I want to talk about the depressed or dark side of being a millionaire. There is a group out there that is not good with money, and you would think that this is ridiculous to even say out loud. However, the fact that someone has a high income, Millennial status, or has been able to build some wealth immediately suggests that these people get money and understand it. But, you may be surprised that this is not always the case. Just because someone has crossed over to the seven-figure status does not mean that they are actually astute financial decision-makers, and it certainly does not automatically make them a financial mutant.
The first data point that Daniel created a chart with had multiple questions for me because I just didn't believe it. After he shared with me the data, they got me to believe it, and then I got mad. It's a dumb stat that should not exist, but here's what we found: Families in the top 10% of net worth in America are carrying an average credit card balance of $12,890. This is not income but net worth, and people in the top 10% are actually carrying this type of balance. This blows my mind because credit card debt works against your success, and it doesn't just stop there.
51% of Americans that make over $100,000 claim that they are living paycheck to paycheck. If their next paycheck does not hit, they will miss their bill. 16% of these respondents said that they actually had trouble paying their bills last month. Just because your income is high and you have had some success does not mean that you are making financial decisions the way you are supposed to be. These folks who are able to have high incomes and are just doing the 401K, and because they have a good employer match, the wealth is building, allowing them to fake it.
I am so concerned about how many Americans out there are faking their wealth and not actually doing the things they should be doing when it comes to making financial decisions. 54% of them feel like they are financially stressed. Once you make $100,000, you have made decisions on your lifestyle that have put you where you are stressed on a month-to-month basis. You do not have an income problem; you have a spending problem. You are a hyper-consumer instead of being a hyper-saver and investor. I want to draw attention to this and not pick on the people with low incomes. These people are obviously making decisions where they can't get out of their own way, and they're repeating this every month.
I know that there have been a lot of struggles, especially in the tech sector. So, I am always very aware that I don't want to be putting my thumb or pointing fingers at people when there are obvious struggles. Because, you know, I think so much of life is about discipline and trying to make sure you understand the concepts of deferred gratification. But, anybody who makes a hundred thousand dollars – we all, first of all, the stat that the happiness comes in around $75,000. That first level of wealth is just basically being able to sustain and pay your bills without worrying about how you are going to pay for my food, my house. But once you make a hundred thousand dollars, now we are getting into points where you have made decisions. If you are living paycheck to paycheck, you have made decisions on your lifestyle that have put you where you are stressed on a month-to-month basis. That's on you. You don't have an income problem, you have a spending problem. You are a hyper-consumer instead of being a hyper-saver and investor.
So, I want to just make sure we draw attention to that because I'm not picking on the people with low incomes. I'm picking on the people who are obviously making decisions to where they're repeating this every month, where they can't get out of their own way. Now, here's what's so funny. I imagine that people out there ask, "Well, how does this happen? Hey, you know, I make $40,000 a year. I just couldn't imagine if I made $100,000 a year, I would never be like that. That would never be my circumstance." And yet, we see this manifest over and over and over. So, what's something you can do better? How can you prepare to not allow yourself to fall into this category? The first one is important. Stop moving the goal post. We say this all the time, "If I could just make $100,000, then…" Well, what happens is when you get to $100,000, "Oh, well, if I could just make $120,000. Well, if I could just make $150,000. If I could just make $200,000." And then the house gets bigger, and the car gets bigger, and then you have the vacation home, and then you have the private school, and you have the clothes, and then you have the jewelry, and it just spirals out of control.
Do a self-assessment. Go ahead, right now, and dream of that life that you want to live and attack getting to that lifestyle. But understand when you get there, don't let it keep expanding, don't let it keep growing beyond what it should be. The lifestyle creep is a real thing. And I think once you even start having a level of success, you start going, "Should I buy a nicer house? Should I buy a nicer car?" And I'll give you an experience here. When I built my house here in Nashville, in the South side of Nashville, my builder had a great experience with him. And a few years later, he texted me and goes, "Hey, I got a new subdivision coming in. You ought to really… I can hook you up." He enjoyed. I think I was a good customer. I mean, I think he liked working with me. He was like, "So let's do it again." And he was bragging about some of the other people, and he was going to have a little more land. But I passed because when I started asking around, I got to know the superintendent pretty well, too. I was like, "Hey, you know the two or three people that are in there, they talk," and he's like, "No, no, those neighbors." I was like, "The reason they're on three acres, I want to live in a neighborhood where I actually talk to my neighbors, and I think that's the problem. If you are not careful, you'll keep buying bigger, you'll buy nicer.
