Blog | Personal Finance

Mo Money; Same Problems

Why things like poor millionaires exist

If you had $1 million in the bank, would you feel wealth? How about if you had $2 million? What about $5 million?

If you're not a millionaire, more than likely you said, "YES!"-probably at the $1 million mark, and most definitely at the $5 million mark. Most everyone thinks that having enough money will make them rich and solve their financial problems. But what those who are really rich know is that money doesn't make you rich at all.

Revisiting our $1 million to $5 million question, consider this finding from a survey by UBS: Only 28% of those worth $1 million to $5 million considered themselves as wealthy.

How could this be?

"Half of those worth $1 million to $5 million believed that one bad break, such as a market crash or a job loss, would have a major impact on their lifestyle."

In other words, these millionaires have a lot of money but not a lot of financial intelligence. How do I know? Because a financially intelligent person isn't ruined by a job loss or market problems. The rich do not worry about these things nearly as much as the poor do. Why? Because the rich know how to prepare for them.

The survey by UBS brings to light a reality of many millionaires. They are not really financially free. Rather they are high-paid employees that have a large amount of liabilities, bad debt, and bad spending habits. Some even live paycheck to paycheck.

This confirms a simple truth: no amount of money can change bad financial habits. In fact, it often magnifies them. The rise and fall of lottery winners and pro athletes are good examples of this.

This week, in the US, we celebrate Thanksgiving. Many families and friends will come together to feast and to enjoy one another's company. Many of these folks will then leave to stand in line hoping to get deal on this or that knickknack-a new flat screen TV, a video game consul, toys, and more. Some of them will spend the next day running around like crazy people on the hunt for deals.

In 2015 consumers spent $67,560,000,000 in store and another $2,932,000,000 online on Black Friday deals-an average of $403.35 per person. This year, even more shoppers are expected and even more money will be spent.

This will be just the beginning of a glut of holiday spending. With the average shopper going into debt by $986 on average. Couple that with the fact that the average household has a total personal debt of more than $90,000, and you can start to see that the average person has a real problem when it comes to money.

For most people, the problem is not that they don't have enough money. It's that they spend it far too quickly and on liabilities. As I've mentioned before, a liability is something that takes money out of your pocket. An asset is something that puts money in your pocket.

The fundamental difference between the truly rich and wealth, and the poor-even those with millions of dollars-is that the rich invest in cash-flowing assets that cover their liabilities, and the poor rely on a paycheck, spending it all often before they even have it in hand. These "poor" millionaires just happen to spend a lot more each month than the average person.

So, as you ponder the questions I asked at the beginning of this article, perhaps a better question would be, "Do you have the financial habits and intelligence to be wealthy when you have $1 million to $5 million? Or would your financial habits still keep you poor, even if you had more money?"

This holiday season, as we come into a new year, is a great time to revaluate how you manage your money. If you need to make some adjustments, now is the time. That will be the best gift you get all season.