31003924 - worried middle aged couple looking at laptop

Why Rich People Worry About Money

What amount of money would make you feel secure? Do you have a number? I hate to break it to you, but chances are, you’d still worry about money regardless of your net worth. This week I was reading a financial planning case study about a family that seemingly should not have had any financial worries. The funny thing was…they were still worried. This couple in their mid-50s had a net worth between $5 and $10 million. The husband and wife both had secure jobs and earned significant incomes totaling over $600k, their lifestyle was relatively modest, and they owed less than $400k on their home. So, what’s the problem?

Wealth Creates New Pressures:

It makes sense that the average American is stressed about money. We have all read headlines like “America’s Retirement Savings Crisis” and statistics like how half of households have virtually no retirement savings at all. However, what’s puzzling to many people is how many high net worth households still worry about money. The psychology of wealth can be counter-intuitive. Before you become wealthy, you may think money will give you power, security, control, self-worth, and freedom, but it usually doesn’t work exactly as you would envision. Money may create some of those feelings, but wealth also frequently causes anxiety and pressure to make good financial decisions about how it is invested, spent, gifted, or used to create a legacy.

Below are the main reasons high net worth households worry about money and a few insights about what to do about it.

1)  Stories about previously wealthy people who have lost it all. The stories about celebrities and professional athletes are common, but what is less reported is how many “millionaire next door” types also lose it all, or a significant portion of their nest egg through poor planning or unforeseen circumstances. This was one of the major themes of our book: A Good Financial Advisor Will Tell You. The solution is to focus on minimizing risks, protecting assets, and guaranteeing a certain level of income regardless of economic conditions.

2)  The focus on growing wealth can become obsessive. Wealthy people invest in stocks, real estate, and private businesses. The returns become a scorecard of success that is scrutinized monthly, quarterly, and annually. The quest to constantly maximize one’s net worth often becomes frustrating, worrisome, or disappointing, even when money isn’t scarce and lifestyle goals aren’t in jeopardy. Sometimes I need to remind clients that the money’s purpose is to enable them to live a lifestyle they love. You need to enjoy the short-term while you let the long-term just play out.

3)  Lifestyle Creep. Many folks use their growing income to buy bigger houses and more expensive cars. An expensive lifestyle may not have been important originally, but the fear of losing it can be terrifying. Many people assume their income will continue at the current level or continue to grow when they make major spending decisions. They then become highly stressed if/when financial setbacks occur.

A recent survey revealed that 48% of millionaires, and 20% ultra-high net worth households ($5-$25 million) were still worried about running out of money in retirement. These folks have the same worries as the other 99% of Americans; their numbers are just bigger. The lesson here is you should always live beneath your means if you want your wealth to provide a feeling of security and reduced stress.

4)  Wealth brings more complex financial decisions. Wealthy families often complicate their financial lives with too many accounts and illiquid, complex, and often misunderstood investments. Just because you can invest in 20 different private businesses doesn’t mean you should. It has been my observation that people underestimate the costs (both financial and mental) of complexity.

5)  Successful business people are not always knowledgeable investors. Accumulating wealth through entrepreneurship or a successful career is different than managing and protecting wealth. Many people learn about investing through trial and error, which can be expensive and stressful. If investing is not your area of expertise, then your most important decision is to find a team of competent, trustworthy advisors. Uh…need a recommendation? ????

6)  Supporting others. Many wealthy people use their wealth to support other family members or to leave a financial legacy for their children. This seems like a noble and generous thing to do. However, first generation wealth creators have a different relationship and appreciation for money than second generation “inheritors.” Wealth that’s not earned can easily screw up your loved ones—often killing their motivation and even creating resentment. The solution is proper financial education, clear guidelines communicated in advance, and a family wealth philosophy. See: Family Wealth Philosophy and Prepare Kids to Inherit Wealth.

Final Thought:

Many readers are thinking: I would love to have rich people problems, or as my friend Doug put it… “I would be a great rich person.” I think Little Richard said it best: “The grass may look greener next door, but it’s just as hard to cut.” Have a great week.

Want more? Check out:

Inside the lives of America’s anxious wealthy people, or

11 things rich people worry about, or

3 ways to feel less anxious about money

Questions, comments, thoughts? Email: jeremy@jeremykisner.com