Wealthy Thinking

“Let me tell you about the very rich. They are different from you and me.” - F. Scott Fitzgerald.

I’d like to chime in and add some candid truths about money and the people who have it. I’ll start by asking an uncomfortable follow-up question to F Scott Fitzgerald’s famous quote.

“How are the very rich different from you and me?”

According to one school of thought, it’s not their money. It’s their attitude towards money. Here’s a simple thought experiment to illustrate the difference. Imagine someone hands you $1,000.

If you think “what can I afford to buy with $1,000?” then it means you think about money the way most normal people do.

If your first thought is “what can I afford with a $1,000 down payment and no monthly installments for the next three months?” then it means you think like a poor person.

Whereas, if you think “how much will $1,000 be worth in 20 years if I invest it at a 10% annual return?” then congratulations! You’re thinking like a wealthy person.

And in that case, all that differentiates you from the wealthy comes down to just one thing: do you have the discipline to follow through? If so, then it doesn’t matter whether you’re already worth $100,000,000 or worth $1,000 - you are wealthy because you THINK wealthy (even if it will take your bank account another 20 years of compounding to reflect that reality).

My next follow-up question isn’t for F. Scott Fitzgerald. It’s for you.

Have you ever felt like wealthy people look down on everyone else? If so, then one possible explanation for why is because you could be right. Some people assume that the wealthy look down on everyone else simply because they have money and everyone else doesn’t. I say that’s a common fallacy. I suggest that the wealthy look down on others because the wealthy believe that they have superior financial habits and attitudes.

And who can blame them? Their financial habits and attitudes have probably been richly rewarded, serving as objective and quantifiable PROOF of efficacy. In fact, the wealthier they become, the more certain they may become that their attitudes and choices are demonstrably superior.

But as the cement of compounding wealth solidifies their sense of financial philosophical certainty, it’s often accompanied by a looming sense of befuddlement. They ask “why don’t poor people simply adopt financial attitudes like mine, which are so simple and obviously so much BETTER?” The wealthy mind lurches from one hypothesis to another. “Maybe it’s lack of discipline? Or lower intellect? Maybe it’s a lack of personal responsibility? Or just a lack of financial education?”

Of course normal people - people like you and I - would say “couldn’t structural economic forces (or plain old bad luck) also have something to do with poverty?”

From everything I’ve observed, the wealthy mind often struggles with that particular concept. The reason why is because the wealthy tend to credit their financial success (at least in part) to their own personal efforts and attitudes. And it is from that proposition that flows a darker logical counterpoint: the financial failures of the poor must (at least in part) be the result of their own financial attitudes and choices. Consequently, the wealthy may regard the financial predicaments of less wealthy people with a mixture of confusion and even frustration.

You and I hastily respond “but look at a starving family in a war-torn area like Gaza, or a natural disaster zone like Haiti. Can you actually believe that the family is starving… BY CHOICE???”

Of course the wealthy mind recognizes that forces beyond individual control and shape destinies and lives. But the wealthy mind won’t necessarily linger along that line of thinking for too long. Which is understandable. You’ll find that phrases like “focus on what you CAN control” are a common refrain among wealthy circles. Phrases that sound empowering and uplifting, but actually serve to invite your mind to turn away from haunting images of deprivation and suffering.

Images that would otherwise challenge the basic premise behind your own comfort and security. The notion that “I just got lucky” is just so damn disempowering.

Despite my tone, I don’t actually condemn the wealthy mindset. Far from it. In fact, I’m somewhat ashamed to admit that I understand it all too well and based on some first-hand experience.

As background, I’ll defend myself by telling you that I’ve saved money and invested regularly for nearly 30 years and built a comfortable (albeit not very interesting) net worth. I still drive an entry-level model used car that I bought 9 years ago. Whenever I open an account to find $140 in dividends, I take some time to decide how to invest that money. $140 might not sound like much today, but I’ve learned time and again how much it can grow if I let it compound by 10% per year uninterrupted for a few decades.

So a while ago, an acquaintance proudly showed me his new BMW 7 series. I was thunderstruck. I happen to know that he has a negative net worth and (since he’s a real estate broker by profession) highly irregular earnings. As I ran my fingers along the rounded angular silhouette of the vehicle, I had to restrain myself from shaking my head ruefully. On what planet does a broke guy buy a car like this???

Was I being judgemental? OH, FUCK YEAH! And why wouldn’t I be? I could afford a car like that, but it would never dawn on me to fritter capital on that sort of pointless indulgence. But, you rightly ask, should my personal spending proclivities have any bearing whatsoever on the moral rectitude of my acquaintance’s automotive purchase? OH, FUCK YEAH! Because I can objectively prove that my financial attitudes and habits are superior to his: I’m rich and he’s not. End of story!

Or is it? Because at the same time, the truth is that I’m also jealous as hell that this guy can just kick back, spend freely and enjoy life in ways that I struggle to do. He’s cruising around Lisbon looking like a tanned, pearly-toothed winner having a good hair day. Meanwhile, I’m puttering along in my scratched-up beater looking like a dufus in stained baseball cap and thinking “wait a minute… this outcome looks completely backwards from what I think it should be.”

