Rich vs. Wealthy

Matt: 00:00

Are you wealth or are you rich, or like me, are you neither? This is financial life planning with Matt Robison and our proprietor, contributor, Mike Morton, you're really something…

Mike: 00:13

I’m really something, that's true.

Matt: 00:17

What an interesting question you set up for me, I do feel like the character in Brewster's millions who's just asking for people to vote for none of the above. I'd like to vote for the above, and so your question today is, are you wealthy, or are you rich. Is that right?

Mike 0:33

though? Well, yeah, no, I want to talk about the differences between rich and wealthy. So Matt, let me ask you when you hear these words, how, let me just the first one, what is it? What does it look to you when someone is like, Rich? What does that look to you?

Matt: 00:48

I think of the cartoon character, Richie Rich, I'm not making this up. That is what I think of, you think of an obnoxious person. Rich is more, it's, it's more of a value lated term to me, if you call people rich, you're making a little bit of a judgment about them. And it conjures up images to me of, you know, sort of an obnoxious, showy kind of wealth. If you're wealthy, it just means you have plenty of financial resources. It doesn't have as much of a value judgment to it. Does that make sense to you?

Mike: 01:22

So let me let me expand on that a little bit. What I'm hearing is, when you say rich, I'm going to take the value judgment out of it, but what the images are, are like a rich lifestyle right? You know, you're you're thinking of like the nice car and spending lots of money, right, the Richie Rich, you know, kind of high roller, right? Luxurious lifestyle, maybe expensive possessions and you think, wow, that person is like really rich.

Matt: 01:48

Conspicuous consumption, exactly.

Mike: 01:51

Okay. All right. Now, let's talk about wealthy. So when I say someone’s wealthy, what does that conjure up for you?

Matt: 01:58

It conjures up a wider variety of circumstances. You don't hear the term I'm stinking wealthy, you hear the term I'm stinking rich, right? And so wealthy could be you just have earned a lot of money, you have inherited a lot of money, you could have been gifted a lot of money, you could be in a high earning profession. I also tend to think of it because you know, remember our listeners know, my background is in government as a congressional staffer. And so we tend to think about tax policy, how are we going to tax the wealthy, what defines wealthy versus what defines middle class or upper middle class? Wealthy is it's not quite a technical term, but it's more of a term you might hear members of Congress and tax people talk about in politics, and if you want to make it sound bad, you call them rich.

Mike: 03:00

Tax the Rich or tax the wealthy. I like the way you say wealthy too, because I think that's what it is. It's more of the independence, right? The financial independence. And I use that word independence a lot because I think of wealthy not only like financial and the numbers, we're talking a little bit about what that might mean, being financially independent, wealthy, but also wealthy in other areas, wealthy with your health, wealthy with your time, wealthy with your family, do you feel wealthy? And I think that, you know, is like more of a feeling, I feel very wealthy and that means I feel like I'm in control of making decisions. I'm independent, because I'm so wealthy, you know, that I get to be independent, my health is wealthy, so I can go and do stuff, or things like that, not only financially.

Matt: 03:46

Although there is that moment on The Simpsons where Mr. Byrne says, I've always been wealthy, but this is the first time I felt rich when he's surrounded by family and friends. And then of course, he turns around, and I don't know, takes all the sea life or life out of the sea but the point is, I guess there are other connotations. But what you're bringing up, in terms of what we're talking about today is wealthy really is a term that I guess does have more meaning in terms of what you do. And in terms of my life, I think very much about our wealth, to the extent that we have it. It's a management issue. It's a a how do I take care of this? How do I make sure that my children benefit from it again, to the extent you have it?

Mike: 04:32

Yeah, yeah and I wanted to draw the distinction for listeners and for myself to you know, really think about the those two things because we often conflate them right, and we often envy the rich and really think what you want is to be wealthy, like we look around and say, oh my gosh, I do this all the time. Like, whoa, these guys have a nice car, they got a nice house, they're going on vacations all the time. How do they do that? How do they own those?