You're, by the way, already paying the phantom higher expenses. If you guys don't know, the nicer the house you live in, the higher the service providers charge. Absolutely. It doesn't matter what you're doing. I mean, you put a swimming pool in the back of your reasonable house, and you put a swimming pool behind a really big honking mansion, and I guarantee the service contract on the Mansion's pool is going to be twice of what the reasonable house pool contract is. Just pay attention. Landscaping is going to be that way. Anybody who comes to help you out with any services, I know that these are probably first-world problems, but it is a fact that moving the goalpost is going to have more rooms, more furniture, more insurance, more taxes. Pay attention to all that stuff, and then you will understand better what makes me happy, what's enough so that you don't have this influence. Another way that you can do it better, another way that you can help prevent yourself from falling on the dark side is to understand how to invest appropriately for your stage of life. Far too often, we see folks who saved their entire career or they've saved until they hit that magical age of 47 and they're crossing the millionaire status, and all of a sudden, they decide, "Now I've got to do something different. Now I gotta do something complicated. Now I gotta do private equity." Now I gotta change the thing that got me to where I am. Understand based on where you are, how should I be investing? Where should I be putting my dollars? What should I be doing? If you're someone on the very front end of your financial journey, if you're on the front end of building your wealth, don't start majoring in the minors. Focus on low-cost index funds, target retirement index funds. Make it a super easy solution that you can't screw up. And if you are an investor who has built wealth, don't outsmart yourself. Don't overcomplicate things. Don't get too far out on the risk spectrum just because now you can.
Understand what's an appropriate strategy, an approach, appropriate investment vehicle for where you are in your stage of life. We talk about these index target retirement funds. I think they are great as you're starting out because you only have to say, "What do I know? How much can I save each month and invest? When do I need it?" It is that simple. But there will come a time where you do have enough success that you should go beyond these index target retirement funds because the tax location of how you hold things in different accounts and different tax structures, that's going to matter. But don't mishear me when I talk about the complexity of moving beyond these index target retirement funds. A very sophisticated good investment portfolio for a multi-seven-figure portfolio is still going to have index funds. We didn't move away from index funds. I think that's what a lot of people get confused when we talk about the complexity of the planning. The tools that you can bring into the process will add different values and elements because it'll be doing more. But it doesn't mean you have to go the path that we call the "dumb doctor deals," where these are such, they have sexy sizzle, but they really are so complicated. They're so expensive that they get you in a pickle of a situation to where you're disappointed in their performance. You can't use your money. You're upset because they're illiquid. And then you find out that the person making the most money off of these are the people that sold the products to you or put the package deal together. Just pay attention, know what you're getting into. Don't feel like rich people have to do it this way. When I was actually building my wealth, I did it this way. You might be surprised. There's a lot more overlap between getting wealthy behaviors and staying wealthy behaviors, like buying index funds, using real estate in a smart way. But don't get confused by all the people out there selling products and all these "Get Rich" or "sexy sizzle" packages that will get you in trouble.
Another thing that you can do to protect yourself is just make sure that you're not skipping steps. Make sure you understand what should I be doing. We have a tried and true process, nine steps, the
Financial Order of Operations. If you want to know about it, you can go down with the free deliverable at
moneyguy.com/resources, or we do a full deep dive on it at
learn.moneyguy.com, where you can work through what should I do with my next dollar.
So often people get out of whack. They want to start doing things before it's the right time to do them. So make sure you understand where you are supposed to be on your journey and you're doing steps in the right order so that your wealth can stack through time. Yeah, it's gonna help you with all the discipline, the lifestyle creep, all the things you need. And then I love if you ever need to keep yourself on track, we have the
Wealth Multiplier. If you look at this thing, if you ever think about going and buying something too fancy too fast, all you have to do is go download our
Wealth Multiplier, because it's gonna allow you to say, "Hey, instead of spending this dollar or having a car payment, which seems to be the trend based upon social media of $1,200 a month, what if I was investing $1,200 a month? What would that money be worth for a 28-year-old or for a 36-year-old?" I mean, you, we have it. Go to
moneyguy.com/resources to download this.
