Money

Here’s the #1 Lesson from Secret Millionaires

January 11, 2021 By Nagesh Belludi Leave a Comment

Ronald Read (1921–2014) of Brattleboro, Vermont, worked as a gas station assistant and a custodian at a J. C. Penney store. He was a thrifty man, and he even held his coat together using safety pins. Upon his death, he left $2 million to his stepchildren, caregivers, and friends, and another $6 million to the local library and a hospital. Read had built up a secret wealth by starting small, studying businesses that he understood, buying their stock, and holding them for the rest of his life.

Grace Groner (1909–2010) of Lake Forest, Illinois, lived a frugal life in a small one-bedroom cottage near Chicago. She got her clothes at hand-me-down sales, didn’t own a car, and worked most of her life as a clerk for Abbott Laboratories. Groner willed a $7 million scholarship endowment at Lake Forest College. The money came from three Abbott shares she had purchased in 1935 and let grow, reinvesting the dividends.

Time in the Market is a Great Compounder Agnes Plumb (1905–95) of Los Angeles left a $98 million estate to four hospitals. Plumb had amassed that fortune after liking cornflakes when they were first marketed and having her dad buy her Kellogg’s shares during the company’s early days. She allowed her investment to compound, and by the time she died, she had accumulated 1.3 million shares of the Kellogg Company. She was collecting some $437,000 just in dividends every three months.

Jack MacDonald (1915–2013) was a coupon-clipping, bargain-hunting Seattle lawyer. He even wore sweaters with holes in them, and people assumed that he was broke. When he died at age 98, he left a surprising fortune worth $187 million to various causes, including Seattle Children’s Hospital.

Kathleen and Robert Magowan (1925–2011, 1925–2010) of Simsbury, Connecticut, died within a year of each other. These twins lived as hermits throughout their lives and built up a fortune through wise stock market investments. They left $10 million worth to various civic institutions.

Curt Degerman (1948–2008) was a can-collecting street bum living in Skelleftea in northern Sweden. For three decades, “Burk-Curt” (‘Tin-Can Curt,’) as he was called, roamed the streets of his town in tattered clothes. In between collecting cans, Degerman spent much time in the town library studying business media and examining the stock market. He used his tin-can incomes to buy mutual funds and gold. When he died, he left more than $1.4 million to his cousin.

Time in the Market is a Great Compounder.

There’s one thing not apparent in these live-modestly-and-invest-prudently anecdotes. The fortunes of these seemingly ordinary, generous folks became so big due in no small part to their age.

With time, money has the chance for a heck of a lot of compounding. Money grows 10.83 times every 25 years if you consider a 10% historical mean return on equities. To take a prominent example, Warren Buffett, who’s now 90 years old, has made 99.7% of his fortune after 52.

Idea for Impact: Time in the stock market is infinitely more important than timing the market. Start investing early. Watch over your health. Live a long life. Grow your money. A long time horizon will enable your investments to grow through the “magic” of compounding.

That Extra Salary You Can Negotiate Ain’t Gonna Make You Happy

October 13, 2020 By Nagesh Belludi Leave a Comment

This well-cited study shows that people with high incomes aren’t actually that much happier than their less-earning brethren. This is something many people know empirically. Never mind that subjective happiness is a nebulous condition that’s not easy to measure.

The belief that high income is associated with good mood is widespread but mostly illusory … People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities.

Of course, there’re situations wherein more money can make a real difference in your well-being: nirvana from living paycheck-to-paycheck, freedom from debt, and adequate savings for retirement. Yes, being poor makes people miserable.

The Extra Salary You Can Negotiate Ain't Gonna Make You Happy But, beyond a reasonably upper-middle-class living (better health care, lavish-enough vacations and celebrations, affording one partner who could stay at home, the ability to buy conveniences, and so on,) additional income doesn’t create enough incremental happiness to justify all the compromises the extra income entails.

Even people who had big wins in the lottery winded up no happier than those who had bought lottery tickets but didn’t win. Sure, these people will be more content with their new toys for a short time, but that delight typically fades away quickly. After that, they’ll seek out yet another indulgence. Soon, that’ll wear off too, at which point they’re already on the hedonic treadmill.

