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Living Life On The Economic Fringes

Living Intentionally On Either Extreme of The Economy

On one side is the uber wealthy person who is generating millions a year from their business. They have so many assets that the return on investment creates more money every year than the household can consume. The wealth snowballs into a gargantuan diversified asset which would be hard to deplete. Even an excessively lavish lifestyle would hardly eat into this kind of wealth. This household gets to take advantage of the many tax breaks that the uber rich have secured for themselves over the years.

On the other side is the person who decides to intentionally live in poverty. They spend the same or less on housing, food and transportation than even those who are considered “poor”. The decreased dependency on money, income, and a job propels this household into a level of financial independence which is unlikely to be disrupted by economic waves. The frugality allows for strategic savings and investments of any and all income. This household gets to take advantage of the many tax breaks that the poor are given, out of pity.

 

The super rich

My buddy’s parents have accumulated enough of a franchise that they have essentially carved themselves out of the business physically. Their board of directors and managers run the empire.

They have far more income than expenses which means that the extra money is used to either buy the land that the franchises are on, buy more businesses or, in their case, venture into residential real estate.

They now own other unrelated businesses as well as a considerable amount of real estate. Those businesses in turn generate even more money which is used to pay off the debt used to acquire them.

By investing in physical businesses this household has been able to drastically decrease taxes. They also employ family members and therefore keep the money inside the family.

A portion of their investments are held outside of the US in order to diversify and decrease taxes even more.

Even after buying an 8-figure home, a modest yacht and multiple cars, they didn’t make much of a dent in the wealth accumulation. The deals that were made previously with 1-2 businesses are now made with 10-20 businesses. This wholesale approach has exponentially increased their income in the last decade.

This household probably couldn’t intentionally live the lifestyle of a poor household. With a growing 9-figure net worth and 6-figure monthly household expenses, they have no skills which can be applied to living a frugal lifestyle.

That’s said, this particular household is incredibly modest when it comes to spending. They aren’t flashy whatsoever. They spent less on the yacht than doctors spend on their cars and their home, though massive, is <3x their net annual income.

 

The Intentionally Poor

For this extreme of the economic fringes, don’t imagine the couple living in project housing with 4 children and raggedy clothes. Instead, picture the household who intentionally has chosen to live off of less and forgo flashy living, in replacement of extracting value.

A physician buddy of mine lives in a very desirable city in Southern California. He is worth around $4 million and a little over 40 years of age. Him and his wife have chosen to be ‘poor’.

They chose to not own a car until just recently. He gets around by bicycle and believes in investing his money rather than spending it.

Every aspect of this couple’s life emulates the life of the poor in appearance. Clothes were bought second-hand. Very little money was spent on traditional entertainment. Beer was made at home, vegetable grown on the large patio, cell phones never replaced and dates included taking a picnic to the park or beach.

There was never cable at home nor a TV. Zero subscription services. All food was cooked at home and coffee was made in his office instead of bought on the way to work while idling a 4,000 lbs car in front of a little pay window.

He also has spent his free time learning how to do graphic design. He has gotten so good that his medical group has used his services for some of their marketing material.

Just like the very wealthy household above, him and his wife have built the kind of wealth that will generate an income way in excess of what he wants to spend. The difference is that if he chose to live the life of a baller, he’d run out money in less than a week.

 

Which lifestyle is better?

Which lifestyle is better or more desirable? Just like boxers vs briefs, it’s a personal choice.

 

Most physicians are taking home somewhere in the $200k range a year. Which means that the average doctor is going to have a hard time building the financial wealth of the uber wealthy from example above.

On the other hand, it might be nearly impossible for a physician to even fathom buying used clothing, not owning a car, renting a house instead of owning one or rarely setting foot inside a restaurant.

My buddy’s parents hit their stride somewhere in their mid 50’s while my physician colleague was a millionaire in his 5th year out of residency with zero help from his family.

 

What about the middle path

What would be wrong with taking home that average $200k, saving a little of it every year, and spending the rest to get rid of debt?

The problem is that those who live in the middle are the ones targeted by nearly every money-grubbing entity, including the IRS, lawyers, financial institutions, financial advisers, charlatans and even family members.

When you live in the middle you are less likely to have a strict plan for either wealth growth or frugality. Your finances rise and fall with the ebbs and flows of the economy.

You will always pay the highest taxes and you will be in that terrible sweet spot where the financial outcomes of your decisions are muddled. You will think of credit card rewards as lucrative. You will confuse your primary residence for an investment and you will likely buy high and sell low.

Even if you avoid the majority of mistakes that households make living in that no-man’s land, you will likely save enough to retire timidly while always feeling that you are overworked, underpaid and likely missing out.

Choosing the uber wealth route for a doctor would require a ton of work, massive luck or excess risk taking. But it will allow you to spend and feast without much worry. You will have the ability to hire out the kind of brains that will run your operation even better than you did. Deals will come to you instead of you having to seek them out.

Choosing the route of intentional poverty requires less work, less spending, less worrying, less effort and less risk. Instead of honing your money-making skills you hone your money-saving skills. You don’t necessarily become the master at turning $100k into $10 million but you can make $100 stretch out for several months.

The worst thing about being in the middle is that… you’ll be in the middle. You won’t have the autonomy that you crave, the identity that you desire, nor the economic resilience that will help you sleep better at night.

Your competition will be massive. You compete for the same homes as those who are making $50k, you invest in the same products as those who are making $900k a year. You shop at the same stores as the other 90%. You come home and commute the same path as others. Everything is more of a grind and you have to share everything in your carved out economy.

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