Saturday, March 31, 2018

A Millionaire mindset is a Low SES mindset !

The genesis of this post came from an anecdote from a friend who attended a financial talk over a decade ago. This financial talk was conducted by a famous options trading guru ( who has since had a very disappointing day in court and is no longer giving talks on options trading today ). Halfway during the talk, my friend was either so bored or so offended by the presentation that he abruptly stood up along with his friends to leave the lecture hall and the speaker then pointed out to my friend's group and proclaimed that " These are the people who do not have the mindset to become millionaires."

There is something which I think has to be said about the mindset of the millionaire as possibly espoused by these trainer gurus, MLM or insurance salesmen types. These ideas are largely derivatives of the writings of Rhonda Bynes in  The Secret or some other mindset changing work of authors like Harv T Eker which in turn are derived from authors in the 1980s who talk about programming your mind like a computer or Psycho-Cybernetics.

If you have enough friends over the years who subscribe in wishful thinking and how a person's mindset can be tweaked towards earning more money, you will realise that somehow a lot of more of these people also tend to fail rather than to become actual millionaires. Perhaps they blew their savings on a nice car because frugality is for "middle class" folks. Or perhaps they had to "fake it until they made it".

Which is why I came to this realisation :

The Mindset of Millionaire is the Mindset of the Bankrupt !

Because the Millionaire takes greater risks than most people,  so they tend to end up with greater wealth. But those who take bigger risks also have a larger probability financial ruin. So the same mindset creates more bankrupts.

This is something we need to be cognisant of.

Compare this with mindset that the Financial Independence community espouses.

In our community, we rarely use words like "Millionaire" because it triggers a lot of lay people and hijacks their amygdala. People stop being rational when millions of dollars are involved in a conversation.

Instead we talk about earning, saving and investing your way towards financial independence where wealth targets are largely a function of your daily expenses. A single man who invests well can comfortably slow down when he has $400,000 invested in high yielding stocks and REITs. A family may need $1.2M.

Here's the deeply counter-intuitive idea : Even a millionaire who supports our approach towards Financial Independence should be well aware of how low a millionaire's real social economic status is.

Suppose your family has $1 milllion dollars invested in a popular SREIT ETF, this translates to perhaps $55,000 a year at 5.5% yield or $40,000 if you agree to a safe 4% withdrawal rate. This is well below the median income of a Singapore household ( which is around $100,000 these days ). A millionaire (who lacks an earned income) has to live below the means of the median income family.

This means that a millionaire household has to adopt the lifestyle well below that of a HBD dwelling family to sustain their well-being over time.

This is why the FI community supports the notion of frugality above all other concepts in personal finance.

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