A New Attitude Toward Wealth

A New Attitude Toward Wealth

Scott Fitzgerald famously wrote, “The rich are very different from you and me.” His contemporary, Ernest Hemingway, purportedly replied, “Yes, they have more money!” Fitzgerald was right.

But many people of means abhor the idea of setting themselves apart from their peers and neighbors. After a lifetime of scrimping, saving, and hustling to generate success, many still retain a middle-class mindset. They refuse to count themselves among the ranks of the truly wealthy – despite what their account balances may have to say.

They likely pride themselves on their modesty. They haven’t forgotten where they have come from. Despite great success and a loftier standard of living, they are firmly rooted in their values.

I have had clients who despite having IRA balances of close to $3,000,000 and homes with equity of nearly half that, refuse to spend more than they earn from their pensions. Their frugality is what helped place them among the top 4% of Americans and they would have a hard time adjusting their lifestyle if they tried.

It’s a commendable mindset – up to a point. Priding yourself on being a man or woman “of the people” is one thing at a barbecue. But it’s quite another when you walk into the offices of a financial advisor or wealth manager. The assets you’ve accumulated, your tax status and existing strategies reflect the quality of advice you’ve been able to implement.

Throughout my career in wealth management, I’ve met countless people pulling in $250,000 or more annually, sitting on a nest egg well north of $1 million – and yet they continue to insist on calling themselves middle-class.

This may describe you to a tee. By all means, continue to look for bargains at the clothing store. Feel free to pinch pennies when you’re picking out a new car. These frugal habits and modest mindsets are what usually create millionaires in America. But don’t treat your finances the same way.

What is good enough for Joe Six-Pack is simply not what you need at this stage in your life when it comes to helping your money grow and last. Depending on the levels you have grown your wealth, you may be playing a very different game now. You’re no longer seeking to hit a home run and accelerate your gains.

You’re now playing defense – seeking to avoid errors more than making a bold play. You might think of it as being a bit like a Division 1 basketball team that is up 4 points with 30 seconds left on the scoreboard. You no longer need to drive down the court to make a win – you just need to avoid losing your gains.

I’ve written in my book Exceptional Wealth  about the steps that readers of certain income levels should be taking to ensure the continued growth and stability of the wealth they’ve worked so hard to attain. Taking these steps will require that you adopt a new attitude toward wealth – toward your wealth in particular. We too often let our society send the message that wealth and success are something to be ashamed of.

In this era of outrage against Wall Street and income disparities, it’s worth remembering that many of the most successful people in this country got that way through diligently building businesses and providing value to others. Work equals wealth. And it’s worth remembering that they pay the lion’s share of taxes – what most of us would likely consider to be more than our fair share to benefit from the resources of this great country.

You’ve earned your prosperity – and you’ve earned a more customized, personalized approach to growing and protecting your wealth. This is your victory lap – make sure it lasts by using tools and strategies appropriate to your portfolio.

If you’re looking for an easy way to shift your mindset toward wealth then try this easy exercise that may help.

• First, add up how much the money you spend in taxes represents in time.
• Look at the amount that you paid in taxes and count how many months of your salary that is worth.
• If your effective tax rate is 30%, that means that you don’t start working for yourself until the year is 30% over, or April (4/12).

April 15th is usually the first day out of the year that people actually go to work for themselves and not Uncle Sam. 

It’s not a fun thing to think about when you consider the amount of time you dedicate to your career and the sacrifice involved for you and your family. Think about it like this. What would happen if you reduce your effective tax rate 20%? That would mean you would start working for yourself in March.  What would an extra month’s worth of income mean for your future in 2019?

What about if you were able to earn an extra month’s worth of income each year until retirement? 

It’s not that tough. Are you currently maxing out your and your spouse’s 401k? That alone is worth $24,500 each as an employer contribution in 2019. Assuming you didn’t own the company, that means you and your spouse can defer $49,000 in taxes in that filing year.

If you only made $250,000 that would amount to about a 20% reduction in your taxable income. That could result in roughly a $15,000 tax savings if your effective rate was 30%.

That’s not a rich folk strategy. It’s really an amateur strategy. The secret isn’t in minimizing your tax rates. It’s really in changing your income type. Your mindset towards wealth is the first step to help get you there.

To learn more about High Net Worth Wealth Management claim your free copy of Exceptional Wealth by Mark Tepper.