The Invisible Rich

roadkill · 08-07-2007, 09:00 AM

Thought this article would be of interest.........

The Invisible Rich

by Knight Kiplinger

The biggest barrier to becoming rich is living like you're rich before you are.

A while back I was leading a personal-finance seminar at a high school, and I posed this question to the teens: "When you see a man cruise by in his $65,000 BMW 550i, what do you assume about him?" The answer: "He's rich." And a man who drives by in a ten-year-old Chevy? "He's struggling."
Elusive realities. Just the answers I was looking for, and they provided a launching pad for a lively discussion of deceptive appearances and realities. By the end of it, these teens had a clearer sense of how little you can determine about wealth from a person's visible consumption. The BMW, I noted, is probably leased (perhaps for three years, no money down), so we can infer only that the driver earns enough to handle a $1,131 monthly lease payment. We know nothing about his net worth, which may be great ... or may be almost nonexistent.

And the man in the old Impala? Maybe he is struggling financially, but there's another possibility: His income is just as great as that of the dude in the Bimmer, but he's not saddled with a lease payment -- and he's investing the money in mutual funds that are growing at 10% a year.

The message in all this: The biggest barrier to becoming rich is living like you're rich before you are. Why? Because all that discretionary spending -- the chic apartment, frequent travel and restaurant meals, consumer electronics, fancy clothes and cars -- crowds out the saving that will enable you to be rich someday.

I often hear complaints from young adults, twentysomethings to those in their early thirties, that they'll never be able to buy a home because they can't afford the down payment. But when I probe them about their budgets, I find that they earn enough to make a down payment in just three or four years -- if they cut back on their spending, and if their starter-home expectations are reasonable.

Know who grasps this best in American society today? Recent immigrants, whether they're from Latin America, Africa, Asia or Eastern Europe. Many of them come to the U.S. almost penniless. They work long hours at modest wages and send some of those earnings to relatives back home. But, miraculously, they still have money left over each month because they live simply. Often they double up with friends and family in crowded housing.

What do they do with their savings? They buy a home, often in a less desirable neighborhood that other strivers are leaving behind. They fix it up, rent rooms to friends and relatives, and then trade up to a nicer home. They may keep their first and second homes as rental properties, becoming hands-on landlords.

A niece of mine sells new homes in the outer Virginia suburbs of Washington, D.C. The houses cost $500,000 -- a "middle market" price in this affluent area. Many of her buyers are Latinos. They don't look or act rich, and they often need translation help. Many of them arrived in the U.S. with nothing but ambition. They worked hard, started small businesses and saved 30% of their incomes.

Someday, when they finally feel as financially secure as they will actually be, they might start living it up. They might buy -- not lease -- a BMW, most likely a used model. High school kids will assume them to be rich and cast admiring glances at them and their fancy cars.

Proudly invisible

But just like overspending, the habit of frugality is hard to break. Maybe these folks will just keep the old Chevy. They will remain proud members of the Invisible Rich -- a growing army of super savers whose net worth is more impressive than their income. They'd rather live within their means, sleep well and forgo the covetous attention of their fellow citizens. Not a bad way to live at all.

MasterBlaster · 08-07-2007, 10:16 AM

The Invisable Rich...

tightasadrum · 08-07-2007, 11:16 AM

Isn't that what "The Millionaire Next Door" was all about?

And his second book talked about "income rich" vs "balance sheet rich". Hint: YOu want the big balance sheet.

BigBob · 08-07-2007, 12:21 PM

Master,
Thanks for the laugh! I knew someone would come up with a good one.

bow-tie · 08-08-2007, 11:52 AM

I would gladly be invisible rich... and the sooner the better.

roadkill · 08-08-2007, 12:04 PM

Quote:

Originally Posted by tightasadrum

Isn't that what "The Millionaire Next Door" was all about?

Yup....Even though the book is over 10 years old, it appears that LBYM hasn't gone out of style. I thought that maybe some of the "Young Dreamers" would find this short refresher beneficial.

cj · 08-08-2007, 12:39 PM

This is the most interesting part, and very much describes DH & me:

"But just like overspending, the habit of frugality is hard to break."

CJ

MasterBlaster · 08-08-2007, 01:09 PM

CJ:

Perhaps you could join FA (Frugalholics Anonymous) to cure your addiction.

cj · 08-08-2007, 01:27 PM

Quote:

Originally Posted by MasterBlaster

CJ:

Perhaps you could join FA (Frugalholics Anonymous) to cure your addiction.

