Wealth Clarifies

Financial independence destroys scarcity-driven narratives

“When most people say they want to be a millionaire, what they might actually mean is ‘I’d like to spend a million dollars.’ And that is literally the opposite of being a millionaire.”

— Morgan Housel, The Psychology of Money

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Accumulating wealth means different things to different people, but I think Morgan Housel’s assessment is about right: Most people aspire to accumulate money in order to spend it, which of course is the exact opposite of having wealth. This irony is one of those self-evident realities that few people stop to seriously consider.

I’ve spent many years writing about personal finance hoping that some of the articles reach readers who are receptive to the message. But most of what I have written has to do with the strategies and mechanics of accumulating wealth rather than what to do with wealth once it is obtained. How to behave once you’ve achieved your magic number is far more complicated. Having wealth, rather than spending it, gives you control of your time which is the scarcest resource of all.

I have my opinions regarding what to do once financial independence is reached, but that isn’t the topic of this article. Instead, I would like to briefly explore one of the side-effects of wealth that can often wreak havoc in the lives of individuals who have achieved financial independence: Money clarifies our priorities in life.

The vast majority of people go through life far short of financial independence. To varying degrees, almost everyone must trade their time for money in order to survive and perhaps put away some savings for the future. Not being in control of your time seems like a bad thing, but this lack of control provides people with a compelling narrative to avoid doing things that they would rather not do.

To take a stereotypical example, consider the “traditional” single income American family with a husband, wife, two children, and a dog living in a suburb of a big city. The husband obviously must work to support his family, and this includes working a large number of hours, enduring a long commute, and traveling one week per month. The fact that this is all necessary might give cover to a man who really prefers to spend a great deal of time away from home, but can tell his family that he would certainly want to spend far more time with them if only he had financial independence.

Richard Feynman once said that “you must not fool yourself — and you are the easiest person to fool.” Most people who construct narratives about what they must do are not necessarily being deceptive to their families. They are likely to believe what they are saying at some level. But the prospect of financial independence is probably far into the future and merely theoretical which makes self-deception very easy.

Years go by and the man rises into the c-suite of his company, but alas, private school tuition went up again, that new $3 million house the family moved into has sky-high property taxes and a big mortgage, insurance on the Teslas went up again, and those $2,500 monthly Whole Foods Market bills keep coming. Financial security is still out there on the horizon — way out there. Unfortunately, it remains necessary to spend a great deal of time at the office and on the road.

Then one day in the frothy market of 2021, the man’s company is acquired, and his equity holdings are suddenly converted into $50 million of cash after paying taxes.

Here is where the rubber meets the road: What are the real priorities of this man now that he has no plausible reason to continue working at all. Among the possibilities are becoming a full-time family man, cutting drastically back on work, or doubling down and taking an offer with the acquiring company for a large signing bonus, a new equity award, and an even more rigorous schedule. After all, a $50 million net worth is hardly enough to buy a NetJets share or to afford a 3,000 square foot pied-à-terre in Manhattan and Miami. The wheels of the hedonic treadmill never seem to stop …

It is usually not the gradual increase of income and wealth over a long period of time that forces a reckoning in how a person sets priorities in his or her life. Most people will gradually increase their standard of living as their income rises and this hedonic treadmill will always keep financial independence on the horizon. But a sudden step-change in wealth does force a reckoning because, at least for the moment, one’s lifestyle has not had a chance to consume all of that incremental wealth.

In The Tail End, Tim Urban vividly illustrates why time is the scarcest resource of all. Particularly when it comes to family, time is the most important currency. For individuals without financial independence, there are always reasons to not spend time with family and to prioritize everything else under the sun. But wealth puts a spotlight on allocation of time. A person who has no conceivable reason to accumulate more wealth but prioritizes wealth over family has shown his or her true colors. Plausible deniability is no longer plausible, and excuses will ring hollow.

To be sure, there is nothing wrong with continuing to work after achieving financial independence, but it becomes a choice rather than a necessity, and the fact that it is a choice inevitably becomes clear to everyone. It is wrong is to be duplicitous and hide behind a false scarcity-driven narrative and then feign surprise as the narrative suddenly crumbles when there is no longer any conceivable scarcity.

There is a risk of sounding tone-deaf when writing about the problems associated with wealth. There is no doubt that lack of money is a far more common problem and creates a great deal of misery. But it is important to understand what money and wealth can and cannot provide, and to be cognizant of the fact that wealth also unveils a person’s true desires and character in ways that may not always be welcome.

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