For which I have nobody to blame but myself.

It’s a common stereotype: people simultaneously resent and admire those who are more wealthy. The hard truth: wealthy people are equally capable of simultaneously resenting and admiring those who are less well off than themselves.

And, of course, admiring and resenting one another. Even their very own flesh and blood.

My Grandfather’s Watch

Both my father and grandfather were rich. Moreover, they both lived exceptionally comfortable lives. My grandfather routinely stayed in the presidential suites at the finest hotels in Manhattan. He wore custom tailored Brioni suits. He knew that these finer things in life were designed specifically for people like him. My father also chose to surround himself with only the best. Unlike my household, there were no chipped plates or holes in my dad’s kitchen dishcloths. Both of these men earned, saved, became reasonably wealthy, and had no problem living like it. Simply stated, my father and grandfather were two men who knew who they were.

I did one thing that I’m fairly certain neither of them ever took the time to do. I calculated my average after-tax investment returns and spending and then projected how much I could be worth by age 100 if I maintained those figures as constants. Thanks to the fury of compound returns, the answer is a staggering figure. It’s a potential outcome that my father and grandfather couldn’t have imagined without the aid of a spreadsheet. I am nowhere near as intelligent as either of them, but taking that one extra step was the key that opened the doors of my thinking to more intelligent (and far more lucrative) risks. But like all tools, the benefits of this peculiar mathematical exercise brought certain drawbacks as well.

You see, I always admired my grandfather’s gold watch. When he died, I inherited very little from his estate, but I didn’t care. What I wished for was for him to leave me his watch. Instead, the watch passed to one of my uncles who probably sold it. It took very little time before my grandfather’s entire estate was dissipated. He had left most assets to his two surviving sons, my uncles, both of whom died of alcohol related injuries within just a few years of my grandfather’s death. My grandfather’s estate consisted almost entirely of shares of Banco Popular (which dropped by over 90% during the financial crisis) and Puerto Rican municipal bonds (which dropped by over 75% leading into the Puerto Rican government’s bankruptcy declaration). Improvidence, lack of communication, poor (or no) planning, substance abuse, lack of diversification… I learned first-hand how even exceptionally wealthy people like my grandfather and uncles are just as capable of poor financial choices and attitudes as anyone else.

If “wealthy thinking” and “poor thinking” can lead to the same outcomes, then any fundamental difference between the two is purely an illusion.

F. Scott Fitzgerald was wrong. The very rich are no different from you and me. Why? Because nobody can think their way - let alone buy their way - out of the human condition.

“Deserve” is an illusion.

But as far as my grandfather’s watch is concerned, I suppose that I could afford to buy one just like it. I never would. Why not? The answer goes right back to that infernal tool that I created - the spreadsheet where I calculated my potential ending net worth by age 100 if I maintain my average spending and investment returns. I can use this tool to simulate the impact of buying a $50,000 gold watch easily - I simply subtract $50,000 from my portfolio and compare my ending net worth before and after. That way, I can measure the opportunity cost with both clarity and ease.

So what is the opportunity cost of a $50,000 gold watch for someone my age with my average investment returns, spending and tax brackets? The answer is roughly $9,499,000.

Let me assure you that in none of the infinite alternative universes would I EVER blow eight figures on a stinking watch. And it’s not just the financial opportunity costs that render such a purchase inconceivable in my mind. I can’t help but imagine the blameless suffering of countless millions of people who face starvation, homelessness, and preventable disease.

Miserliness. Shame. Guilt. Any person - wealthy, poor, or in between - who hasn’t regularly experienced those feelings is asleep, either morally or otherwise.

My grandfather, morally speaking, was wide awake right up to the time he died. I was there with him throughout his long hospital stay. I was sitting next to his bed at the very moment when he passed away. He left a substantial bequest to charity. He wanted to make Puerto Rico a better place, and did what he could. He was generous.

And at the same time, he wore his elegant and rare gold watch so naturally and with such discrete aplomb. Even if I owned that watch today, I could never be the man he was. Of course I admired him profoundly (everyone did). I admired my father even more than my grandfather. And at the same time, I also resent some things about them, too. I’m envious that they were comfortable earning (and getting) the best. Like them, I feel extraordinarily fortunate, but unlike them, I don’t feel like I particularly deserve anything. I’m envious of how sure they were in their beliefs. I question my own wisdom constantly. My father and grandfather made living with wealth look easy and natural and I admire the fact that by my age, they really had their shit together. I resent the fact that I’m still trying to figure my life out.

But all that being said and done, I do believe that I may have found one way to avoid some of the thought-traps and mental ruts described in this article. Or at least, it might be a tool to climb out of the thought-traps and mental ruts that I’ve already fallen into. The tool is a way to conceptualize wealth that has precious little to do with money or our attitudes towards it.

What’s my personal definition of “wealthy” thinking? Gratitude. I make a point of giving constant thanks for whatever life puts in my path… or doesn’t.

No, I didn’t get my grandfather’s gold watch in the end, but I did get something even more valuable. A story.