Several years ago, New York Times Wealth Matters columnist
Paul Sullivan opened up his finances to a group of high-powered,
high-net worth investors known as Tiger 21. Members gather regularly to
discuss investing strategies and at one meeting, Sullivan asked them to
critique his own -- relatively meager by their standards -- financial
life.
"Given what I do, I thought [my wife and I] had a
handle on it, but what I learned from that meeting is that we hadn't
thought enough about the risks in life," Sullivan says. Those risks
include declining incomes and the unexpected death or disability of a
household wage earner. As a result of that meeting, Sullivan and his
wife took out
life and disability insurance policies and sold off a condo in Florida that had been a vacation home for the family.
"They
were so direct and harsh about that being a possible drain, if we
weren't able to sell it if something bad happened. That was a wake-up
call," Sullivan says.
The lessons he absorbed from that wealthy,
exclusive group of over 300 members across the U.S. and Canada led
Sullivan to write his new book, "The Thin Green Line: The Money Secrets
of the Super Wealthy." The title refers to the security that can come
from knowing you're prepared for a negative event, like a layoff, no
matter how much money you have or earn. "The people in the book who I
call wealthy, whether they're a teacher or a hedge fund manager, are
wealthy because they have security. They have behaviors around money
that let them be in control of their lives when something bad happens,"
he says.
Those behaviors, Sullivan says, can be learned or even
adopted later in life.
As someone who grew up without much money, he says it took him a long
time to have a healthy relationship with it. He would avoid credit card
debt and overspending so assiduously that he often wore threadbare
clothing and skipped even affordable purchases he would have enjoyed.
"You should be able to spend money on things you enjoy. If you love $4
Starbucks lattes, then buy it," he says.
If you're looking to adopt some secrets of the wealthy, Sullivan suggests the following strategies:
1. Focus on the things you can control, not what you wish you did in the past.
"Too many normal Americans think, 'I wish I bought Apple stock 15 years
ago' -- that's the wrong way to think. You can't control that," he
says. But you can control how much money you save each month. So instead
of fretting over specific stock picks, just put your money into a
broadly diversified portfolio and forget about it while it grows slowly
over time.
2. Load up on insurance. Term life
insurance is very cheap, Sullivan points out. While there is a low
probability of a family breadwinner dying early, it would be disastrous
if that were to occur. Sullivan suggests asking, "How many years will
the surviving spouse need to get back on his or her feet?" Paying around
$400 to $500 a year for a basic policy can help alleviate that risk.
3. Don't worry so much about taxes. "People
waste a lot of time obsessing about taxes," Sullivan notes. Instead, he
recommends sitting down with an accountant to figure out your tax rate
-- and then accept it.
4. Find a fee-only financial advisor . "A
bad advisor is worse than no advisor, so find an advisor who is really
going to act in your best interesting," Sullivan says. Fee-only advisors
are obligated to work in clients' best interest and are not paid based
on products they sell to clients.
5. Get your 401(k) benefit. Take advantage of any
401(k) plan
your workplace offers, Sullivan says. If you put in even a small
percentage of your paycheck each month and your employer matches it,
you'll slowly build a nest egg for retirement.
6. Spend on what makes you happy . After
the Tiger 21 meeting, Sullivan says he became mindful of the purchases
that brought him joy. "What I really like is to go out to dinner and
have a nice bottle of wine once or twice a month," Sullivan says, so
that is what he and his wife do.
At the end of the day, Sullivan
says, it's not earning a lot of money that makes you wealthy. "There are
people on the wrong side [of the thin green line] at the top of their
earning potential," he says. Even from where he sat at a tennis club
near his home in Connecticut during the interview, he says, "there are
people all around me who are in the process of making horrendous
decisions every day. They have too many cars, giant homes. But it's a
house of cards. If the bonus doesn't come in, they could be in a lot of
trouble when they shouldn't."
In fact, he says, one of the
wealthiest people
he knows is his aunt, a retired schoolteacher who lives in Western
Massachusetts. "She has a pension, some investments and she gets to do
everything she wants. She volunteers at a church, spends time with her
grandkids and goes on one big vacation a year," he says. You're truly
wealthy, he adds, when you have enough money to do all the things you
want to do.
Culled from US News