Matt: 05:02

Can I stop you right there? Yes, we are 100% stone cold, definitely going to do a show on the frickin economics of taking vacations Mike Morton. I do not understand this, I have a degree in economics and I do not understand how people afford freaking vacations? I don't get it. Alright, anyway, we've got to talk about vacations at some point.

Mike: 05:26

Yeah, we could dive into vacations. But let's talk about that, in general. That's what I was going to say is, you look around, I get this, especially, first of all, my clients come in and be like, I see my friends doing all this, can we do all that stuff, too? And I think, you know, how do they have the cars and the stuff? First thing I'll tell you, you never know, what is going on in someone else's life. Right?

Matt: 05:50

You know, what economists call you can't make interpersonal utility comparisons, which is another way of saying what gets you off may not be what gets me off, you know, and like, you can't make value judgments about that. If you are like a scuba diving fiend or you're keen on, I don't know, MMA, or you really want to, like parasail down the fjords of Norway, like, have at it, right. Like, you know, that may not be my thing, but it's very hard to make comparisons about what makes other people happy.

Mike: 06:24

Right. As long as you're not deciding to go down in a submersible. I don't recommend not doing that.

Matt: 06:30

No, no, under those fewer deals. Okay, yeah, would anyone do that, but you know, bringing up something that’s a really profound point, because my kids have gotten to the age where they watch YouTube videos. I've actually, I put a ban on YouTube videos for everything except Mark Rober. Mark Rober, I highly recommend, he is not sponsoring this show, but I'm telling you, it's great stuff for your kids. My son came to me and said, Mr. Beast, offered someone an opportunity to be a billionaire, you know, would you believe? And I'm like, no. And that's the thing is that this is, again, what economists call diminishing marginal returns. But there's also a ton of psychological research about this. There's behavioral economics research about this, that if you were if you suddenly win the lottery, six months later, what the research says is, you're actually not any happier than you were before you won the lottery. And that's the way I feel about rich versus wealth. I actually have zero interest in being rich, I have an interest in having enough wealth for the things that I want in my life. And the things I want in my life are actually not I'm actually not into parasailing in Norway, or whatever it is, like, I'm actually not that interested in like cars, or anything like that. And so that I think, that must come up with your clients, right? Like, what their goals are. And I would bet you, I would bet you that most of them if you really put them to the question, aren't actually interested in being rich and everything that goes with it?

Mike: 08:08

Well, I can attest that you're not interested in cars, because I've seen the cars that that you drive. So yeah, hey, man.

Matt: 08:16

That's fine. As long as you don't start adding that I'm not interested in clothing and personal grooming. This is why I'm mostly on radio.

Mike: 08:31

Yeah, what a face for radio. It's interesting, actually. Because when you said you have zero interest in being rich, or having that kind of lifestyle, we're going to talk a little bit more about that but it's fascinating because most people do not understand that having more money does not bring more happiness. I mean, if you ask me, and even my clients and even myself sometimes is would I like to have a few more zeros in my bank account or in my income. Yeah, that'd be awesome. But it's true man, I work with clients that have a range of incomes, and a range of net worth with different zeros. Okay, that kind of range. And it's all the same problems. It's all the same problems. Do I have enough? Can I do the things I want to? And of course it scales up and down the vacations or their cars or the stock the lifestyle scales up or down. But you spend to the capacity, whether it's time or money, you spend the capacity, and you're not any happier. I mean, I hope you're not sad. But it truly doesn't bring more happiness unless you can reframe what we're talking about today, how can you feel more wealthy with where you are today? The numbers aren't once you're past like that $100,000 of income you're not getting any more joy from additional income, which sounds crazy. Like I get it, it sounds crazy, but I'm telling you, I work with people. It's true. You spend the capacity you want to feel more wealthy and not just rich and getting back to the the previous point, too, you never know, when you look around and make those comparisons, how are they doing this that you never know about people, maybe they had some inheritance. Maybe they've got a whole bunch of loans. And they're fueling it that way. Many people, many people do it that way. So don't look around and say, how are they handling all this? You never know. Just worry about yourself and how you're going to feel more wealthy in your life.