I could be president of the club. DH would be CEO.

Keim · 08-08-2007, 01:36 PM

We can hold meetings at the local Rolls Royce dealership.

Jay_Gatsby · 08-09-2007, 01:57 PM

Good article. The average 20-something today:

1. Wants to live it up as much as possible after graduating college before settling down.
2. Wants to spend money on luxuries s/he never had as a poor college student.
3. Thinks s/he has plenty of time to save for retirement.
4. Desperately desires the envy/respect (aren't they one in the same?) of his/her peers.

All this spending occurs on top of tens of thousands (if not $100k+) of student loan debt. I could go on, but the entire concept of delayed gratification seems to be entirely foreign.

Nords · 08-09-2007, 04:22 PM

Quote:

Originally Posted by Jay_Gatsby

Good article. The average 20-something today:
1. Wants to live it up as much as possible after graduating college before settling down.
2. Wants to spend money on luxuries s/he never had as a poor college student.
3. Thinks s/he has plenty of time to save for retirement.
4. Desperately desires the envy/respect (aren't they one in the same?) of his/her peers.
All this spending occurs on top of tens of thousands (if not $100k+) of student loan debt. I could go on, but the entire concept of delayed gratification seems to be entirely foreign.

With the possible exception of the student debt, I don't think that much has changed in the last 20+ years (when I was a 20-something). I certainly don't think I've added much delay to my standards of gratification, either.

Of course back then instead of student debt you 1) got a job and attended school around work or 2) joined the military.

unclemick · 08-09-2007, 04:55 PM

Quote:

Originally Posted by Jay_Gatsby

Good article. The average 20-something today:

1. Wants to live it up as much as possible after graduating college before settling down.
2. Wants to spend money on luxuries s/he never had as a poor college student.
3. Thinks s/he has plenty of time to save for retirement.
4. Desperately desires the envy/respect (aren't they one in the same?) of his/her peers.

1966. And smoked White Owl cigars, read the Journal and talked with 'old pharts' about effectively playing the high/low mini cycles on Ma Bell.

Don't forget the 'Dirty Blondes' - it was Seattle you know.

heh heh heh - Sigh! Now I'm the old phart. With a Curmudgeon Certificate - pssst Target Retirement! What the heck - I never listened either - party on!

VoyT · 08-09-2007, 10:22 PM

Quote:

A while back I was leading a personal-finance seminar at a high school, and I posed this question to the teens: "When you see a man cruise by in his $65,000 BMW 550i, what do you assume about him?" The answer: "He's rich." And a man who drives by in a ten-year-old Chevy? "He's struggling."

My DH still keeps falling into this mindset, and he's well past his teen years. He'll see someone's fancy car, or house and say, "they must be rich." My reply is, "Maybe, or maybe they're just up to their @ss in debt."

DblDoc · 08-12-2007, 11:40 PM

Quote:

Originally Posted by VoyT

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My DH still keeps falling into this mindset, and he's well past his teen years. He'll see someone's fancy car, or house and say, "they must be rich." My reply is, "Maybe, or maybe they're just up to their @ss in debt."

We will start finding out soon as the mortgage mess unravels I'll bet you will start seeing alot of those fancy cars and boats and toys with "For Sale" signs attached...

DD

roadkill · 08-13-2007, 09:46 AM

Quote:

Originally Posted by DblDoc

We will start finding out soon as the mortgage mess unravels I'll bet you will start seeing alot of those fancy cars and boats and toys with "For Sale" signs attached...

DD

We all have seen/read the various profiles of families who are now in trouble and are about to go under. Maybe I am a little old fashioned, but many of these folks borrowed every last penny they could based on the most optimistic cash flow assumptions without any contingency for an unexpected bump in the road. I surely do not want to see all this hardship, but.........What were they thinking....?

HFWR · 08-13-2007, 11:08 AM

Quote:

Originally Posted by roadkill

What were they thinking....?

They weren't...

lets-retire · 08-13-2007, 05:03 PM

Quote:

Originally Posted by roadkill

We all have seen/read the various profiles of families who are now in trouble and are about to go under. Maybe I am a little old fashioned, but many of these folks borrowed every last penny they could based on the most optimistic cash flow assumptions without any contingency for an unexpected bump in the road. I surely do not want to see all this hardship, but.........What were they thinking....?

