The kids are back at school and we are all back on a schedule. Each morning Alex, my middle son, has a particular breakfast routine. On to his oatmeal, he adds banana, peanut butter, cinnamon, and sliced almonds. Pretty sophisticated for a 12-year-old.
My oldest son, Chris, is on the tackle football team. It's the first year his school offered the sport. He comes home all scratched up and grass-stained but is grinning from ear to ear.
Lastly, and sadly, Desmond the dog got neutered. He did not like the cone.
Over the past twenty years, I’ve met a lot of different people who possess different amounts of savings. I’ve met many people with nothing. I’ve met millionaires. I’ve met lucky dogs who have tens of millions of dollars. I have never met a billionaire. (If you know one and they are looking for a financial advisor, send them my way).
It sure would be nice to be rich, wouldn’t it?
I have noticed a striking phenomenon throughout the years. The amount of money you possess has a diminishing return on your happiness and enjoyment of life.
What does that mean? Let me show you a few illustrative anecdotes.
George is close to broke. He owns a small home without a mortgage, but he and his wife must survive solely on social security benefits of $2,700 per month. That’s pretty tight.
I’ve done hundreds of budgets with clients and I’ve found that — in Sarasota, one of the leading retirement spots in the country — if you have no mortgage, you can get by pretty well on $4,000-$6,000 a month.
But, at $2,700 a month, George and his wife really need to be careful. They can probably only own one car. Probably can’t go out to eat much, and need to clip every coupon. They will get by, but a broken air conditioner can put incredible stress on their lives. In fact, I am willing to bet George and his wife live with a lot of daily stress over finances.
I don’t want to live like George.
In addition to her social security, Nancy and her husband have cobbled together about $400,000 in savings. They own their home and their social security totals $3,200.
Nancy invested her $400,000 in a balanced and diversified portfolio of stocks and bonds, with more than half the money in stocks. It is reasonable for her to withdraw $1,600 a month from the account without putting herself in danger of running out of money.
This now equals $4,800 a month, which is much more doable. They go out to eat a few times a month, at moderately-priced restaurants. They made a game of finding the best dinner specials in town. She and her husband play golf on the municipal courses, which keeps them both social, active and healthy.
They even take a small but nice vacation once a year. Nothing fancy, but great memories nonetheless.
While this is not a lavish lifestyle, I’ve found the Nancys of the world can be perfectly content with her $5,000 a month. Of course, there are things she wishes she could do, but the European river cruise and new kitchen just aren’t in the cards. It doesn’t bother Nancy all that much. She has a roof over her head and can buy what she needs.
Bob was an executive at a small company in Tampa. His salary was in the six figures, and, together with his wife, they were able to save $1.2 million dollars. I can’t believe we’re millionaires, Bob would often think.
With their house paid off, Bob and his wife, between social security and investment dividends, brought in $9,000 per month. After taxes that left $8,000 a month in cash, deposited straight into their bank account.
Now, this is some pretty serious money. Their budget was only $5,000 per month, which gave the couple $36,000 a year of "play money."
Bob and his wife travel. Alaska, Europe, and New Zealand. They replaced the floors and add a patio on the back deck. Bob plays golf at some of the nicer public courses. They go out to eat basically whenever they want. Every once in a while, they really splurge on a good steakhouse dinner.
While Bob and his wife enjoy the money, they find that, after a few years, spending $36,000 of play money is unnecessary. They find a new source of joy in giving generously to their church and spoiling their grandchildren.
Bob and his wife ended up well-traveled with an upgraded home, living a quiet life they enjoy.
Lastly, meet Charlene.
Charlene was rich. Between her social security and her investments, she realized about $20,000 a month in retirement income. This gave her nearly $100,000 of play money per year, while living a very nice lifestyle.
Charlene’s husband is a member of an exclusive country club and plays golf at their world-famous course now and then. Even though it is only the two of them, they live in a 4,000 sq/ft house, which they can easily afford.
They travel whenever and wherever they choose. African safaris, cruises to far-off exotic lands — always in the upgraded suite of course — and other adventures. They eat at the finest restaurants, own the finest clothes, and have the best of just about everything. Charlene and her husband quickly ran out of ideas on how to spend the money. They had everything they wanted.
What is the point, Dave?
George (the broke one) desperately needed more money. His current income puts him under incredible stress. He had to watch every penny.
Nancy is your standard professional woman. She saved some money which allowed her to do some of what they wanted, but the cheap version.
Bob, with his one million dollars, had a lot of opportunities. He and his wife traveled, and they found other, fulfilling ways to spend their money.
Charlene could do whatever she wanted. She and her husband belong to a fancy country club, eat wherever they want, and take exotic, exclusive vacations all over the world.
The difference from George to Nancy is significant. But, the difference between Nancy and Bob is actually pretty small. They both play golf. Maybe the greens were not quite as nice at Nancy's municipal course, but the game is just as fun.
The difference between Bob and Charlene is smaller than you would think. I can tell you, from personal experience, that a five-star French restaurant’s food doesn’t taste all that much better than the nice Mom and Pop place down the street. Nancy and Bob were basically eating at the same places. Both got to travel.
Now, here’s an important point: Nancy, Bob, and Charlene all had the same amount of fun on their trips. Maybe Bob and Charlene got to take more trips to more exotic locations. But is that really that big of a deal?
Charlene’s Mercedes gave her no more joy than Nancy’s used 2016 Honda CRV.
Nancy, Bob, and Charlene all ended up eating at essentially the same restaurants.
They all got to enjoy being terrible golfers.
I don’t want to be George. You don't want to be George, either. (Sorry, George!)
Not having enough in retirement is a very tough situation. But, as for Nancy, Bob, and Charlene — they all lived relatively similar retirements.
Being "rich" does not give you all that better of a life compared to the "kinda-rich" compared to the "working/middle class." Sure the levels of fanciness are different, but does it really matter that much if your hotel room has newer carpet than the other?
Don’t have a false impression that more money means a totally different retirement lifestyle. It doesn’t. I’ve done this for 20 years. It doesn’t.
As long as you have enough to not worry about paying the bills, like George.
We have been put on this Earth for relationships. The relationships you have in your lives are far more important than your monthly income. The cliché is true — I’ve met very wealthy, lonely people, and I’ve met people without a penny to their name with lives full of love.