Matt: 10:26

Well, that's an interesting point. And there is a rich literature on this, see what I did there? I got it, I got it frickin terrible. But it is I mean, what we know from the psychology research is, first of all, it is true at the extremes, like for people who say money can't buy you happiness. Yeah, it can if you're frickin poor. Yeah, if you're if you're at a subsistence level, if you're living paycheck to paycheck, some economic research suggests that 80% of Americans live paycheck to paycheck. There are economists that I've had on my show quibble with that figure. But it is a substantial number of Americans who, in a very basic sense, cannot pay ongoing bills until they receive their paycheck. So in a meaningful way, they're not accruing savings, they don't have that cushion, and they don't have the peace of mind that goes with that cushion at a low level of income. Yes, additional income does get you happiness. But Mike, I think what you're saying is, at the other extreme, additional income on the margin does not get you additional happiness, anything above about $100,000. There's one exception to that and it's really weird. And it goes to the point you were just making a moment ago, which is, people care if the people around them seem to be better off than they are. If you are, if you get a raise, and all of your neighbors get more of a raise, you feel less happy. Even though you have more money, you feel less happy because of that comparison. It's great advice to avoid making those comparisons to the people around you. But other than that, let me turn this around on you. So first of all, could you, what do you use in your work as a financial planner, to what's your sort of like rule of thumb for this person is wealthy, or has wealth or not?

Mike: 12:29

So there's no rule of thumb, because it's really comes down to that feeling. Once we get past the basics and the subsistence and stuff like that you mentioned, it really comes down to a feeling of lifestyle. So yeah, let's get into it. Like how can you feel more wealthy and become more financially wealthy, it's an equation I think about often, it's desires that you have versus the things that you own. And you can work on either of those, you can have more stuff in the numerator, or you can have less desires in the denominator. And that is your happiness mechanism.

Matt: 13:05

Oh, so you're saying we should all be Buddhist, decrease our desire.

Mike: 13:10

If you decrease your desire, you're going to be happier. If you can literally want less stuff or realize, look, it's not going to bring me to happiness, I thought like that new car, of course, I kind of want it or desire it. But I know if I got a new car and after a month or two, it just became my car. Like I just get in and drive it somewhere. So if you can internalize that and realize, yes, I do want this thing. But I also understand it's not going to bring me the endless joy I think it's going to and so therefore, you know, it's fine. Oh, you just you feel better about those kinds of things, so that's kind of the happiness equation. But I did want to dive into Matt, on the financial side of wealthy, like, how do we become more financially wealthy, get that independence, get that feeling of like, do what I want? And there's a couple of things to think about. Again, on the financial side, there's health, and there's family and relationships and being wealthy and all those things as well. And I think one of the things that comes down to and you ask the question, it's raising your income and saving more of the income. Alright, so the more that you're saving, the more income you have, we said, Oh, it doesn't bring happiness, but the more that you're saving, the higher percentage you're saving of your income leads you more to the financial independence. I mean, it's an obvious statement, right? And for two reasons. One, you're slowly increasing your income over time. Okay. And saving more, so we're growing the savings, okay, but by not spending more, we're keeping the spending down. And so not only are you building up savings, okay, having more for future spending, but you're keeping the spending in check. So rather than saying, geez, my lifestyle is now $100,000 it has gone to $250,000 or 200,000. So for the rest of my life, I feel like I need to spend earning $200,000. If you keep it down, then you become financially independent way faster.

Matt: 15:07

Do you, when people are thinking about that I could almost picture them thinking to themselves gosh, it sounds like what you're pushing me to do is budget. And I don't want to do that. I don't want to clip coupons and pinch pennies. That's great advice, right? Like a penny saved is a penny earned. But is it? Are you pointing people toward thinking about the big ticket items like in their lives? Or are you really suggesting to people, no, set things up so that you have a strict budget and you really are keeping track of like those little leakages in our lives? It's like, you know, I've got six streaming services, and maybe I'll just make it five.

Mike: 15:52

Yeah, a little leak does it sounds terrible?

