The Trap of Extreme Wealth

While the title of this post is admittedly ridiculous, I had a conversation the other night that I can’t get out of my head.

(Disclaimer: This article has a bit of a preamble, but it’s worth the read for the context. Stick with me, Karen, we’ll be at our final destination soon.)

Now, I’ll promise you one thing: I won’t cite that one study that says – after $75,000 per year – happiness begins to level off (the ole’ diminishing returns case for salary). Tell that to someone who lives in the Bay Area, and they’ll stomp on you with their Allbirds.

No, I don’t believe it can be that simple – but I do think there’s a point at which having more money can actually backfire.

“The more you own, the more owns you.”

I had an English teacher in high school who was as brilliant as she was intimidating.

One day in class, she off-handedly remarked: “The more you own, the more owns you.”

I scoffed. Clearly this woman doesn’t own Uggs or a Dooney & Bourke handbag, my 15-year-old self remarked, making a mental note of yet another midwest middle class status symbol I needed to add to my list.

But still – the sentiment stuck with me. The more you own, the more owns you.

I’ve written about this phenomenon in the past; the way that, surprisingly, having nice things can actually make your life worse in some ways if they frequently cause you to inconvenience yourself in order to protect or preserve them. Anyone who’s ever gotten a new car knows the stress associated with parking in a busy parking lot or driving in bad weather.

What happens when you take this to the extreme?

The freedom of financial independence math

The polar opposite of this effect is the freedom of realizing you don’t need all that much (materially) to live a really good life.

Most people who’ve found (and committed to) financial independence know this: When you start cutting back on your discretionary spending, your life often (surprisingly) doesn’t get any worse. In some ways, it actually gets better.

While this can manifest itself in a Marie Kondo-like escapade of cutting expenses, the truth remains:

Within reason, having less – not more – leads to contentment and freedom.

This realization (and the math that supports it, the 4% rule that states once you have 25x your annual expenses invested, you become work-optional) has completely transformed my perception of money.

A million bucks used to sound like a summer house in Aspen and a moderately sized boat.

Now, it sounds like literal freedom from ever needing to work again.

Why? Because I know that $40,000 per year (4% of $1M) is more than enough to support me, even if I’m spending somewhat freely.

It’s not very often that I’m reminded that not everyone feels this way because I’ve carefully constructed my own echo chamber of FI minds who agree.

Why being ultra rich might be a curse

So imagine you’re me, strolling through life, feeling confident that $1M is the magic number. Sure, that’s a lot of money, but if you stare at enough compound interest charts and find ways to become a high earner, you learn quickly that it’s actually quite attainable.

Then imagine you meet someone wealthy – like, very wealthy – whom you respect, and you get the opportunity to pick their brain about money.

Obviously, I’m not going to share any personal details about this person so as to protect their identity (because remember, I respect them – and the point of this piece isn’t to rag on them or their choices), but this conversation was too enlightening to keep to myself.

Conservatively, I’d say this person is worth about $10M, and they aren’t much older than I am.

I asked them the question I always ask hyper-wealthy people:

“What does it feel like to never worry about money?”

They were surprised.

“What do you mean?” they asked.

Now I’m surprised.

“Well, I mean,” I stammered, “I just feel like… at that point… what, $10M? How could you ever feel concern while swiping your credit card? Like…” Okay, Katie, get it together: “What I’m saying is, I feel like there’s no way you go to restaurants and look at the prices on the menu. What is that like?”

They nodded in understanding, then quickly shook their head no.

“No, I mean, I still worry about money. I worry about money all the time.”

I stared in disbelief.

For context, a net worth of $10M means you could safely withdraw $400,000 per year and never run out of money. It is – by all definitions – a shit ton of money.

“…how? Why?” I asked, “That’s a safe withdrawal rate of, like, mental math interlude $400,000 per year. How could that not be enough?”

(Remember, I spend $36,000 per year, so that’s more than 10x my spending, a number I truly couldn’t comprehend.)

“You know how much you need per year to never worry about money again? $2.5M.” They said.

Let’s take a quick pause

$2.5M per year is the 4% safe withdrawal result of owning about $62M worth of investments.

Put another way, once you have a cool $62M, you can withdraw $2.5M per year.

Meanwhile, if I had $2.5M in general, I’d be at financial independence two times over.

When you grow accustomed to a lifestyle that costs $2M per year, it’s hard to go back

And to be fair, this person wasn’t indicating that they currently make or spend $2M per year – as evidenced by the fact that they noted that’s the point at which they’d stop worrying about money.

But can you imagine having an income from your investments alone worth $400,000 per year and still worrying about money “all of the time”?

That’s the point at the conversation that I looked at them and said,

“You still worry about money, being worth $10M? Then what’s the point?”

What’s the point of being objectively rich as f*** if money is still a giant stressor?

Isn’t the entire point of amassing a ton of wealth to never have to think about it again?

Does the target just keep further away?

To some much, much smaller extent, I can empathize and relate – I remember when I thought that once I had $100,000 I’d feel calmer. Then it was $250,000. Now it’s $500,000 (and spoiler alert, I know deep down that once I hit $500,000, I’ll only feel even more determined to get to $750,000).

Was this person just experiencing this same phenomenon on a grander scale? (Okay, a much grander scale – I know you rolled your eyes when you read my relatively poor ass saying I could relate.)

Maybe being ultra rich is a trap – the more you grow accustomed to flying private, 5-star vacations, and expensive meals, it becomes your new baseline (I’ve talked about this in the past; how it’s hard to reverse your lifestyle creep once your lifestyle starts inflating unless you’re forced to).

The bottom line

If being ultra rich just means the baseline that you require to live a happy, good life keeps inflating higher and higher, then it stands to reason that you’re eventually just strapped to a golden treadmill with Cartier handcuffs.

If I require $40,000 per year to feel just as happy and enjoy my life just as much as someone who needs $2M per year to feel that way, am I the one who’s winning?

Maybe “winning” is the wrong term – maybe the correct term here is free.

You may also like these posts:

1. Why Spending Less Matters More than Earning More

2. A Little Lifestyle Creep is OK – But Be Careful, It’s Hard to Go Backwards

3. Confessions of a Reformed Materialist: Eliminating My Shopping Budget

4. Getting Clear on Your Lifestyle Upgrade