Idea for Impact: Be mindful of what you’re trading away in the pursuit of a higher salary. Wealth and status are false gods.

Never Enough on the Hedonic Treadmill

February 10, 2020 By Nagesh Belludi Leave a Comment

In Enough: True Measures of Money, Business, and Life (2008,) mutual fund pioneer John C. Bogle puts emphasis on the virtue of contentment:

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds, “Yes, but I have something he will never have … enough.”

Enough. I was stunned by the simple eloquence of that word—stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn’t have been more accurate. For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails …

We chase the false rabbits of success; we too often bow down at the altar of the transitory and finally meaningless and fail to cherish what is beyond calculation, indeed eternal. That message, I think, is what Joseph Heller captured in that powerful single word, enough.

The Hedonic Treadmill: Never Enough American entrepreneur Seth Godin describes the never-ending ratchet of consumption:

It used to be that a well-tended lawn of 50 by 100 feet was wasteful indeed. Today, it’s in the by-laws of the local housing association. You could impress the neighbors with a new Cadillac, now you not only need a Tesla, but you need a new Tesla. And you could show off by flying first class, but then you needed to charter a plane, then charter a jet, then charter a bigger jet, then buy a fractional share, then own the whole thing, then get a bigger one and on and on.

Conspicuous consumption is not absolute, it’s relative.

It’s sort of a selfish potlatch, in which each person seeks to demonstrate status, at whatever the personal or societal cost, by out-consuming the others.

It’s a lousy game, because if you lose, you lose, and if you win, you also lose.

The only way to do well is to refuse to play.

In times of yore, the Roman stoic philosopher Seneca the Younger counseled about the excesses of desire in his Ad Lucilium epistulae morales (Moral Letters to Lucilius; tr. Richard M. Gummere; 1917):

It is not the man who has too little, but the man who craves more, that is poor. What does it matter how much a man has laid up in his safe, or in his warehouse, how large are his flocks and how fat his dividends, if he covets his neighbour’s property, and reckons, not his past gains, but his hopes of gains to come? Do you ask what is the proper limit to wealth? It is, first, to have what is necessary, and, second, to have what is enough.

Our consumerist society encourages us not to be grateful for what we have.

Consumerism encompasses dissatisfaction—if people are happy with what they’ve got, then they are less concerned about getting more.

Idea for Impact: Why is more and more always better if it can never be enough?

I’ll Be Happy When …

October 19, 2018 By Nagesh Belludi Leave a Comment

'I'll Be Happy When' Syndrome It is fallacious to let life slip away in the pursuit of the illusion that, “When I achieve something, I will be free to live in happiness.”

If you pursue a job, a relationship, a house, a material possession, or the settlement of a debt, happiness will never come because there is always another “something” that will follow the present one. The circumstances that you thus wait for do provide a transitory elation, but, too soon, they withdraw into the dull and mundane, only to be replaced by the next fantasy of happiness.

The Art of Simple Existence is One of the Most Difficult to Master

According to Buddhism, the art of simple existence is one of the most difficult to master. If you aren’t living in peace and happiness at this moment, you’ll never be able to. If you truly want to be at peace, you must be at peace right now. Otherwise, there is only the aspiration of peace “someday when I accomplish something.”

The experience of pleasure, freedom, and love are available now, whatever your circumstance. The American clinical psychologist John Welwood reminds us of this in Ordinary Magic: Everyday Life as Spiritual Path:

Our society would have us believe that inner satisfaction depends on outer success and achievement. Yet struggling to “get somewhere” keeps us perpetually busy, stressed out, and disconnected from that essential inner resource—our ability to be fully present—which could provide a real sense of joy and fulfillment. Our life is unsatisfactory only because we are not living it fully, but instead we are pursuing a happiness that is always somewhere else, other than where we are right now…

Cultivating the capacity to be fully present—awake, attentive, and responsive—in all the different circumstances of life is the essence of spiritual practice and realization. Those with the greatest spiritual realization are those who are “all here,” who relate to life with an expansive awareness that is not limited by any fixation on themselves or their own point of view. They don’t shrink from any aspect of themselves or life as a whole.