Matt: 15:55

That's a whole other show.

Mike: 15:56

A different show. But no, I hate budgeting. Actually, I don't mind budgeting because I'm weird, But nobody likes budgeting. Alright, so I don't do that with my clients, here's the way to do savings, you save off the top, so you're saving in your 401k, you never even see that money, never hits your bank account. So have a few more of those come up with a plan for 2023. Hey, yeah, I got my 401k Max, that I can do $500 a month. Cool, then automate the 500 a month from your direct deposit checking account into some other brokerage account, and it’s automatically swept out. And then you just spend whatever's in there. So you get to spend whatever you want whatever's in your checking account, you can go and spend that because you've already saved. Then the next thing, two things increase. This is how to build financial independence, increase your income over time, you get raises, you get bonuses, maybe take a new job in a few years, get a promotion, every time that you're increasing your income, save a drastic amount of that. You were already living on the previous income. Okay, so yes, spend a little bit more, use a little bit of it, maybe take 50% of that increase goes straight into savings. So those two things increases the savings, and keeps your expenses in control.

Matt: 17:12

Yeah, it's a great hack. I hate that term, but it is a great hack. We've talked about this on the show before, too, if you want to avoid budgeting, just say first, everything else will take care of itself because as you said a moment ago, it is a universal law, capacity gets filled. If you are if you have an amount to spend, you're gonna find a way to spend it. If you save up front, the budgeting almost takes care of itself, it's got 100 bucks left. That's what I'm going to spend. That's what I've got. It really is. It's incredible. If you've ever read the Power Broker by Robert Cairo, it's a fallacy that we carry around with ourselves that if we increase capacity, then we're going to have excess capacity. And so he was trying to deal with traffic on the Long Island Expressway. And he's like, there are three lanes on the Long Island Expressway, I'm going to build a fourth lane, then we're going to have extra capacity. What happened? It immediately was completely filled with traffic, because capacity always gets filled to its maximum extent. And so that's a great, that's a great approach. I do try to do that, this is one of the pieces of advice of yours that I've 100% taken is I do my savings upfront. And then I don't worry about the rest. And I just make sure that I'm not overdrawn my checking account.

Mike: 18:31

Yeah. And the great thing is you can do that for multiple goals. So many of my clients, the first thing they say is travel. I love my travel, I love taking the yearly family vacation or whatever it is. And so when you say, hey, 200 a month, automatically swept out into a new account called the travel account…

Matt: 18:50

Where are you planning to go like the Bronx? No way, man, 200 a month? Forget that $2000 a month at today's prices, how do people travel? I don't understand that.

Mike: 19:01

Matt, you have a family of five, my friend. That's why it's $10,000 a month for you.

Matt: 19:06

All right. Are you suggesting that like in the game of life, I sell one of my children eventually because it seems like that's what it takes.

Mike: 19:12

Oh, that’s gonna be a good idea, trust me.

Matt: 19:17

For my kids listening, I'm not going to sell it to you.

Mike: 19:21

Are you crossing your fingers behind your back?

Matt: 19:24

Maybe they're going to get rid of me, but probably my lack of personal grooming, okay, so you can raise your income, you can save and save upfront. What else? If what, again, like the thread of this is for people to recalibrate, most people actually don't care about being rich. What they care about is having wealth, being wealthy in order to afford the lifestyle and the peace of mind that they want in life, how do you do that? You increase your income, but you make sure that you're putting it away in savings upfront. What else?

