Occasionally the super-rich behave just like us: Camouflaged in the trappings of normal human beings, some live conservatively, keeping their lavish gestures to a minimum. But sometimes the well-heeled members of society wear their status on their sleeves: By pulling up to five-star hotels in their Bugatti or jet-setting to Paris for the weekend they have us believing that we'd be happier too with that kind of money.
But before you buy into the mystique, remember "there's a cost to having money," says Californed-based lawyer Richard Watts and author of Fables of Fortune: What Rich People Have That You Don't Want. His book – which challenges the myth that greater wealth is synonymous with greater happiness – is the byproduct of more than three decades working as a "keeper of secrets" for some of the wealthiest families in the U.S.
In an interview, he outlines two of the most important findings he uncovered over the years and what middle-income earners can do to avoid similar pitfalls:
1. Don’t give your children everything
“Parents have a misconception that taking away the struggle of their children is a good thing,” says Mr. Watts.
But the truth is that most self-made millionaires, at some point in their high-flying trajectory, had to scrimp and save and struggle in the face of hardship. Yet for whatever reason, when these people become parents, they eliminate the obstacles from their children’s lives without realizing the negative repercussions of their actions, he explains.
For example, if you buy your daughter a brand new Mercedes-Benz SLK350 for her sweet 16, for example, you're robbing her of the opporunity to learn the value of saving, making car payments, building credit and understanding the responsibility that comes with maintaining a vehicle.
“It’s not to say you don’t give your child anything,” says Mr. Watts. “But it’s important to remind yourself: When I give them something, what am I taking away from my child?”
By the time this same child – who for years has been showered with cars, vacations, tuition and other gifts – reaches adulthood, it's likely she's built up a healthy sense of entitlement and will be shocked when she's confronted with having to find a real job. Because she's never really had to work a day in her life, explains Mr. Watts, she may eventually find herself in a vacuum, disenchanted by the fact that life isn’t turning out just as she expected. Parents may be similarly confused, wondering why their 25-year-old daughter is so unmotivated.
So what can the non-multimillionaires do to prevent their children from becoming spoiled rotten? Mr. Watts says parents need to recognize what they were given growing up and not to use the excuse that “times are different” and make the youth responsible for the consequences of their actions.
“It’s not necessary they struggle in every department, but make sure they understand struggle in some department,” he says.
2. An extravagant lifestyle has diminishing returns
How much money do you need to be happy? There may be no right answer, but researchers at Princeton University attempted to find out as best they could, landing on the number $75,000. The lower a person’s annual income falls below the magic number, the study found, the unhappier he or she feels, but those making more than this benchmark didn’t report any greater degree of happiness.
Take the study for what it’s worth, but it does support the sentiment that after a certain point you will start to pay more for less or, as the Notorious B.I.G. so poignantly rapped in the 1997’s hit single ‘mo’ money' simply lands you 'mo problems.’
Anecdotally, Mr. Watts shares a story about a client who had a 180-foot yacht worth tens of millions of dollars, only to find out that friends of his bought a boat twice the size. Naturally, his client felt compelled to sell his ‘old’ one go out and buy a 290-foot boat, though he discovered the new one wasn’t everything it was cracked up to be.
“It’s just a bigger headache,” the client revealed to Mr. Watts one day at the office. “It’s more expensive to run but it’s the same old boat times two, and I’m kind of aggravated that I really didn’t get anything more for all the money I spent.”
Many of Mr. Watt's clients are so focused on getting more and more that they feel like the world gets smaller and they get less out of it.
His advice to the middle-class is to live below your means without letting yourself turn wants into needs.
"Be like Warren Buffett and treat your money as a giant security blanket," he says.Report Typo/Error