What is Wealthy?

By The Banker | Blog Posts
17 Jan 2013
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Credits quickly and simply isolated on whiteBack when I worked on the bond sales desk at Goldman, many of us talked about what our “Number“ was – the “Number” obviously representing “Fuck You Money.”

“Fuck You Money”, if you haven’t worked on Wall Street, represents the amount of money you’d need in order to professionally disregard anybody else’s needs.  In other words, the amount you need to walk away from your desk, go out the door, and never look back.

My sales partner, and friend, who I sat next to on the mortgage bond desk, kept a spreadsheet on his desktop calculating precisely how close he was at any given point to achieving his “Number.“  He’d been at Goldman (and another firm before that) longer than me, and he stayed about 5 years longer than I did.  Although I never came out and asked him directly after he left GS, I’m pretty sure he made his “Number.”

I left Goldman in 2004, long before earning my own personal “Fuck You Money.”

Sometime after 9/11 happened[1] I was no longer willing to live an unhappy daily life, focusing on delayed gratification, the key factor for me to accumulate enough for my “Number.”[2]

I’ve been thinking about what it really means to be wealthy for a couple of reasons.  One, because its bonus day today at Goldman, and two, because I’m teaching a course this semester on personal finance.

Preparing for this course has pushed me to reflect, before the college students ask me, on the best definition of wealthy.

My answer to them will be something like this:

  1. Wealthy can’t be determined by a single, static, net-worth number, because I know that Mike Tyson at one point earned $30 million per fight and over $300 million in his lifetime, but subsequently declared bankruptcy in 2003.  For some people, like Tyson, their number is larger than $300 million, and probably can never be achieved.
  2. What I know from the Tyson example is that on-going lifestyle expenses play a big role in determining whether you are wealthy, at almost any level of asset accumulation.  Some people can be wealthy on an accumulated $3 million net worth, while other people can be poor and bankrupt with $300 million in earnings.
  3. 19th Century English authors Jane Austen and Anthony Trollope tell me a great deal about how to understand wealth, and, in particular, the role of passive income.  At that time in England, the landed gentry earned passive income from family-owned real estate, real estate which would never be willingly sold.[3]  Unlike today, the landed gentry never calculated their net worth in terms of the real estate value, but only in terms of the passive annual income to be derived from the land.  Every hero and heroine of Austen and Trollope novels has an income, known to all polite society and expressed in thousands of pounds per year;  their “Number” follows them around as they seek appropriate romantic matches.  It’s as if they are marriage-seeking Sims with a number floating above their animated-avatar heads.[4]
  4. One meaning of wealthy that exists in our popular culture is that if you are wealthy you never need to work again, like landed gentry.  Because 19th Century landed gentry did not work for a living,[5] I like the analogy between the “Number” associated with every Austen and Trollope character, and “The Number” that we think makes us wealthy today.  The best way of knowing whether you’re wealthy, by this analogy, is to compare the passive income you derive from your assets on an annual basis with your yearly lifestyle expense.  If your passive income exceeds your expenses for the rest of your life, guess what?  You’re wealthy!   I specifically urge my Personal Finance students to look at it this way because, like the 19th Century landed gentry, you shouldn’t depend on selling your assets to cover expenses,[6] since that’s a non-sustainable practice.[7]
  5. Time, specifically your expected life span, plays a big factor in my definition of wealthy.  If you have enough income or assets to cover your expenses for only the next three years, but you’re only going to live for one more year, you’re wealthy three times over![8]  If your passive income and assets are high right now, but will run out before you die, you’re far from wealthy.  A young person needs far more passive income and assets to cover them for their expected remaining life, while an older person may be much closer to wealthy – by my definition – as a result of having less time on earth.
  6. Passive income in modern times rarely derives solely from real estate income, but rather comes from many sources such as dividends, business profit-sharing, pensions, annuities, fixed income interest, and social security payments, in addition to traditional, real-estate derived income.

 

A More Nuanced Version of being wealthy doesn’t involve saying “Fuck You” to work

Hold on there a moment!  I’m not done yet with my definition of wealthy.  My fullest definition of wealthy adds an important factor to the ‘Do you have enough to walk away from work?’ question[9].   After all, work gives meaning to life.  Work grounds us, puts us in the flow of society, and makes us feel useful to others.  Work in that sense is a good thing unto itself.  So how do I integrate that with my definition of being wealthy?

I think wealthy means not so much having “Fuck You Money,” or reaching your “Number,” but rather having the option to choose work that you would do regardless of the level of compensation.  

So here it is, my definition of wealthy: If you have enough assets plus passive income to cover your personal lifestyle expenses for the rest of your life, and that money allows you to work at something you love – without concern for the amount of compensation – then you are wealthy.

