Solving Some Rich People Problems

The richer you get the more likely you are to suffer from these “problems”. In fact many of you reading this, likely a larger portion than most assume, will find it entertaining. In standard fashion, instead of just listing out the issues we’ll attempt to provide a few solutions as well. They aren’t great but hopefully they will help. If you have a common rich person issue please feel free to comment as well as we’re interested to find common threads and fix them. The more rich people problems that are fixed, the better the world will become (exact opposite of what most believe). 

Less to Talk About: If you take a step back and think about the majority of conversations, they usually involve one person complaining/telling their life story and the other person listening and telling them what they want to hear. Once you make it financially, conversations are harder to have as you have no interest in hearing about another person’s complaints. This then leads you to cleaning out your contact list as no one wants to listen to complaints all the time. This leads to a significant reduction in conversations in general. This is less of a problem and more of a “by product” of success and is something to be aware of as your net worth increases. It also prevents you from complaining unless there is something significant that has recently occurred. Even if this is the case you end up referring to it as an “annoyance” and move on quickly since it doesn’t change your life either way. 

Since there is less to talk about you inevitably look for people who don’t have problems. Unsurprisingly, rich people have less problems! So you’re naturally drawn to richer people who then fill conversations with topical items like investing, golf and other successful people. One thing that doesn’t change as you move up is the amount of gossip. Everyone wants to gossip and we’d suggest doing the opposite… Only gossip positively about other people. As soon as you join in on the gossip game (you’ll invariably be asked about someone) always say positive things. There is no real upside in saying negative things unless you’re 100% certain the person wants to hear negative feedback and will reward you for agreeing with him (99.9% of the time we’ve found being positive as the only real long-term solution). Either way, the solution to fill the void outside of investing, and casual talk is to partake in gossip in a positive manner. Only highlight the good qualities of everyone you know (except the competition of course!). 

Significant Change to Motivation: Once you reach your financial number, it’s incredibly difficult to stay motivated. In fact, we’re shocked at some people who are able to earn small amounts of money relative to their net worth (they somehow still do quality work and care quite a bit). As an example, if you reach $5 million in net worth but are still working for $200,000 a year after taxes… We’re impressed. Not a joke. The person is somehow motivated despite his entire year of work being worth *less* than his investment income. It’s insanity really as he can only increase his net worth by 4% and that is if he saved every single cent with $0 in living expenses (unrealistic).

The only solution we’ve come up with for people in this situation is to either 1) never sell your business or 2) build enough skills to do something you enjoy for money. These are the only two major items that seem to work consistently. If you sell your business with nothing left to do, you’re going to be unmotivated by anything around you. By way of example again, if you were making $500K a year from the business and sell for $5 million… well now you have nothing to do and in order for you to be motivated you must find something that earns a minimum of ~$500,000-$750,000 after taxes. Hard to justify working for single digit net worth increases. In the second example you would build skills related to a fun activity. You click the sell button and move into a new position that doesn’t pay well but is actually enjoyable (hint: unless you’re extremely lucky, making large amounts of money is extremely stressful). The clear message here is to avoid being caught in the middle. Don’t do something you “love” unless you’re rich and don’t need the money and don’t sell a business unless you absolutely know what you’re going to do next. Otherwise you’ll just be an unmotivated guy with a heavy bank account (a lot more common than people think).

Taxes and Assets: As you amass a larger and larger net worth, you’re forced to think about death taxes, estate planning and minimizing your own tax burden. It is insanity. We strongly recommend hiring an accountant who has worked for the IRS and has strong knowledge of business structures. Asking rich people just isn’t enough as you need a professional who does this for a living. They will know every single hack, trick and loophole if they are good. Taxes are up there with the most annoying things in life. You end up giving the government more money than you would personally spend in a year. By way of example, it’s not uncommon to spend $300,000 in taxes and yet your total annual spending came in at $200,000 or so. This is crazy as you’re spending less than you’re giving away (to a wasteful government… where you use nothing except security/defense). 

Assets begin to have real meaning as you get richer. Anything that is “tied up” becomes less valuable as you don’t need to play the appreciation game as much anymore. While you preferred the 20% annual gains with no dividends before… Now you’re annoyed at anything that doesn’t generate positive cash flow for you on a quarterly or monthly basis. Why? Well the value of life diminishes over time and having millions of dollars to spend today is a lot better than having hundreds of millions when you’re 70-80 years old. Things like your old 401K plan and Roth accounts become meaningless since they can’t be used until you’re old and gray. The people who are still interested in locked up long-term investments (no cash flow and long holding periods) are generally looking for something to pass along to their kids (or additional tax avoidance). If you’re single and trying to live it up, this is just not attractive anymore as you unwind your assets to invest into cash flow vehicles (with a low probability of future headaches). 

Difficult Income Replacement: For those that decided to go all in on a Career with no second source of income and made it… the one issue is this… what happens if that position goes away? There are countless stories, particularly on Wall Street, where someone could be earning $500K+ per year and then transition quickly into structural long-term unemployment. Why? Well there are not many positions that pay this much money. If the sector you’re in falls out of favor or too many people enter the field, wages go down and it becomes difficult to tell other people “I’ll work for less”. If anyone thinks this cannot happen to them we suggest looking into any industry that has moved into declines, working at places like Blackberry used to be high paying high growth positions. The same could happen in any industry not just smartphones and computer equipment. Another example.  As AI advances and machines can write better code than 99% of programmers… what will happen to their income? So on and so forth. 

