shape? Typically, no athletic background at all. Since a lot of people enjoy talking on airplanes, you’ll likely be forced into one of these brutal conversations (more than once). If you do, go ahead and poke around about their back story/history from a athletics perspective (it is never anything good). The ones that are in shape typically have one. Since there is no way to go back in time and develop a background (if one doesn’t exist), we’d say having a real athletic activity after becoming rich is a requirement. Simply lifting weights isn’t enough. One of the benefits of being a millionaire is more free time (if you’ve done this millionaire thing correctly) and penciling in a notable physical activity will add years to your life.
Internal Health (Diet): Another common one is an addiction to low quality food. One of the interesting things about food is the addictive properties. We believe sugar is more addictive than alcohol at this point since it seems like eating healthy is a sin these days. If you’re under a lot of stress, many psychological studies say you’re more likely to choose carbohydrates and sweets over vegetables. There are many solutions including: 1) eating when your workload is lowest and 2) restocking your refrigerator with high quality goods until your taste buds change. We’d say you’ll “feel bad” after eating high amounts of sweets or carbs. At this point your body has changed and you can feel free to pick up a low quality food item every full moon or so.
No Style: This is another big one. Not sure why this is the case. If you want to find people with name brands that don’t fit… Look no further than the rich! That’s right. A large chunk of the population buys name brand items and yet they can’t even wear them correctly. The one thing the $30,000/year millionaires in Miami have going for them? At least they dress correctly. Instead of debating how much should be spent on high quality clothing, we’ll say this: at least get a tailor! If the clothing doesn’t fit it was certainly a waste of money. As usual, feel free to blow as much money as you’d like as long as you don’t blow through your financial independence nut (no point is hitting reset on that game again!).
Trapped in Guilt: We couldn’t think of a better explanation for this phenomenon. You’ll find many rich millionaires who refer to their wives as “the boss”. You’ll also find many millionaires that can’t seem to unwind out of high recurring expenses such as a house that is too big or a car payment. We just don’t get it. The only explanation we came up with is personal guilt. It has been drilled in our heads to do the “right thing” which typically means giving up your own personal well being and happiness for someone else (even if the someone else is adding no value to your life). This is a big trap that we see very few people escape from.
We’ve never gone through this trap but for fun we’ll explain what we would do in this situation. It sill sound heartless but it is exactly what we would do. Step 1) is begin cutting it out immediately, cold turkey. There is no reason to keep someone in yoru life who is causing you personal financial stress when you’ve spent the last 10+ years becoming rich, Step 2) set stronger guidelines on the people who think you “owe them”. If they are not happy with your lifestyle they are free to leave and Step 3) never refer to anyone as a “boss” again. If you’re rich there should be a two way street where either party is allowed to leave immediately.
Lifestyle Inflation: Our basic rule of thumb is to invest more money each year as a percentage of after tax earnings. This has been the consistent theme until you’re financially independent. Once that occurs, the game becomes “increasing your spending at a rate of your financial independence”. This seems like a small increase until one understands compounding. If you’re at $3 million dollars and feel fine at $10,000 a month (4% rule), then you’d keep this level flat for a year. Ideally, your net income and your investment gains (up to 10%) make up a large chunk and you’re sitting closer to $3.6M the next year. Now your expenses go up 10% since the same rule allows you to spend $12,000 a month into perpetuity (In a few short years you’ll unlikely be able to spend it all anyway). We would stay with this until you’re older (40s) then you’re probably spending much more since you’ll ideally end with a $0 net worth upon death (assuming you didn’t have kids).
Now with the positive actionable item out of the way… You can already guess it. Most people don’t do this. From what we’ve seen they hit 30 or so and suddenly the spending start ratcheting up. This is due to the standard marriage and kids. The lifestyle inflation of trying to keep up with your new “peers” and many other issues. Luckily we do have one clean strategy that works. For at least one full year (after hitting financial independence) keep your spending level flat or down. That is right. Ideally it goes down so you realize that you were 100% happy with the amount you were spending in the first place. This will then give you a large buffer room in year two and beyond. People who suffer from lifestyle inflation never really make it to financial independence as they get stuck on a treadmill of recurring costs that were never necessary in the first place!
Needing to be Fed: This is borderline psychological but typically comes up in social situations. At all costs avoid the rich people who claim to “know everybody”. This is by far the worst type of personal life flaw. Being well known and needing to be “fed” that their circle is important is beyond damaging and borderlines on psychosis. A good way to prevent obtaining this disease is by realizing that no one will be remembered in about 100 years. Unless your name is Albert Einstein or George Washington, there are maybe 10-20 people in our current generation that will be remembered in 100 years. The chances that it is anyone reading this blog is probably 0%.
