Welcome back to the podcast this is episode 15.
Today we're going to be talking about the spectrum of wealth.
I heard this Chris Rock joke many years ago, Chris Rock, one of my favorite comedians of
all time.
He said, if Bill Gates woke up with Oprah's money, he'd jump out the window.
Like most comedy, it's funny because it contains a nugget of truth in there.
All wealth is relative.
There is no such thing as an objective measure of what wealth is.
And that is so true that I think most people's definition of wealth can be so skewed in
the eyes of somebody else.
There's a study that came out recently, it was published on CNBC.
It asked Americans how much money you need to earn per year for you to feel rich.
And the most common answer in the survey was over a million dollars per year.
Which I understand that if that's your answer to, I don't fault you for it.
In today's society, I get why you would believe that.
What's interesting about this number, a million dollars a year, is that adjusted for inflation?
It works out to something like $250,000 in 1990 money when you adjusted for inflation.
And I went back and looked, how many Americans earned over $250,000 a year in 1990?
The answer is just over 600,000 out of 250 million people who lived in the country at
the time.
So here you have today's definition of rich in 2023, equates to being in the top fraction
of 1% in 1990, not that long ago.
I think what has happened here over the last 33 years is that people's definition of
what rich is has increased exponentially, even adjusted for inflation.
That to me is just another indication that all wealth is relative.
It's not about how much money you make, it's how much money you make relative to other
people.
300 years ago, Matta Sku said, if you want to be happy, that's easy to accomplish.
But most people want to be happier than other people.
And that is very difficult because we overestimate how happy other people are.
So this problem of a shifting definition of wealth or happiness whenever you're trying
to measure has been a problem forever, and it will be a problem forever.
Back to income and wealth, I'll show you what I mean.
Think about a rookie baseball player who earns, let's say, $500,000 a year.
He is by any definition rich.
But let's say he plays on the same team as Mike Trout, who several years ago signed a $430
million dollar, $12,000 contract.
By comparison to his teammate, that rookie baseball player is broke.
But then let's think about Mike Trout.
$46 million per year is an insane amount of money. But to make it on the list of the top
10 highest paid hedge fund managers last year, you need to earn at least $400 million per
year.
So relative to them, even Mike Trout looks broke.
And then let's compare those high paid hedge fund managers to one of the top five highest
paid hedge fund managers.
And to be on that list, you need to earn at least $800 million per year.
So compare to them, even the $400 million hedge fund manager looks like he's falling behind.
And now let's compare those hedge fund managers to somebody like Warren Buffett, whose personal
net worth went up by $30 billion in 2021.
And then compare Buffett to somebody like Elon Musk, whose net worth went up by $200 billion
in 2021.
Which if you're keeping score, that equates to more money per hour than Mike Trout makes
every single year.
There's virtually no limit to the comparison game.
No matter how much money you're making, there is probably somebody who is earning not
just more money than you, but way more money than you.
And when you realize that, you realize that the comparison game of trying to sum up how
wealthy you are or might be is a game that's almost impossible to win.
Several years ago, I wrote an article pointing out that to be the top 1% of wage earners
in the world, not the country, but in the world, you needed to make something like $34,000
per year, which a lot of people in America do.
And the article got a lot of flak.
People were insulted and hurt that I would call somebody who earns $34,000 a year.
Rich.
And maybe I deserved that criticism.
I would not write something like that today.
I've learned my lesson.
The point I was just trying to make is that wealth is completely relative.
That somebody who feels poor in one context could actually feel rich and look rich.
In a different context, through somebody else's eyes, it's all relative.
The most difficult financial skill is getting the goalpost to stop moving.
And today's level of global wealth has moved it a town over.
The median household income adjusted for inflation is now more than double what it was in the 1950s.
But I guarantee you that most people do not feel twice as wealthy today than they did in
the 1950s because their expectations have shifted.
So again, there is no objective level of wealth because people just compare themselves to
other people and what other people have.
It's always been like that and it always will be.
But I got to thinking, what would a spectrum of wealth look like?