Idea for Impact: When One Lives, One Must Live Entirely

However difficult your circumstances, however uncertain the times, peace is not to be earmarked for a future time. The definitive source of happiness lies in the quality of your thoughts. Real sustainable peace springs from a healthy and nurturing relationship with yourself. Let nothing and nobody take that away from you. Don’t postpone being at peace.

Why I’m Frugal

October 1, 2018 By Nagesh Belludi Leave a Comment

Frugality Over the Ages: Frugality as a Virtue

Frugality Over the Ages

From Socrates to Thoreau, from Franklin to Gandhi, philosophers, moralists, and spiritual leaders have identified frugality as a virtue and associated simple living with wisdom, integrity, and happiness. The Cynics were the first to reject wealth, power, sex, fame, and other desires in favor of a simple life free of all possessions. Diogenes the Cynic (portrayed in image) famously lived in a wine barrel and had no worldly goods.

For the Puritans, the love of material consumption was an evil; their spiritual doctrine stressed, in the words of the American historian Edmund Morgan,

A man was but the steward of the possessions he accumulated. If he indulged himself in luxurious living, he would have that much less with which to support church and society. If he needlessly consumed his substance, either from carelessness or from sensuality, he failed to honor the God who furnished him with it.

Founding Father Benjamin Franklin, a doyen of the self-improvement movement, listed frugality as one of the 13 virtues he followed as a young man. Between 1732 and 1757, Franklin published such famous aphorisms in his Poor Richard’s Almanack as “be industrious and frugal, and you will be rich,” “beware of little expenses; a small leak will sink a great ship,” and “he that goes a-borrowing goes a-sorrowing.”

For the American philosophers Ralph Waldo Emerson and Henry David Thoreau, frugality or “transcendental simplicity” was a means to a higher end. In Man the Reformer (1841,) Emerson wrote, “Economy is a high, humane office, a sacrament, when its aim is grand; when it is the prudence of simple tastes, when it is practiced for freedom, or love, or devotion.” For Thoreau, “high thinking was preferable to high living;” he wrote in Walden (1854,) “Most of the luxuries, and many of the so called comforts of life, are not only not indispensable, but positive hindrances to the elevation of mankind. With respect to luxuries and comforts, the wisest have ever lived a more simple and meager life than the poor”.

Thoreau inspired the Russian novelist Leo Tolstoy. After suffering a mental breakdown in the late 1870s, Tolstoy, who was born into Russian nobility, rejected his family’s estate and serfdom. He renounced his decadent, racy lifestyle and engaged in a revolutionary brand of Christianity based on spiritual and material austerity.

Tolstoy’s philosophy showed the way for the creation of utopian communities of simple, self-sufficient living—the most famous example being the “Tolstoy Farm” ashram that Mahatma Gandhi established in South Africa. Gandhi was the quintessence of simplicity and sported austere homespun clothing. He famously said, “you may have occasion to possess or use material things, but the secret of life lies in never missing them,” and “our civilization, our culture, our [nation] depend not upon multiplying our wants—self-indulgence, but upon restricting our wants—self-denial.”

Frugality is a Moral Virtue

The distinguished career coach Marty Nemko once wrote, “I even take care to tear-off single sheets of toilet paper. Because I’m cheap? No. Because it’ll help the environment? No. I just think wasting is wrong.” That, in a nutshell, is why I’m frugal.

For me, frugality suggests an appropriate limit on individual and collective desires; it denies the materialistic expectations that the modern society imposes upon us.

Frugality is not some form of world-denying asceticism or austerity. It is a part of principled stewardship of not only the resources I’ve been blessed with but also of myself.

Frugality is about forgoing a subset of desires—as part of a quest for an abundant life. In other words, frugality restricts my indulgence of materialistic appetite, with the intention that I leave space for the cultivation of diverse forms of pleasure.

When I started to work while still in college, frugality was an element of my quest for financial independence. It became the lynchpin of a deliberate set of lifestyle choices and values. But my focus on achieving financial freedom never let me pining for the pleasures I might have had.

