Wealth is a funny thing. The image of wealth and the reality of wealth are, at least in my experience, polar opposites.
Everywhere you look, especially online, you see the image of wealth. Insanely expensive cars, custom suits, boats and horses and at minimum 3 twenty-something year old Instagram models to cling to.
Every person with real wealth I’ve ever met has been nothing like this. They drive old vehicles, wear worn clothing unless the situation demands more, and they don’t much care to hire an entourage. This has been called “Stealth Wealth”, but I just call it “Wealth”.
Stealth Wealth is more accurately defined as the illusion of wealth. I may be getting head of myself, though. What does it even mean to be wealthy?
What is Wealth?
The definition I’ve found is as below from Investopedia:
“Wealth measures the value of all the assets of worth owned by a person, community, company or country. Wealth is determined by taking the total market value of all physical and intangible assets owned, then subtracting all debts. Essentially, wealth is the accumulation of resources. Specific people, organizations and nations are said to be wealthy when they are able to accumulate many valuable resources or goods.”
That’s easy enough to understand. All assets minus all debts. In other words, what do you actually own?
In the case of the image of wealth, they usually own abso-fucking-lutely nothing. The buck stops at the “All Assets” bit. When you factor in the “all debts” part, that puts most folks actual net worth into the negative.
Why? Because people finance EVERYTHING.
Expensive house they don’t need? The bank owns it. Expensive unnecessary furniture to fill said expensive unnecessary house? There’s a loan to each room of the house. The two expensive, unnecessary cars parked prominently outside the expensive, unnecessary house? Yet another loan.
And it doesn’t stop there. TV? Financed. The shotgun in the bedroom closet? Financed. The degree used to get the job to get the paycheck to make the payments on all the aforementioned unnecessary shit? Financed.
Absolutely anything and everything that can be bought by accepting the shackles of more debt WILL be bought by accepting the shackles of more debt.
It’s for this reason I tend to turn to silent evidence instead of believing a reported net worth. People’s finances are usually so poor that if the income stopped coming in, they couldn’t survive without borrowing still more money or selling something.
This brings us to the issue of income, since most people’s Stealth Wealth is entirely dependent upon it.
Income, Expenses, and Keeping Up With The Joneses
You don’t need a definition of these terms if you’re an adult, so don’t look for one. Instead, let’s run the hypothetical of what the system I call Stealth Wealth entails with these factors in mind.
You’re up to your eyeballs in debt, to maintain the illusion of wealth you feel is necessary to Keep Up With The Joneses, and you’re likely upper middle class in terms of income.
Let’s get some numbers to get a sense of what this means. These numbers are rounded for simplicity, but if you want to get particular the source can be found here.
The lower class has income of $19,000 or below. The lower middle class has income between $19,000 and $47,000. Income for the “middle middle class” is from $47,000 to $100,000. Upper middle class income is between $100,000 and $350,000. Upper class income starts at $350,000 and from there the sky is the limit.
Let’s say you’re Upper Middle Class Monty, and you bring home $110,000.
If you appeared to bring home TWICE as much money as you actually do, you would still appear to be of the same social standing you already have.
No, no, that won’t do at all. You need to appear to bring home more than three times as much money to appear higher class than you are.
Why would you do this?
Maybe it’s a foolhardy attempt to keep your socialite trophy wife interested in you. Maybe your mother didn’t love you enough. Hell, maybe it’s just because you’ve been programmed by evolution to consume and by society to consume extravagance. It doesn’t much matter what the reason is, you need more shit.
How would you do this?
First, you’d buy an extravagant home in an extravagant area of a major urban center. Expect to pay a good $1.5M (or more) for that. Assuming you’ve got squeaky clean credit, you’re looking at (and this is optimistic) $6,947 per month.
$870 of that is pure fees, and it will likely be a hell of a lot more because I used such a low interest rate (3.755%) in this calculation. That comes out to $2,500,920 over thirty years. You could do better, but I’m assuming only 5% down since this is a house outside of your price range to begin with.
So now we bring it back to the budget. You make $110,000 per year, and you’re dedicating $83,364 of that to your mortgage. You can probably see how ugly this is going to get. Now you have $26,636 remaining, making your possible lifestyle equivalent to a lower middle class peasant.
Next, you’d seek to buy no less than two high status cars on credit. They’re new, of course, and shiny as a freshly minted penny. You’re going for a Porsche, and a Range Rover for when you feel like slumming it. Again ball-parking these figures, let’s assume a base cost of $108k for your Porsche and $69k for your Range Rover.
Assuming again that you had squeaky clean credit and knew a couple people before starting this fool’s errand, you get the low low rate of 2.770% on both loans. That’s a total of $3,163 spent on car loans per month, which is $37,956 per year, for a total of $189,780 over the course of five years.
Hey, the good news is you won’t have to replace them when the loan is up. Your net worth has long been in the negative, but now your actual bank account is too!
That’s nothing a few well timed personal loans can’t solve, though. You had good credit when all this began, right? Never you mind the day is fast approaching where something’s gonna have to give.
What about kids?
For people like you, age doesn’t exist! You can pop out a few kids (kids you can’t afford any more than the other lower class people can) and live vicariously through them.
I did the math on this one already, but I did it for my own (much more modest than this hypothetical) financial circumstances. Let’s assume that by now your hubris is only a mask and you’ve realized how badly you’ve fucked yourself, though. Let’s assume you spend as much rearing your children as the rest of us. (You won’t, but I’m not running those figures over again)
That’s $232,000 per child, from birth to age 17, and you just have to have one of each. Your son and daughter won’t cost you the same every year, but we’re going to divide by a solid 18 and just think happy thoughts as if we were applying for another loan.
You’re looking at spending $12,889 per child per year, so that’s another $25,778. If you’ve been paying attention, that puts you in the red $37,098 per year. That’s a $3,091.50 deficit per month.
You’ll postpone the inevitable with the aforementioned personal loans, then with credit cards, then you’ll have to start selling things off. Eventually you’ll have a bankruptcy under your belt.
But hey, ya got to play rich for a while. That’s something, right?
The above was the end of the post I originally wrote, but after seeing the following tweet from Hutt, I decided to rerun the numbers.
$200K is the new $100k
— Hutt (@HuttFrame) September 26, 2017
I doubled the amount of Upper Middle Class Monty’s hypothetical salary to $220k, keeping all expenses the same and assuming again his credit is good enough to get such low interest rates. People, it turns the entire post on it’s head and makes Upper Middle Class Monty less of a tragedy.
While I’m still in the “don’t buy shit you don’t need” camp, if you’re hell bent on signalling status like this you should see the differences below first. While this still doesn’t translate to wealth, as there is a lot of debt involved, at least Monty ain’t in the red.
Setup: $1.5M home, Porsche, Range Rover, 2 Kids, total expense $147,098 annual
At $110,000 annual income, that’s a $37,098 yearly deficit.
At $220,000 annual income, there’s $72,902 yearly surplus.
That translates to $6,075.16 to live off of every month, meaning you’d have an upper class appearance while living a “middle middle class” lifestyle. That’s essentially the American Dream, even though it isn’t what I’d want to do.
If you avoided adding too many unnecessary expenses (I mean, you’ve got three huge unnecessary expenses in this hypothetical already) then you could live reasonably well.
An interesting thought, if nothing else.
Until next time, friends
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