If you try to describe it with words and feelings, not with numbers.
Not by saying if you earn over this dollar amount, you are wealthy and if you earn less than
this amount, your poor, that will never make sense because it's always a shifting figure.
But how would you describe the spectrum of wealth with words?
Why I tried to do it that a little bit here?
And I came up with 19 different levels of wealth.
And this is the spectrum of wealth from what I would say is the poorest to the richest.
And I'm going to go through those 19 levels now.
The first level, the poorest level of wealth, I would say, is the complete reliance on the
kindness of strangers for your sustenance.
That is a deep level of poverty.
Everyone can imagine what that is like.
The second is what I would say is your income is actually above average.
But you are overcome with envy and a feeling of inadequacy towards those who earn more than
you do.
That I would say is psychological deep poverty.
Then let's say you actually have a large income and a big net worth.
But you gained it.
It was acquired in a way that brings active disdain from people who you would otherwise
want to like you.
In that sense, I think you are socially bankrupt.
Next let's say your lifestyle expectations consistently grow faster than your income and
your net worth.
That I would say is adaptive poverty.
Next is you have so much money that you can do nothing and doing nothing leads to boredom
at best and self-destruction more often.
That let's call it ironic poverty.
Next is you have a large income and large net worth that you are satisfied with.
But your career and your assets are fragile, they are often leveraged and will disappear
when the world shifts only a little bit, leaving you a yearning for the money you used
to have and became accustomed to.
That let's call it pent up poverty.
Next, let's say your entire personality is built upon the appearance of being wealthy.
And that attracts a predatory social group that will abandon you without remorse the
moment your money stops.
Let's call that fake admiration of wealth.
Next let's say that you have a large income and large net worth that you made in a job
that you hate and requires such long hours that it derails your social and your family
life.
That is you have financial wealth but life poverty.
Next is you have a job that you love and you are surrounded by people who you enjoy.
But it's a job that doesn't pay very well and it leaves you vulnerable and stressed about
your finances.
That is financial poverty and life wealth.
Next, you have enough money to stay comfortable and a good group of friends, but you didn't
earn the money yourself, creating a lack of pride and ability to appreciate the value
of a dollar that makes you feel poorer than someone who has less money but they earned
it from hard and meaningful work.
Okay, next, you can afford a little bit more than people you interact with daily and
it makes you feel superior to them.
That is technical wealth but it's actually insecurity that is likely to backfire into
social poverty.
Next, you can afford a little bit more than people who you interact with everyday but
you still live the same material lifestyle as they do which creates social cohesion among
your friends that is valuable but so hard to quantify.
In that scenario, you have a high savings rate that puts a gap between your mood and most
financial hassle.
Next, you like your job so much that it doesn't feel like work and it pays more than you
ever expected to make.
That's getting into the early stages of what I would consider rich.
Next this is number 14, you could stop earning a paycheck tomorrow and your lifestyle could
remain the same for the indefinite future just based off of your investment income.
Next, you could go to bed and wake up when you want to.
You have time to exercise, you have time to eat well, you have time to learn and time to
think slowly and to clear your calendar and do what you want when you want to do it.
That is like health wealth.
Next number 16, you can and you want to use your wealth to help other people and you want
to help them because you care about them not because it will make you look good or because
it will make them beholden to you.
I heard this quote recently that I loved it said,
You demand recognition for the money that you donate.
That is not charity, that is philanthropy, big difference between the two.
Next, you genuinely feel no benefit from the social signal of wealth because everyone
who you want to love you would still love you even if you were not wealthy.
So everything you spend money on is for its utility rather than its glitz and glamour
and attention.
Next number 18, the people you love the most will still have to work hard in life but
your wealth provides them with a safety net that will help them avoid undue hardship.
And last, this to me is what I would consider the highest level of wealth.
You are respected and admired by people who you want to respect and admire you regardless
of your financial circumstances.
Psychologically speaking, you are now on the Forbes list of billionaires.
That's all for this week.
We'll see you again next time.