Typically, people in this camp exhibit all the bad qualities we will mention in the entire post including: 1) materialism, 2) insecurity, 3) comparisons and 4) decline in physical health. Even if the person does have a lot of contacts, we’d say they are not worth the effort. They will waste a lot of your time since they need a lot of attention. Instead of keeping a soft touch relationship, just delete the contact and move on. Other people will have their energy drained by these leeches. Based on all our comments here you can see that we have no solution for these individuals (once the personal style is adopted). The good news is that 50% of rich people don’t have this quality so you can simply delete them and move on to the other half.
Comparisons, Passive Aggressive Behavior and Insecurity: This is probably the most common theme amongst the rich. They constantly compare themselves to the next guy who is constantly trying to throw passive aggressive comments in his direction. It’s quite funny because if you’re rich 1) why would you care about the opinions of some other guy and 2) if you’re rich why would you waste time throwing passive aggressive comments to another guy. It really highlights how humans are monkeys. If we look at these interactions from a third person perspective they look like teenage girls arguing amongst each other. Everyone seems to be angling for the “higher status”. Unfortunately, most people never understand that status is transferable. The same rich guy would lose his status in a different environment (singing competition, athletic competition etc.).
Luckily, if you’re reading this blog you’ll already see the pitfalls and avoid this trap in advance. If you’re already in this trap it is almost impossible to escape (In fact we’ve never seen anyone actually break out of it! Seriously not one!). The person is trapped in their own anchored belief system. If you find people like this our response remains the same: smile, nod and agree. If a guy tries to throw you passive aggressive comments stick with the strategy or do the classic “agree and amplify” counter if a group is present. The passive aggressive behavior is just insecurity since they don’t have much going on for them.
The Need to Be “Alpha” at All Times: This is the second layer of insecurity. The first one is practically unbreakable, the second one can be fixed over time (typically as the person ages). Remember, it is best to get rid of this before it begins. There are several well off people who “think” they can actually be good at anything they put their mind to. This is beyond crazy and is likely a psychological disorder. Unsurprisingly? The rich have this psychological disorder.
Now it is great if you have multiple talents. In fact we’d say it is highly likely that you’ll be great (not good) at a handful of tasks. To expand this to “anything” is beyond crazy. We would say that it is unlikely anyone becomes #1 in their field at all. This is already step one in realizing how difficult such a task is. There can only be one richest person in the world, one gold medalist in any sport and one top record producer. Therefore, the chances of being the “alpha male” in every single environment is not possible. Pick the handful of items and give out honest praise for people who excel in tasks that you find difficult. It’s nota bad thing to praise someone for being exceptional in a task that is difficult for you (psychologically healthy as well).
Need to Impress: This is the last one. While this may be seen as a contradiction we’ll make it as clear as possible. You can certainly dress nice (spending some money to look good isn’t bad), but there is a line between dressing nice and beginning to judge people for the exact brand they are wearing, assuming they look perfectly fine. Knowing the difference between the price of Gucci Loafers and Ferragamo’s… Is taking it way too far (more common for women to know such details).
We use this as a good line to draw because any male wouldn’t really know the difference between a $4,000 dress and a $1,000 dollar dress. In fact, we would probably fail a knowledge test on what bags, dresses and shoes cost the most. The reality is that the quality of the clothing matters (as long as the threads are of decent quality) the remaining items are largely prestige and other riff raff that no one really notices (except the snobs you never want to hang out with in the first place). So, as you ramp up your spending try to keep this in the back of your mind. Buying the item to gain attention for the brand is foolish. Buying the item to make sure you have a high quality suit/watch is perfectly fine. If someone needs to announce the brand… They’ve spent too much and just announced their own personal insecurity.
If we were to write out a step by step process to making sure you avoid the pitfalls we’d say it flows as follows: 1) realization that there is always someone better than you so trying to be the best at everything is a game for fools, 2) avoid lifestyle inflation by figuring out what gives you the highest utility – it will never be the same for each individual, 3) find a balance between empathy and giving away things for free – as we’ve proven in the past numerous times, people simply don’t value free items, 4) avoid physical decline since there is a steep hill to climb if this goes sour and 5) compare yourself to your own self a few years prior, what you view as a great life will unlikely align with many people if you’re honest about what makes you happy… Oh and as a bonus… avoid people who exhibit the negative traits as the people you associate with will do their best to push their insecurities and passive aggressive behavior onto you.