Let’s say you love feeding the less fortunate.  If you have enough passive income in excess of your expenses that you could ladle soup to the homeless – even though that service pays you almost nothing – then you are wealthy.

If your greatest joy in life consists of reading novels and writing your memoirs every day,[10] and you can live cheaply enough to make that happen for the rest of your life, then you are wealthy.

If you perform eye surgery for a living, and you live for the joy of returning sight to the blind, and you can afford to do so even if when Medicare cuts your reimbursements to one-tenth of their current level, then you are wealthy.

If you would sell bonds for a living, for the sheer joy itself – the act of efficiently allocating capital or whatever you tell yourself – then you don’t care what your actual bonus is today from Goldman.  So what if you’re down 25% from last year, or you’re up 100%?  Who cares?   You love it!  If you’d do it anyway, and you can afford to do it, then you are a wealthy person.

If, however, you’re working at something, day in and day out, that you would quit as soon as you made enough money, I would argue you’re far from wealthy.  You may be covering your costs and accumulating assets, but you’re even farther from the ultimate goal of wealth than you think.



[2] Also, I wasn’t the world’s greatest bond salesman, so it was going to take me quite a bit longer than some to make my “Number.”

 

[3] To sell real estate would be to announce to the world that you no longer belonged to polite society, so in effect the market price of most real property was meaningless and incalculable.  Family-owned real estate meant much more than price.  To lose your land due to excessive indebtedness, a common theme of these novels, was to lose your place in the world.

[4] The romantic plot of all these novels goes something like this: “Demure Lizzy Bernnet, with her mere 300 pounds per year, could not possibly hope to make a match with the dashing Mr. Farcy and his 20,000 pounds per year.  She’ll surely need to settle for the homely parson the widower and his modest 500 pounds per year.  But plump narrow-eyed Fanny Bobbins and her 12,000 pounds per year, however, seems to have caught the eye of Col. Wigglesworth and his 1,200 pounds.  Oh how happy the Colonel will be with this match!” etc.

[5] Ah, the English ideal!

[6] Interestingly, 401K and IRA rules mandate that Americans withdraw at least some of their retirement savings from their accounts each year, after age 70, in effect forcing us to sell assets to cover expenses.  The 19th Century English landed gentry do not approve!

[7] This issue gets complicated if you consider leaving wealth to the next generation to be a sign and precondition of being wealthy.  The English landed gentry did.  As an American with “small d” democratic leanings, I don’t.  Those of you who have read my previous posts on tax policy may detect a hint of dismay for tax policy which encourages inheritance as a primary means of “getting rich.

[8] At the extreme example, everyone who is debt free on their deathbed is ‘wealthy’ since they need no more assets or income to cover their expenses.

[9] As a good austere New Englander, I cannot get away from the difference between my home culture and the English 19th Century ideal of not working.  So I need to amend the idea of wealthy so that it does not celebrate idleness.

[10] Like the greatest of all the English landed gentry, Bilbo Baggins, writing the story of his travels as he lives frugally in Rivendell, off Elrond’s largesse.

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23 Comments

  1. I hope I got the counting right. 2 + 2 = 4. Otherwise this might not reach you.
    Your mother forwarded your article to us. We both have a house on Alonissos and do a lot of hiking together. She advised me not to sell my house on Alonissos.. I am afraid I will have to though, because my fuck of money is partly invested in the house.
    Frederik and I are currently having a holiday in the Cabo Verde and having a wonderful time. Money is something totally different here. Most people here have hardly any or little. Our driver told us about the emigrants (second largest concentration op Cabo Verdians lives near Boston 3rd in Rotterdam, where we come from).
    “the have a shit life abroad to build a house here and show off their cars”. They are putting their fuck off money in a dream their parents had.
    Waste of time.

    marianne

  2. Our version of wealthy conforms much more with the latter than “F-you” money. We’re just trying to build up passive income that allows us to spend time doing things for ourselves rather than for our employers. We don’t need to drive Lotuses (Loti?) around for that. =)

  3. Shashank says:

    Wow. Great post. I like your defination of wealthy!! thanks.

  4. GCT says:

    Great article and clearly written. I am at the f you money of my life. No debt all assets paid and most assets now in tangible assets.

    This is by far the best definition of wealthy I have read in years.

    Good read Banker!

    • The Banker says:

      Thanks for your kind words and congratulations for making it there.
      Most importantly, congratulations for recognizing you are there and appreciating it.
      I’ve known many people with very high assets and income who never feel like they are actually ‘wealthy.’

  5. Sam says:

    Congratulations banker- I wouldn’t have thought it possible, but you’ve managed to surpass the other high quality articles with this, my new favorite posting. There are indeed many, many ways to consider oneself a wealthy man- a very helpful reminder for those of us in the industry, or any walk of life for that matter. Goodonya!