The one downside of being rich and having a high paying career is that you’re going to have a difficult time replacing it. This also applies to any business you create. Luckily, we put this as a “rich person problem” since the typical rich person will realize this quickly and invest/save aggressively… Realizing the party/money train could stop at the drop of a hat. Generally speaking, anything high paying or high income generating could go sour… FAST. No risk no reward and at the high-end it means the risk is actually higher. Besides. If something pays a lot of money now you have two constant issues: 1) everyone wants to do it increasing competition/supply and 2) anyone who is writing that check wants to fire the person since they are a high cost line item. Before signing off here, we realize this does not apply to the ultra wealthy, CEO’s of fortune 500 companies for example.

Loss of Trust: Another rich people problem is the loss of trust. You’ll be asked for jobs, loans and many other forms of help. This is probably the second biggest reason to remain under the radar when possible. As soon as people know you’re well off, suddenly everyone will be your best friend and ask for help since it is “no big deal to you”. Only the ultra rich reach a point where everything is free as people pay them to show up. Trusting people who are not rich becomes difficult as you look for them to angle at something. As they say, rich people are friends since they don’t need each other. Tough to create a one way relationship with people asking for things. The same dynamic is seen with famous movie stars/musicians as they typically date one another. 

A good way to deal with this problem is no different than hiring someone for any type of job. If and this is a huge *if* they could add value to your life, you simply give them a small project/opportunity. At the end of the day, if someone tries to burn you on meaningless items, they are going to burn you on the big items with *certainty*…. As a side note… this is also why your co-workers are never your friends. All of them try to “game’ the receipt system in some way to offset a few dollars in cost per day (could be meals, travel expenses etc.). If they are willing to risk their employment for a $20 change in receipts, they will happily toss you under the bus for a $10,000 raise. In fact, most people like this get enjoyment out of other people failing. 

No Interest in *Work* Status: Unless you’re aiming to have your obituary show up on the front page of the Wall Street Journal, one thing that changes over time is your interest in Prestige/Status. When you’re starting out it’s some sort of obsession, the special career at FAANG, Goldman, an Elite Boutique etc. The people who actually make it aren’t even interested in the name of the place you work for or own. In fact, you’ll find that they avoid the conversation entirely and give vague responses such as “Random stuff here and there” when asked about their work. This is because anyone with real money isn’t interested in announcing to people that they have real money. It’s only the people who have very little money that are itching to hand you a business card that says “XYZ company – low totem pole position”. 

This change in demeanor usually happens around 30-35 years of age. If someone works at a name brand firm and is still excited to talk about it… They are unlikely rich. If they were, then they wouldn’t want to add to the pile of emails/messages they receive every single day/week/month. Mathematically, this is also where you see the separation between the have and have nots. If the person only made an average of $250,000 ($160,000 after taxes!) a year the past 10 years… there is practically no chance he’s even a millionaire unless he was able to spend less than $60,000 a year in a high cost city. The ones who made it will have a net worth closer to $3-5M or more. As you can see, the ones who make it earn more off of their investment income than the hard worker makes in a single year after taxes (5% on $4 million is $200,000). Before moving on… status in this case does not refer to material items, all of those things are still an obsession: “the best schools”, “the best zip code”, “the best brands” so on and so forth… That stuff is always around.

Significant Change in Responsibility: The richer you get the more responsibilities you will have. Even if you don’t want them… it is going to happen. Since it’s the only real way to earn more money. Employees, contractors you name it. At the end of the day as you move up the ladder more and more people rely on you to support themselves (you’re delegating tasks to move onto something else more profitable). Unless you’re a true psychopath, this is a large amount of pressure since you don’t want to ruin someone else’s life. Your failure isn’t just on you… it is on multiple people at the same time. There is not a single person in the world that you want to be in contact with that would actually enjoy firing someone. This is probably the most legitimate rich person problem. 

Speaking of responsibility, even if you find a way to make many millions alone, you’re going to have to hide your success to the best of your ability. People close to you will inevitably know you’re well off but having more and more people know creates a compounding number of problems. If you want to sue someone who do you sue? A rich guy or a broke guy. Everyone knows the answer to this. Similarly, if you’re going to try to scam someone who do you go after… so on and so forth. There is a delicate balance here as you’re essentially being forced into cynical thinking which is also unhealthy (stressful as well)! So even if you don’t want responsibility with other people (unlikely) you’ll have significantly more personal responsibility. Solution here? None we’re aware off. Just a tradeoff in life. 

Importantly, for those that are serious about developing multiple streams of income and a high net worth, we can recommend Personal Capital. The Company offers *free* software tools with the following four key features:1) ability to avoid losing money by tracking all fees associated with an investment product allowing you to choose the best possible fund for your future, 2)portfolio analysis where your risk profile is stacked up against your current age and retirement goals, 3) in addition to these free tools, you can also track your net worth and path to becoming a millionaire and 4) when you hit $100K in net worth you’ll receive a free one time consultation with an investment professional at Personal Capital. After linking up all of your accounts you’ll be able to sit back and watch as your net worth goes up and your fees remain minimal over the next several years. We strongly believe that Personal Capital is the premier personal finance software tool when compared to its competitors such as Mint. If you’re looking to avoid personal financial collapse, it makes sense to track everything in one place for *free*