C'mon it wasn't their fault. The blame lays squarely on the shoulders of the predatory lending institutions.

dex · 08-13-2007, 05:25 PM

Quote:

Originally Posted by lets-retire

C'mon it wasn't their fault. The blame lays squarely on the shoulders of the predatory lending institutions.

When you listen to some of the stories that is exacetly what people say and they are indignate, mad and sound self rightous about it.

**Gumby** · 08-13-2007, 08:44 PM

My initial thought is that these people deserve exactly what they get.

But then, I consider my parents, neither of whom graduated from high school. Could they understand all the ramifications of the zero down, no documentation, option ARM? In a word, No. They would trust the nice mortgage broker who says "look, here is the monthly payment. You can afford that, and if you have a bad month, you can pay less. Now you can buy the house that you have struggled to buy all your lives. Isn't that great!?"

When I was young, my parents were constantly in debt to Household Finance (does that even still exist?) at exhorbitent interest rates. Sometimes, it was even payday loans. When they bought a car, all they cared about was the monthly payment. They were poor, ill educated and didn't know any better, but they weren't bad people, and they didn't deserve to have someone take advantage of their financial ignorance.

I would like to think that mortgage brokers care about not letting people get in over their heads, and some may, but I am sure that there are many who care only about placing a loan, because that is how they get paid. There are even some, a minority I'm sure, who fabricated things on the loan applications to help assure that they would be approved by the lender.

Should borrowers know better -- yes. But the simple fact is that many don't, and it is terrible what is happening to some of them. I would encourage people on this board to have a little empathy.

08-07-2007, 09:00 AM	#1
roadkill Recycles dryer sheets Join Date: Feb 2004 Posts: 77	The Invisible Rich Thought this article would be of interest......... The Invisible Rich by Knight Kiplinger The biggest barrier to becoming rich is living like you're rich before you are. A while back I was leading a personal-finance seminar at a high school, and I posed this question to the teens: "When you see a man cruise by in his $65,000 BMW 550i, what do you assume about him?" The answer: "He's rich." And a man who drives by in a ten-year-old Chevy? "He's struggling." Elusive realities. Just the answers I was looking for, and they provided a launching pad for a lively discussion of deceptive appearances and realities. By the end of it, these teens had a clearer sense of how little you can determine about wealth from a person's visible consumption. The BMW, I noted, is probably leased (perhaps for three years, no money down), so we can infer only that the driver earns enough to handle a $1,131 monthly lease payment. We know nothing about his net worth, which may be great ... or may be almost nonexistent. And the man in the old Impala? Maybe he is struggling financially, but there's another possibility: His income is just as great as that of the dude in the Bimmer, but he's not saddled with a lease payment -- and he's investing the money in mutual funds that are growing at 10% a year. The message in all this: The biggest barrier to becoming rich is living like you're rich before you are. Why? Because all that discretionary spending -- the chic apartment, frequent travel and restaurant meals, consumer electronics, fancy clothes and cars -- crowds out the saving that will enable you to be rich someday. I often hear complaints from young adults, twentysomethings to those in their early thirties, that they'll never be able to buy a home because they can't afford the down payment. But when I probe them about their budgets, I find that they earn enough to make a down payment in just three or four years -- if they cut back on their spending, and if their starter-home expectations are reasonable. Know who grasps this best in American society today? Recent immigrants, whether they're from Latin America, Africa, Asia or Eastern Europe. Many of them come to the U.S. almost penniless. They work long hours at modest wages and send some of those earnings to relatives back home. But, miraculously, they still have money left over each month because they live simply. Often they double up with friends and family in crowded housing. What do they do with their savings? They buy a home, often in a less desirable neighborhood that other strivers are leaving behind. They fix it up, rent rooms to friends and relatives, and then trade up to a nicer home. They may keep their first and second homes as rental properties, becoming hands-on landlords. A niece of mine sells new homes in the outer Virginia suburbs of Washington, D.C. The houses cost $500,000 -- a "middle market" price in this affluent area. Many of her buyers are Latinos. They don't look or act rich, and they often need translation help. Many of them arrived in the U.S. with nothing but ambition. They worked hard, started small businesses and saved 30% of their incomes. Someday, when they finally feel as financially secure as they will actually be, they might start living it up. They might buy -- not lease -- a BMW, most likely a used model. High school kids will assume them to be rich and cast admiring glances at them and their fancy cars. Proudly invisible But just like overspending, the habit of frugality is hard to break. Maybe these folks will just keep the old Chevy. They will remain proud members of the Invisible Rich -- a growing army of super savers whose net worth is more impressive than their income. They'd rather live within their means, sleep well and forgo the covetous attention of their fellow citizens. Not a bad way to live at all.