Six years ago, I gave up a corporate job and significant earnings in favor of a simpler life with plenty of discretionary time and money for world travel, leisure, learning, culture, and meaning.

Idea for Impact: Enjoying a rich life is more important than zealously stewarding one’s savings and investments.

Living frugally, with the particular intention of achieving financial freedom, requires a good measure of renunciation. This renunciation is easiest when one regards it not as deprivation, but as a deliberate choice in a trade-off for an enriched life.

Conspicuous Consumption and The Era of Excess // Book Summary of ‘Luxury Fever’

July 3, 2018 By Nagesh Belludi Leave a Comment

The Superrich Influence the Standards for Desirability in Consumer Goods: The Less Rich Emulate Them

The core argument of Cornell economist Robert Frank’s Luxury Fever: Why Money Fails to Satisfy in an Era of Excess (1999) is that the extravagant consumption of the most affluent in our society has a ripple effect on everyone’s spending.

According to Frank, the desire for many to indulge in luxury “possessions” is motivated less by the gratification they may bring than by what others are buying or want to buy. We try to achieve happiness by improving our relative social status. For example, if your neighbor didn’t buy his new Mercedes Benz, you wouldn’t probably feel the need for the latest-and-greatest Jaguar, and you’d both work less, and spend more time with your loved ones and invest in meaningful experiences that bring you joy.

It is not just the rich who have gone on a spending spree. Middle- and lower-income earners have been spending more as well. The prime mover in this change may have been the increased spending of the superrich but their higher spending level has set a new standard for the near-rich to emulate, and so on down the income ladder. But although middle- and lower-income families are spending much more than in the recent past, the incomes of these families have not been growing.

While the rich have the money to indulge their whims, the rest of us tend to finance our wasteful spending through reduced personal savings or through increasing debt. To substantiate this trend, Frank describes burgeoning household debt and a remarkable increase in personal bankruptcies.

Luxury Fever summarizes persuasive biological and psychological evidence that suggests how human nature is such that we measure our success in relation to what others have. In other words, we tend to spend money on luxuries to appear to be more successful than others are. Frank concludes, “Evidence from the large scientific literature on the determinants of subjective well-being consistently suggests that we have strong concerns about relative position.”

Relative Consumption, Not Absolute Consumption, Affects Consumers’ Happiness

Much of the increased luxury spending is wasteful, given that consumers could get the same benefits by consuming non-luxuries with lower price tags. Research has proven that money doesn’t buy happiness,

Behavioral scientists find that once a threshold level of affluence is reached, the average level of human well-being in a country is almost completely independent of its stock of material consumption goods.

Frank’s thesis on runaway consumption and extravagant luxuries seems as valid now as it was in 1999, when his book was published at the height of the dot-com boom. The era of excess has now proliferated to India, China, Russia, and other developing countries that are facing not only widening economic inequalities between their rich and poor, but also mushrooming appetites for luxury goods among their affluent middle classes.

Luxury Fever: Conspicuous Consumption and The Era of Excess

Can a Progressive Consumption Tax Challenge the “Luxury Arms Race”?

Based on the solid evidence he provides, Frank’s thesis on runaway consumption of extravagant luxuries and this era of excess is hard to dispute. Consumers have indeed been saving less, working longer hours, and spending more per capita on luxury goods. However, his claim that the spending patterns of the super wealthy has incited luxury fever among the non-wealthy lacks substantial evidence.

The Luxury Fever‘s solution to this problem is to come down hard on lavish consumption and to encourage more savings. To this end, Frank presents policy proposals that are reasonable in the abstract, but will face serious political and cultural hurdles. Frank promotes a tax exemption for savings and a steeply progressive consumption-based tax as a substitute for income and sales taxes. If Americans expend less on luxury goods, he argues, we’d collectively work less, and make more money available “to restore our long neglected public infrastructure and repair our tattered social safety net.” However, economists have argued that a progressive consumption tax would burden the non-wealthy more than the wealthy because the latter tend to save much larger percentages of their incomes.