Mike: 20:01

Yeah, besides the we can give an episode on kind of the feelings that happiness, that equation and that kind of stuff. But let's keep on the financial independence, this takes time, right? It takes time to build up wealth unless you get lucky and get a lottery or an inheritance and can keep your lifestyle the way it is and not squander it. So that's definitely one increase income over time, keep the savings blah, blah, blah. Alright, from there, what are you going to do with that savings? Invest in diversified assets, we have a number of episodes on that. But the point here is, this is about staying wealthy. And there's a whole other concept about getting rich, like, how would you get rich, but you need to double your stuff very quickly. If I want to get rich, within a year or two, I have to take on massive risks, and maybe go to zero, I have to buy a ton of lottery tickets, I got to go to Vegas and put a bunch of money down to try to double it really quickly. That's how you could get rich, okay. But to stay wealthy, you need to have steady growth, alright, you need to take your savings and have nice steady growth to keep your wealth, protect your wealth and grow your wealth. So low cost index funds, blah, blah, blah, diversified assets, talked about a number of times but that's step two, is taking the savings and getting the diversified investments to continue that slow, steady is not sexy, man. It is not sexy, those target date funds, but it's slow, steady growth of diversified assets.

Matt: 21:26

I would just commend to people to do a little plug for my own pod. I actually had the Amherst College happiness professor, Catherine Sanderson on my show, oh, boy, it was about a year ago, you can so if you subscribe to be on politics, you can just look it up in that feed. And she was great, she really boiled it down, part of what you're talking about is this Happiness Equation. You're right, and what wealth enables you to do in terms of happiness, but just it occurs to me, that's a whole separate show maybe I should get the both of you on together. But she boiled it down to four things, I won't give them all here because I want people to go check out that subscribe to beyond politics. But there are things you can do also in the way of substitutions, right? So maybe part of what you're doing as you think about planning for the life you want and saving and accruing the wealth that you want is what are the things that I could be spending on, that I could maybe substitute for in ways that bring me more happiness and also preserve wealth. And a lot of it comes down to experiences with friends spending time outside. And as you start to think about things like travel and what you're buying and what you're spending on. A lot of those little substitutions can actually be like, a win win. They can, if you're smart about it, they can increase your happiness and also help you protect the wealth that you're hopefully accruing.

Mike: 23:02

Oh, 100%, we explore this all the time. Hey, Mike, ideally, I really want to own like a beachfront property because I love being by the beach and so I want to own this property and it's going to be like $2 million, because it's right on the beach, and then it'll probably get washed out to sea in 10 years. So what is it that you love about that? I like spending time with my family at the beach. Oh, maybe there are other ways of doing that right? And the same with the travel man. It's yeah, man, I love traveling, what do you love about it? I love that I'm not working. I love that I'm with my family and having a new experience, does it really need to be at the Colosseum at Rome? Or could you do that like down the street and not work and be with your family and have go somewhere you haven't been before? There's ways of teasing out what the feeling is why you want to do something, to live that wealthy lifestyle, what it is that you really enjoy? And then how to bring those elements into your life without the concept of oh no, it needs to be this thing. This is what I see, you know, on Instagram, or this is what I've done that it was like this big old big thing. It's like, was that really what it was? Or was it the experience that you can recreate in much better ways?

Matt: 24:15

All right, so anything else that we should bear in mind about the distinction of being rich versus being wealthy?

Mike: 24:23

No, I think we nailed that man, I think we did a really good job. And I think people can start to see the dichotomy now. Start to see like when I see something out there, that nice car, that nice home, the pictures on Facebook or Instagram or whatever it is like somebody enjoying something, is that wealthy? Is that rich? Was that what I really want? Or do you really want that independence to be able to do whatever you want and how are you building that wealth? And then I think, like we said, understanding that you never see the whole picture. You never know somebody else's lifestyle. So just focus on how you want to be living and what you want to be creating and plan for that future.

Matt: 25:00

Awesome, alright on that rich note, Mike Morton, I'm Matt Robeson. We will see you next time.

Mike: 25:06

Thanks. Thanks for joining us on financial planning for entrepreneurs. If you liked what you heard, please subscribe to and rate the podcast on Apple, iTunes, Google Play Spotify or wherever you get your podcasts. You can connect with me at LinkedIn for Morton financial advice.com. I'd love to get your feedback. If you have a comment or question, please email me at financial planning . Until next time, thanks for tuning in. This recording is for informational purposes only and should not be considered for investment advice or opinions expressed as our of the date of recording. Such opinions are subject to change. We do not guarantee the accuracy or completeness of the data presented here.