08-07-2007, 11:16 AM	#3
tightasadrum Full time employment: Posting here. Join Date: Aug 2006 Location: athens Posts: 513	Isn't that what "The Millionaire Next Door" was all about? And his second book talked about "income rich" vs "balance sheet rich". Hint: YOu want the big balance sheet. __________________ Can't you see yourself in the nursing home saying, " Darn! Wish I'd spent more time at the office instead of wasting time with family and friends."

08-08-2007, 11:52 AM	#5
bow-tie Full time employment: Posting here. Join Date: Mar 2004 Posts: 640	I would gladly be invisible rich... and the sooner the better. __________________ Diggin' my way to financial freedom, one buck-at-a-time

08-09-2007, 01:57 PM	#11
Jay_Gatsby Thinks s/he gets paid by the post Join Date: Oct 2004 Posts: 1,101	Good article. The average 20-something today: 1. Wants to live it up as much as possible after graduating college before settling down. 2. Wants to spend money on luxuries s/he never had as a poor college student. 3. Thinks s/he has plenty of time to save for retirement. 4. Desperately desires the envy/respect (aren't they one in the same?) of his/her peers. All this spending occurs on top of tens of thousands (if not $100k+) of student loan debt. I could go on, but the entire concept of delayed gratification seems to be entirely foreign. __________________ He had one of those rare smiles with a quality of eternal reassurance in it . . . It faced, or seemed to face, the whole external world for an instant and then concentrated on you with an irresistible prejudice in your favor. -- The Great Gatsby, F. Scott Fitzgerald

08-13-2007, 08:44 PM	#20
Gumby Administrator Join Date: Apr 2006 Posts: 2,016	My initial thought is that these people deserve exactly what they get. But then, I consider my parents, neither of whom graduated from high school. Could they understand all the ramifications of the zero down, no documentation, option ARM? In a word, No. They would trust the nice mortgage broker who says "look, here is the monthly payment. You can afford that, and if you have a bad month, you can pay less. Now you can buy the house that you have struggled to buy all your lives. Isn't that great!?" When I was young, my parents were constantly in debt to Household Finance (does that even still exist?) at exhorbitent interest rates. Sometimes, it was even payday loans. When they bought a car, all they cared about was the monthly payment. They were poor, ill educated and didn't know any better, but they weren't bad people, and they didn't deserve to have someone take advantage of their financial ignorance. I would like to think that mortgage brokers care about not letting people get in over their heads, and some may, but I am sure that there are many who care only about placing a loan, because that is how they get paid. There are even some, a minority I'm sure, who fabricated things on the loan applications to help assure that they would be approved by the lender. Should borrowers know better -- yes. But the simple fact is that many don't, and it is terrible what is happening to some of them. I would encourage people on this board to have a little empathy. __________________ You should not assume that I have a clue about anything I post. If you need a lawyer, go get your own.

08-07-2007, 10:16 AM	#2
MasterBlaster Thinks s/he gets paid by the post Join Date: Jun 2005 Posts: 1,777	The Invisable Rich...

08-07-2007, 12:21 PM	#4
BigBob Recycles dryer sheets Join Date: Apr 2007 Posts: 135	Master, Thanks for the laugh! I knew someone would come up with a good one.

08-08-2007, 12:39 PM	#7
cj Recycles dryer sheets Join Date: Jun 2005 Posts: 309	This is the most interesting part, and very much describes DH & me: "But just like overspending, the habit of frugality is hard to break." CJ

08-08-2007, 01:09 PM	#8
MasterBlaster Thinks s/he gets paid by the post Join Date: Jun 2005 Posts: 1,777	CJ: Perhaps you could join FA (Frugalholics Anonymous) to cure your addiction.

08-08-2007, 01:36 PM	#10
Keim Recycles dryer sheets Join Date: Feb 2007 Posts: 72	We can hold meetings at the local Rolls Royce dealership.