The trait that divides the wealthy from the simply rich is that the wealthy make choices, according to Paul Sullivan, Wealth Matters columnist for
“They do not let life happen to them,” he said. The wealthy are those that have “stayed above the thin green line,” the line that shows the trajectory of the S&P 500, Sullivan explained [those below are those who have lost money; those above have done better than the market].
Paul Posluszny, linebacker for the Jacksonville Jaguars is an example of someone who makes choices and has remained wealthy. Sullivan recounted how Posluszny, who “has $20 million in the bank, at least, had expressed a passion for fancy sports cars, and one day said he’d test-driven a $90,000 BMW, and fallen in love with it. But, he hadn’t been able to pull the trigger.”
Soon after though, he told Sullivan that he had bought an Audi A7, for $75,000. He’d loved that car too, although not as much as the BMW, but it was good enough. “He saved 17 percent. Every decision he makes, he saves 17 percent and he’s still enjoying what he’s spending money on,” noted Sullivan.
That’s why Posluszny is wealthy, and “if advisors can get their clients to make comparable decisions, they will have clients for life,” Sullivan remarked.
To further illustrate how making choices can help people achieve financial well-being, Sullivan noted that what he calls the, “Starbucks Starvation Diet.” That “diet” means that by foregoing a $4 latte they might be accustomed to buying each day, saves them $20-$30 per week.
It might seem like a small sacrifice, but Sullivan explained, “It’s not fun, it’s not possible, and it doesn’t work.”
As an alternative, he recommended making a real choice, like the one he makes in what he calls the Bordeaux dilemma. Describing himself as a wine devotee, Sullivan said that Chateau Margaux is so good that it hardly seems worth drinking anything else. But, a bottle can cost $1,000 or more, so drinking it regularly is out of the question. To give himself the pleasure of the wine while also paying attention to his bank account, he allows himself one bottle of the precious wine each year.
“That’s a choice,” he says.
Money causes a great deal of stress for many people because they endow it with meaning that has nothing to do with what it actually is – i.e., something to buy things with. To demonstrate just how much anxiety people have about money, Sullivan asked attendees to raise their hands if: they’d ever had a serious argument with their spouses; they’d had a serious health scare; or they’d ever given their children a serious talk about working harder in school. He then asked attendees to shout out how much they had in their brokerage accounts. Whereas many hands went up in response to the first three requests, there was silence in response to the fourth.
“You’ve just told me some of the most intimate details about your life, but no one will say what’s in their brokerage accounts,” Sullivan observed.
The relationships people have with money can be categorized in one of four ways, Sullivan said, citing the work of Kansas State University’s financial therapy program. Those four relationships are – avoiders, who think only bad people get rich; vigilantes, who compulsively save in fear of something terrible happening; worshippers, who feel that if only they had more money, they would be happier; and people who equate their self-worth with their net worth.
For advisors, it’s crucial to understand what money means to any particular client in order to help that client make optimal use of his or her wealth, and stay above the thin green line.
“They do not let life happen to them,” he said. The wealthy are those that have “stayed above the thin green line,” the line that shows the trajectory of the S&P 500, Sullivan explained [those below are those who have lost money; those above have done better than the market].
Paul Posluszny, linebacker for the Jacksonville Jaguars is an example of someone who makes choices and has remained wealthy. Sullivan recounted how Posluszny, who “has $20 million in the bank, at least, had expressed a passion for fancy sports cars, and one day said he’d test-driven a $90,000 BMW, and fallen in love with it. But, he hadn’t been able to pull the trigger.”
Soon after though, he told Sullivan that he had bought an Audi A7, for $75,000. He’d loved that car too, although not as much as the BMW, but it was good enough. “He saved 17 percent. Every decision he makes, he saves 17 percent and he’s still enjoying what he’s spending money on,” noted Sullivan.
That’s why Posluszny is wealthy, and “if advisors can get their clients to make comparable decisions, they will have clients for life,” Sullivan remarked.
To further illustrate how making choices can help people achieve financial well-being, Sullivan noted that what he calls the, “Starbucks Starvation Diet.” That “diet” means that by foregoing a $4 latte they might be accustomed to buying each day, saves them $20-$30 per week.
It might seem like a small sacrifice, but Sullivan explained, “It’s not fun, it’s not possible, and it doesn’t work.”
As an alternative, he recommended making a real choice, like the one he makes in what he calls the Bordeaux dilemma. Describing himself as a wine devotee, Sullivan said that Chateau Margaux is so good that it hardly seems worth drinking anything else. But, a bottle can cost $1,000 or more, so drinking it regularly is out of the question. To give himself the pleasure of the wine while also paying attention to his bank account, he allows himself one bottle of the precious wine each year.
“That’s a choice,” he says.
Money causes a great deal of stress for many people because they endow it with meaning that has nothing to do with what it actually is – i.e., something to buy things with. To demonstrate just how much anxiety people have about money, Sullivan asked attendees to raise their hands if: they’d ever had a serious argument with their spouses; they’d had a serious health scare; or they’d ever given their children a serious talk about working harder in school. He then asked attendees to shout out how much they had in their brokerage accounts. Whereas many hands went up in response to the first three requests, there was silence in response to the fourth.
“You’ve just told me some of the most intimate details about your life, but no one will say what’s in their brokerage accounts,” Sullivan observed.
The relationships people have with money can be categorized in one of four ways, Sullivan said, citing the work of Kansas State University’s financial therapy program. Those four relationships are – avoiders, who think only bad people get rich; vigilantes, who compulsively save in fear of something terrible happening; worshippers, who feel that if only they had more money, they would be happier; and people who equate their self-worth with their net worth.
For advisors, it’s crucial to understand what money means to any particular client in order to help that client make optimal use of his or her wealth, and stay above the thin green line.
