Why you’re wrong about rich people

MY SAY! Its my website and if I want to have a rant, I will!

Fitzgerald: The rich are different from you and me. Hemingway: Yes, they have more money. (misquoted apparently)


There has been a stream of discussion about “rich people” on twitter lately, driven by an article published Financial Samurai. Its been picked up by CNBC and even Bloomberg has dropped an opinion on the matter.

The article spoke about a couple of who could’t afford their lifestyle, despite making nearly a half a million dollars per year in combined incomes. Now everyone agrees, they’re clearly “rich” in terms of income. You’d be nuts if you didn’t agree that’s a lot of money. What got the Twitterverse goat was their inability to save on such high incomes. Sam from Financial Samurai broke down the numbers.

But these articles and commentary are missing one, very important point. The thing about rich people like these is often its not about the money. Its about THE MONEY.

Huh? What do you mean?

I mean they don’t care about the money the way you and I would. Of course they care about how much they earn, but more importantly to them is THE MONEY. The ego boosting, self worth reinforcing ability of making a large amount of money, in jobs that come with a lot of importance and prestige. It makes them feel good about themselves and their place in the world. Earning more than everyone else is more important than the actual earnings themselves.

I want a job like that!

If you’re thinking like that, then you’re probably not mentally wired for it. It takes a hell of a lot of drive, ambition and sacrifice to get to position where you’re making that much money. And it starts very early in life. Like back in early childhood. Think of the drive it takes to do 80+ hour weeks, year after year after year. Or the mental sacrifices needed. Give up friends, hobbies, family etc etc in order to achieve the dream.

So, why do they do it?

Well, I’m no psychologist but I reckon its got a lot to do with feelings of security and self-worth. The people I’ve known over the years who are like this (and there are more than a handful in financial services), tend to have a pretty thin skin. Not all of the them, of course. I’ve making a mass generalization based on a small sample size. But more than enough people who chase the big dollars and big lifestyle.

The thing to remember is that its not actually about the things THE MONEY can buy. The nice car and the nice holidays and having the kids in the right childcare / school. Its about showing everyone else that you know what are the “right” schools, the “right” cars and the “right” clothes. Its a concept called SIGNALLING. Basically, you’re sending a message to the rest of the tribe / world about you. That you belong. Others of your tribe send the same signal back by reciprocating the same behavior. Even THE MONEY is about signalling that you are smart enough and driven enough to make such a large income.

Why do you think brands have such a powerful influence on our daily lives? If you’ve done even a basic marketing course, then one of the first things they teach you is market segmentation. The idea that you aim your products at different markets, each of which have different price points. Brands spent a lot of money on marketing to create an image in consumers mind of what the brand is like. The BMW screams luxury and prestige. The Toyota says I like affordable cars, while our Subaru says I’m an outdoors, adventure type who also likes a grunt in the engine (think rally cars).

But that’s nuts! I’d save all my money and retire if I was in their shoes


But you probably won’t. Why?

Cause its not in your DNA. If you’re reading a site like this, about investing and saving money, then there is a very good chance you’re not too worried about looking the right part and making sure everyone else knows you look the right part. I mean, you want to look the part, but just not the $500,000 per year income type.

Don’t forget that every tribe has its own set of signals. In the FIRE and frugal movement, you still signal to others your consumption habits. Look at the “outrage” when members of the frugal tribe discovered Mrs Frugalwood actually made a fairly decent income. The comments are kind of ridiculous (what the hell did people expect??), but also interesting. The Frugalwood “brand” was middle class, lower spending, mommy blogger type. All true. What they didn’t put up in bright lights and the assumption that a lot of her readers had made, was that they also had a small income. Turns out her husband does ok for himself financially. Her signalling to her tribe didn’t equate to the reality of the matter and so she got flamed.

So, what’s the answer?

Ultimately, the issue here isn’t one of “oh my God, how can they not save of $500k per year”, but rather to understand that in their tribe, all the things they purchase are “essential”. The right house, car, school, clothes, holidays, etc. Even the job the generates the income is part of that. Its not about the money – its about THE MONEY! and everything that comes with it. Its not part of that tribes culture to save and invest well.

If you understand that, then you’ll understand why.

James Scott

James Scott is a personal finance expert with over 20 years experience. He believe that money should not be stressful. By using the Stress Free Money pyramid it helps everyone achieve their financial dreams.

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2 Responses

  1. I agree with all you are saying, except that the rich are working more. This is the fallacy. They worked like the rest of the people.

    Recently I attended a conference where chair board of director of $300 bn company made speech. After that he could not stay and was heading for the airport. As it happened so did I and were on the same flight. He boarded earlier and I about 20 minutes later.

    I was expecting him be reading something work related, working on an overpriced laptop or talking to somebody. When I was passing by he had hs headphones on, watching cheap series.

    Those 80 hours weeks, is like Tim Cook waking up earlier and sitting on his bicycle, doing some exercises and reading news, emails. For them this work. At the end of the day there are 168 hrs a week for all. Elon complained that he had to sleep at the car factory for couple of weeks, when the problems could not be solved. So did BP CEO during Macondo disaster (I want my life back).
    I see this people, most of them do no even travel on business over the weekend. The leave house at 06:00am the earliest to catch 08:00am flight. Returning back home on Friday.

  2. I think it is the mentality of trying to live 1 level above their income station in life (as opposed to people in FIRE community looking to live 1 or multiple levels below). There is the factor of looking over to the neighbor and seeing a bigger house, a nicer car, a fancy school for the kids, and you want the same (despite the fact that the neighbor might be making a lot more than you).

    $500,000 a year is a large income – if living the middle class lifestyle in middle America. But, unfortunately, it barely affords an upper middle class lifestyle in a high cost of living area (I know because I live in NYC). Regardless, I wouldn’t feel bad for a $500,000 a year couple struggling to save. They can save a lot easily if they choose to live 1 level lower.

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