The Good and Bad Sides of Consumerism: How to Clamp Down on Conspicuous Consumption and Encourage More Saving

Despite its flaws, Robert Frank’s Luxury Fever is a valuable read in behavioral psychology and behavioral economics. Luxury Fever offers an appealing compendium of interesting case studies, anecdotal evidence, and statistics on society’s current “wants-not-needs” and “more is better” materialistic way of life, and its harmful impact on our lives, relationships, and societies.

Complement with The Millionaire Next Door (1996, read my summary,) a bestselling exposition on the surprising secrets of America’s wealthy.

Surprising Secrets of America’s Wealthy // Book Summary of ‘The Millionaire Next Door’

February 12, 2016 By Nagesh Belludi Leave a Comment

The Millionaire Next Door summarizes anthropological research from the ’90s on the attributes of unassuming wealthy Americans. The authors, marketing professors Thomas Stanley and William Danko, offer unique insights into millionaires’ lifestyles and their buying habits. They explain that, in contrast to today’s earn-and-consume culture, the many ordinary folks who accumulate wealth live modestly and prize frugality.

When first published in 1996, The Millionaire Next Door generated widespread enthusiasm for its core message: that anybody could become rich by living below their means, efficiently allocating funds in ways that build wealth, and ignoring conspicuous consumption. Consequently, the book sold millions of copies and stayed on the New York Times bestseller list for three years.

A bulk of The Millionaire Next Door focuses on rejecting the stereotypical view of the wealthy; the authors write, “Most people have it all wrong about wealth in America. Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.”

The authors discuss the fancy trappings of wealth and the high cost of maintaining social status. They explain that wealthy individuals prioritize financial independence over a high social status. Further, they did not receive sizable financial support from parents, and raise their own children to be economically self-sufficient adults.

The Millionaire Next Door is a definitive example of books that present simple concepts by reiterating them ad nauseam with an overabundance of statistics, tables, charts, and anecdotes to attain a respectable book length. For instance, a tedious 31-page chapter discusses how the wealthy purchase cars and includes statistics for average price-per-pound of popular cars.

Recommendation: Skim. The Millionaire Next Door defends the timeless values of thrift, disciplined spending, and prudent accumulation of wealth. However, the book overemphasizes penny-pinching and the merits of hoarding money. The book feels dated (it was first published in 1996) and engages the reader in crude generalizations and oversimplifications.

Burt, Bees, and Simple Happiness / The Curious Case of Burt Shavitz

September 8, 2015 By Nagesh Belludi 1 Comment

Narratives of entrepreneurial success and great wealth are fascinating

Today’s high-achieving culture adores people like Elon Musk who dream big, set ambitious goals, stubbornly get things done, and build wealth for themselves.

This scale of purpose, however, is not for everyone. A surprising number of people find their purpose by going the other way—by rejecting the trappings of wealth and pursuing humble, unpretentious, contended lives.

Consider the case of Burt Shavitz, the namesake and co-founder of Burt’s Bees, a prominent beauty-products company. Burt, whose bearded face and scruffy hat grace the tins of the company’s hand salve and ointment, died this summer at age 80.

Burt Shavitz of Burt's Bees and Simple Happiness

The small, simple, happy life

Burt Shavitz’s extraordinary reclusive life exemplifies what Marcus Aurelius wrote in Meditations, “Very little is needed to make a happy life; it is all within yourself, in your way of thinking.”

As a young professional photographer in the sixties, Burt grew increasingly disenchanted with city life in his native New York City. He was particularly distressed by the loneliness of an old woman whom he photographed at a home across his apartment—she always looked out sorrowfully from behind dingy curtains and never left her room. “As soon as I took this shot, I knew that that would be me, ninety years old and unable to go outside, if I didn’t get the hell out. I borrowed a van from a former girlfriend, packed up everything I needed—my bed, what clothes I had, an orange crate of books—and disappeared into the declining sun,” Burt recalled in 2014.

Burt left his city life for the backwoods in Maine and started living in a camper van. He led a hippie lifestyle; he had no ambitions and very little money. He took to beekeeping after unintentionally stumbling upon a swarm of bees at a fencepost. One day, while peddling beeswax by the side of the road, he met Roxanne Quimby, a single mother who was hitchhiking to work. Roxanne and Burt soon got romantically involved.

