Parasite of Wealth
|September 20, 2011||Posted by Roshawn Watson under Uncategorized||
By: Roshawn Watson
Perhaps if you are a Kardashian or a Hilton and can somehow monetize your luxurious purchases through endorsements, appearance fees, products, licensing/merchandising deals, and a myriad of other ways celebupreneurs (celebrity entrepreneurs) justify and/or pay for extravagant purchases, then at least there’s potential for a financial upside of such expenses. Applying the “glittering rich” standard to see if one can truly afford the lush lifestyle is useful. Those who glitter should have a minimum net worth of $20 million, make at least $2 million a year, etc. (i.e., a very small fraction of the top 1% of households). Yes, they can afford to truly jet set, and the proportion of their wealth spent on looking the part amounts to the cost of a few pizzas to most people.
However, I have been noticing a disturbing trend for some time now. People will go broke trying to look rich. They may succeed in impressing others they don’t know and don’t really care about but generally at the expense of their family’s financial solvency and preparedness WHEN the poop hits the proverbial fan.
Heidi Montag was interviewed recently and basically declared that she and her husband are broke now post The Hills. She stated that their money was largely spent maintaining a facade of wealth and trying to launch her music career. They created an illusion of prosperity in hopes of gaining riches. She stated that she wishes she was more like Kim Kardashian (reportedly has net worth $65 million; income about $5.5 million annually). She mentioned that when Kim K spends, it is an “investment” in herself (with Kim’s earning power being closely connected to her successes at selling her “fabulous” lifestyle, I would say Heidi has a point). However, for every one “lucky” starlet who successfully manages to sell the illusion of her fabulous self, there are countless others who fail miserably. Additionally, even big celebrities can get into trouble living the good life if they are not careful. For example, Nicholas Cage (I’m a fan of several of his movies, so don’t hate) got into recent financial hardship, and an ever-increasing number of Bravo’s Housewives go bust. I don’t glory in their despair; however, their stories need to be told, so that our visions of the palpable risks associated with their lifestyles won’t be grossly distorted.
Of course, looking rich is not the main motivation for everyone who overspends: some people spend excessively because they either think they are already rich or know they aren’t but don’t care about the consequences. The following story is a case of the latter A few weeks ago, a friend grilled me for about an hour about her personal finances. I assured her that I wasn’t against her living the lifestyle she desires as long as she can afford it (i.e., pay cash for it without sacrificing retirement). Although I tried to encourage her that it got easier with time and discipline, she was very disheartened to hear me outline the risks of borrowing $40,000 for her next vehicle. She lamented that she likes the “nice things.” I assured her that many of us do and that she should then make it her goal to AFFORD the nice things. I said otherwise, the things that she buys will be parasites to her wealth.
Saving and Investing
The real problem is NOT the car but her attitude towards her money. The typical millionaire saves at least 15% of his or her income, and his or her income accounts for a mere 7% of his or her wealth. This explains why the average millionaire would survive for over 10 years without working; many could survive for much longer since they are used to living on significantly less than they make and have access to. Also, before you say that millionaires can save because they have more money, let me assure you that one of the reasons millionaires have money in the first place is because they save and invest. Let me explain. Regardless, of whether you make $40,000 a year or $400,000, you can still be broke if you spend all that you make. Thus, for most people to accumulate and maintain significant wealth, some restraint is generally involved and usually prominent.
I’ll make this short and sweet: “the true mark of financial intelligence is not how much you make but how much you can keep.“
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.