  6. Don says:

    Interesting read, something that I honestly never considered. Also interesting how others perceive us since our kids’ friends think of us as “wealthy” despite the fact that our newest vehicle is 9 years old; we simply put our money into traveling with the kids. Wealth is a function of values, as well.

  7. anonhfm says:

    “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

    Thank you, Dickens!

  8. Dave says:

    I have to say that that is one of my favorite sayings. “Fuck you money”. I am not quite to the point of having said money, but it will be happening soon. Nice post. Thank you.

    Dave

  9. Mike R says:

    It’s sad to me that this term is how some bankers look at money. It would be nice if people would get to FU money, and turn around and label it help you money.

  10. [...] written before that the key to being wealthy involves work, and in particular, work doing something you would do regardless of whether it pays or [...]

  11. Shah says:

    Thanks for the post. Really enjoyed reading it. Reminded me of a chapter from the Prophet

    On Work

    Then a ploughman said, “Speak to us of Work.”
    And he answered, saying:
    You work that you may keep pace with the earth and the soul of the earth.
    For to be idle is to become a stranger unto the seasons, and to step out of life’s procession, that marches in majesty and proud submission towards the infinite.
    When you work you are a flute through whose heart the whispering of the hours turns to music.
    Which of you would be a reed, dumb and silent, when all else sings together in unison?
    Always you have been told that work is a curse and labour a misfortune.
    But I say to you that when you work you fulfil a part of earth’s furthest dream, assigned to you when that dream was born,
    And in keeping yourself with labour you are in truth loving life,
    And to love life through labour is to be intimate with life’s inmost secret.
    But if you in your pain call birth an affliction and the support of the flesh a curse written upon your brow, then I answer that naught but the sweat of your brow shall wash away that which is written.
    You have been told also life is darkness, and in your weariness you echo what was said by the weary.
    And I say that life is indeed darkness save when there is urge,
    And all urge is blind save when there is knowledge,
    And all knowledge is vain save when there is work,
    And all work is empty save when there is love;
    And when you work with love you bind yourself to yourself, and to one another, and to God.
    And what is it to work with love?
    It is to weave the cloth with threads drawn from your heart, even as if your beloved were to wear that cloth.
    It is to build a house with affection, even as if your beloved were to dwell in that house.
    It is to sow seeds with tenderness and reap the harvest with joy, even as if your beloved were to eat the fruit.
    It is to charge all things you fashion with a breath of your own spirit,
    And to know that all the blessed dead are standing about you and watching.
    Often have I heard you say, as if speaking in sleep, “he who works in marble, and finds the shape of his own soul in the stone, is a nobler than he who ploughs the soil.
    And he who seizes the rainbow to lay it on a cloth in the likeness of man, is more than he who makes the sandals for our feet.”
    But I say, not in sleep but in the over-wakefulness of noontide, that the wind speaks not more sweetly to the giant oaks than to the least of all the blades of grass;
    And he alone is great who turns the voice of the wind into a song made sweeter by his own loving.
    Work is love made visible.
    And if you cannot work with love but only with distaste, it is better that you should leave your work and sit at the gate of the temple and take alms of those who work with joy.
    For if you bake bread with indifference, you bake a bitter bread that feeds but half man’s hunger.
    And if you grudge the crushing of the grapes, your grudge distils a poison in the wine.
    And if you sing though as angels, and love not the singing, you muffle man’s ears to the voices of the day and the voices of the night.

    • The Banker says:

      Shah –
      Thank you! Of course The Prophet is one of my top 3 books of all time, and that chapter, in particular, is among my top 5 favorites. Especially the part about “You have been told also” until “and when you work with love.”
      You’re the first to tell me they recognized the influence!

  12. Hayden James says:

    Limited to the context of monetary wealth, this article is a great read. If your views are accepted, many will find that this wealth truly does create the freedom to do whatever one loves without worry.

    Then there are others who can be wealthy even if not in such a position. This, because of their own level of happiness on things they value even more than money or the freedom that money allows.

    I guess, yes, each man’s wealth is based on his own contentments.

    Great write!

  13. [...] It’s pretty darn fun to write about an idea I think is important and then have others feel the same way and to share it widely. Like, for example, my piece on ‘What is Wealthy?’ [...]

  14. […] Living in the moment has never meant living recklessly or without an acute awareness of opportunity costs.  I save 30% of every dollar I earn.  Period.  It doesn’t matter how much or how little I earn.  30% of my income, liquid, is a nest egg that I have used to plan my retirement, save me in case of emergencies, and serve as “Fuck You Money”. […]

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