What does my data tell me about hyperconsuming, high income, low net worth types? Often these income statement affluent (IAs), as I call them, actually subsidize balance sheet (BAs) millionaires. One example of this is found in the motor vehicle industry. Most BAs (about 80%) have never leased a car, SUV, pickup or minivan. No, not even a scooter! They buy their vehicles. But it is just the opposite for IAs.
What happens when an economy goes bad? Then the income streams of many IAs dry up. IAs by definition have little wealth accumulated. So lots of IAs find that they can’t make lease payments. As a consequence there is a growing number of “previously leased” passenger vehicles depreciating rapidly while they sit in limbo at leasing companies across America.
Who will take these vehicles out of limbo? It is the BAs who seek economic opportunities of this type. Some call it “hunting for bird nests that fortuitously fall from trees. . . eggs included.”
Consider the case of Ken. In his mid-fifties, Ken is more than wealthy. He is extremely productive in transforming his income into wealth. In spite of being a multimillionaire he and his family have lived in the same home for 25 years. Its current market value is under $300,000.
When Ken’s dad, a surgeon, passed away he left his mother an estate of over $10 million. How does Ken explain his family’s success in accumulating wealth?
My Dad was frugal. We never knew he was wealthy until we received an accounting statement for his estate. We were shocked. He used to buy a new car, a Buick, about every eight years. That’s when the wheels would likely fall off! I get a tremendous amount of satisfaction from saving and investing. . . that’s what Dad did. Like father, like son. I am frugal; my wife is even more frugal. I buy my cars used from small size leasing companies, often undercapitalized, that take back vehicles from lessees who can’t make the payments. I recently bought a car for $22,000 . . . a year and a half old. It listed for $35,000. The leasing company had four of the same model. I just call the leasing companies listed in the Yellow Pages.”
I had a similar experience but in another industry. I purchased a building lot, about 1 acre, from a dentist for 55% of what he had originally paid for it. But this IA dentist at the time was, in the words of a good friend of mine, “a Category 3-that is, he was just 3 paychecks away from bankruptcy.”
Today all BAs must make a solemn pledge to do all they can to help IAs stay out of bankruptcy!