Roxanne had an entrepreneurial mindset: she made candles, lip balm, and hand lotion from a 200lb stash of unsold beeswax and started selling personal care products to tourists and at fairs. Over time, when their business thrived enough, Burt and Roxanne moved to North Carolina to establish a factory. However, Burt missed Maine very much. After a falling out with Roxanne, Burt sold his one-third stake in the company to her for a measly $130,000 and returned to Maine. (In 2007, Roxanne and her associates sold the company to Clorox for $913 million; she claims to have given him $4 million of the proceeds. Burt’s Bees/Clorox continued to pay him an unrevealed amount for continued use of his likeness and his name on its products.)

Burt's Bees Hand Salve

Idea for Impact: Happiness is mostly a matter of perspective

After returning to Maine, Burt no longer kept bees to make a living. He just enjoyed life—doing what he wanted, when he wanted. He told Flare magazine in 2013, “I’ve always had enough. I never starved to death, and I never went without a meal. I served in the army and went to Germany and slept in snowbanks, and walked 100 miles in the day carrying an 80-pound pack. What was it that I needed? My beekeeping produced enough cash that I could maintain my vehicles and pay my land taxes. What do I need? Nothing. No wife, no children, no TV set, no washing machine. All the pins sort of fell into place my entire life.”

During his later years, Burt lived in a cluttered country home in Maine that had no hot water and liked to watch nature pass by. A 2013 documentary called “Burt’s Buzz” captures his long and unconventional life. This highly recommended documentary (entirely on YouTube) juxtaposes Burt’s ideal day—“when no one shows up and you don’t have to go anywhere”—with the rock star adoration that he received from fans during a visit to Taiwan as the ‘brand ambassador’ of Burt’s Bees products.

In interviews—as in “Burt’s Buzz”—Burt denounced the emptiness of consumerism and extoled the virtues of simple, reclusive living. Evidently, he never regretted missing out on millions, but felt hurt by a three-decade-old business deal with Roxanne gone bad. “I’ve got everything I need: a nice piece of land with hawks and owls and incredible sunsets, and the good will of my neighbors,” he once said. An obituary in The Economist observed,

Settling back in his rocking chair, feet spread to feel the heat of the stove, Burt Shavitz liked to reflect that he had everything he needed. A piece of land first: 40 acres of it, fields and woods, on which he could watch hawks and pine martens but not be bothered, with luck, by any human soul. Three golden retrievers for company. A fine wooden house, 20 feet wide by 20 feet deep, once a turkey coop but plenty spacious enough for him. From the upper storey he could see glorious sunsets, fire off his rifle at tin cans hanging in a tree, and in winter piss a fine yellow circle down onto the snow, and no one would care. … He would wander into the woods or lie on his lawn to watch the baby foxes play, murmuring “Golly dang!” with simple happiness.

The seventeenth century French writer Francois de La Rochefoucauld once wrote, “Happiness does not consist in things themselves but in the relish we have of them; and a man has attained it when he enjoys what he loves and desires himself, and not what other people think lovely and desirable.” If, indeed, contentment consists of liking of what one has and having what one likes, Burt’s humble life illustrates how happiness arises from the harmony between oneself and the life one leads in one’s simple corner of the world.

Money

Time in the Market is a Great Compounder.

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The Art of Simple Existence is One of the Most Difficult to Master

Idea for Impact: When One Lives, One Must Live Entirely

Wondering what to read next?

Frugality Over the Ages

Frugality is a Moral Virtue

Idea for Impact: Enjoying a rich life is more important than zealously stewarding one’s savings and investments.

Wondering what to read next?

The Superrich Influence the Standards for Desirability in Consumer Goods: The Less Rich Emulate Them

Relative Consumption, Not Absolute Consumption, Affects Consumers’ Happiness

Can a Progressive Consumption Tax Challenge the “Luxury Arms Race”?

The Good and Bad Sides of Consumerism: How to Clamp Down on Conspicuous Consumption and Encourage More Saving

Wondering what to read next?

Wondering what to read next?

Narratives of entrepreneurial success and great wealth are fascinating

The small, simple, happy life

Idea for Impact: Happiness is mostly a matter of perspective

Wondering what to read next?