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!
15 thoughts on “Stop Acting Rich: Act Like Ken”
Thomas, what are the best ways to find these small leasing companies? I have never heard of people buying cars from them. It sounds like a great place.
This is why the majority of wealth is created in recessions. When practically the entire country is on sale it is good to have lots of cash to buy the things you can APPRECIATE (pun intended).
Thank you! I needed to hear this today. I was feeling sorry for myself and wondering if being frugal is actually worth it. I am so far from being a millionaire but at least I’ve started on my journey by being credit card debt free. Baby steps, baby steps…
Another great source for vehicles are automobile brokers. They buy lease returns that don’t sell and wind up at auctions for sometimes 40% of retail value (or less!) Get to know one personally, and many times they’ll find the exact make, model and year you’re looking for, at or below the price you specify, and only charge you a modest finder’s fee.
Big spending zillionaries never bothered me. When they spend money then unzillionaires get paid for the things they do. The same applies to high income + high spending individuals. They are very efficient at passing their high income on to folks who can also make good use of the money. I think we need plenty of both types of individuals (BAs & IAs).
Since my very first car, which I bought off a barracks buddy who was shipping off to Turkey, I’ve always bought new cars (mostly Japanese it seems). I will look into buying a previously leased automobile.
I can’t get past that someone lived THEIR life frugally to leave other people 10 million dollars. Why not spend the money on traveling together (or something else enjoyable) when you are alive? You can make more money but you can’t get back a lost opportunity.
I’ve never had a credit card but due to medical problems and less than adequate(better than none at least) medical insurance I am still in debt. Suggestions?
Being frugal or extravagant in itself is neither right or wrong. One needs to be frugal while economy is expanding as most others are extravagant at that time. By being frugal in these good times you can accumulate enough strength to make use of it when economy turns towards slowness by becoming extravagant so that you can buy all the stuffs at yelling discounts because of others’ economic condition for being extaravagant when they should not have been.. Never forget Warren Buffet’s words—- BE GREEDY WHEN OTHERS ARE CAUTIOUS AND BE CAUTIOUS WHEN OTHERS ARE GREEDY… Didn’t he mean the same….
I’m curious to know the answer to MD’s question about how they lived while the father was alive; but, and this is just speculation, if the man thought enough about his family to leave that kind of legacy I’d imagine he was also just as thoughtful before his death. It makes a huge difference when your kids don’t know you have money somewhere — if they know you do, it’ll always be in the back of their minds that there’s a safety net for their irresponsibility.
The stupid thing is when your kids KNOW you have no safety net but STILL look to you to bandage all their financial mistakes. now that’s just pathological.
I hope to live frugally enough to do this for my children and grandchildren.
@MD, Sounded like Ken had a good relationship with his father, who knows maybe they did spend alot of time together as a family. My parents are far from millionares and we didn’t take big $ trips but I wouldn’t trade my experience for $100 million. Sometimes money is not what makes life. Perhaps there were no lost opportunities…
Take baby steps. It’s easier to conquer several small goals than one or two big ones. If you have a number of medical bills, pay the smallest first and work your way up, applying the money used to pay one bill to the next as each are paid off.
Talk to the medical organizations too. Explain your tight financial situation and work out a plan with them. Keep working at it, though. You’ll get them paid off and when you do, put the money used to pay those bills into a savings/investment vehicle.
Good luck to you!
@MD: I understand your sentiment, but at the same time, that is how wasting your life savings gets started. You buy into the EXPERIENCE! I don’t doubt that the doc could’ve had a few experiences, and leave a little less, but sometimes people just like the opportunity to work, and try to change the lives of their family tree.
It is best to start with small goals that lead to larger goals. Over 30 years you will be a millionaire. Just make sure that other people do not influence your life’s purchasing decisions. Having money allows you to be true to yourself. You never have to work for anyone that you do not respect or value. While it is nice to have things that money can buy it is equally nice to focus on things that money can’t buy….like your family.
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