I have reflected before in these articles that the manner in which our household manages our money is an expression of the life that we live; what we value, what we like, what we are obsessed with, what we can’t say no to, etc. A CPA friend of mine recently told me about a couple that she just prepared taxes for who are worth over 3 million dollars. They are in their 50’s and they are both teachers. Not too shabby!
This got me thinking…I wonder what this couple is like. What is it about them that caused them to have that kind of money on the same type of income as many people who, at the same age, have little to show for it (in terms of net worth)? Could I be them? Do I want to be them? Am I supposed to be them?
First off, congratulations to that couple! I think it’s awesome that they have seen so much growth with their money. It takes a lot of great decisions and a fair bit of good fortune to get to where they are now. I have no idea what all the variables are, but they have obviously done enough different things than most people to get such different results!
It’s probably safe to say they have been quite conservative in their spending throughout the course of their working lives. We could guess that they have mainly purchased used, economical vehicles and that they haven’t financed these. They understand the value of a dollar and hate paying interest on anything. They have lived in the same house for over 20 years and have had it completely paid off for the last 10 of those. They have both contributed consistently to their employer 403b retirement plans and have had a portion of those contributions matched. Their only child went to college on a full scholarship.
Our subject couple has probably taken modest vacations and has been quite content to live significantly below their means (by current standards – a few generations ago, this would actually have just been living within their means). They have been fortunate to have excellent health and to have spent the majority of their investing years in bull markets, benefiting hugely from the growth that comes from compound interest. A lot has gone right for them!
They have probably done very little upgrading, even though their wealth would certainly support it. For them, enough is enough. Some of their co-workers feel sorry for them because of the cars they drive and the house that they live in. Their style isn’t right on the cutting edge either. After spending the first 30 minutes of lunch talking about how horrible their pay is and how no one could ever get ahead on their salaries, these co-workers will sometimes talk about our weird subject couple who never has any fun. After work, they head out in their leased Lexus’s to go refinance their mortgages to a new 30 years with a large home equity line of credit, which will allow them to buy their kids new cars.
I don’t know the whole story behind this couple’s success in growing money. The Millionaire Next Door is a great read regarding the lifestyles of the rich and far from famous, if that interests you. Clearly, they have experienced a rare convergence of good financial decision-making and fortune.
There are a number of reasons that Gretchen and I probably will not be in a similar situation in our 50’s. One is that we actually make significantly less income. This is partly by choice, as we have made a priority of Gretchen staying at home. Our spending practices and philosophies are actually quite similar. The difference is that in our case, there isn’t a lot left to throw into savings or investments. Another difference is that we are not very investment savvy or even investment minded. I have the furthest thing from a nose that smells out a financial opportunity that I can imagine! That’s just not me.
We are also very risk intolerant, which limits the amount of potential growth that any saved money we have will see. Again, I do not sniff out good investments (and most people that I know who think that they do don’t either—which brings us back to knowing thyself). Gretchen and I don’t get ourselves into trouble, but we also don’t double our money in a week. (I am completely comfortable with this.)
Another difference is that I am probably still a little more now focused than this couple. If we fell into a lot of money, I really believe that we would use it fairly wisely, but we would spend more on now purchases then this couple might. This is partly a reflection of my pessimistic outlook on the future of investments in our economy.
How we spend money is a reflection of our likes, our dislikes, our comfort and discomfort tolerance, our contentedness, our passions, our obsessions, our weaknesses, our strengths, our personalities, our bents, etc. The way that our subject couple spends and invests their money apparently works for them. If it would drive you nuts, you’ll want to modify to what better fits you.
Money management is one expression of the unique make-ups that each one of us and each household has. We all need to be responsible for our money, but how this is expressed will be as varied as our different personalities. Sanity takes precedence over wealth. So does conviction. I doubt Gretchen and I will ever have 3 million dollars, although I’d welcome it! Our money situation is a snapshot of all of the things I have already named. We could stand to improve on a number of things, but whatever we do, it should remain true to us.
I hope we all are always looking to improve on areas of weakness, but I also hope that we do not do this solely through emulating what other people are doing. We should appreciate and celebrate the uniqueness of our family. As we grow, we will see this better expressed in many areas, including money. I really believe that the results will take care of themselves.
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