Subject: Re: Should I change how I invest? Confused in the U
The rich need to pay only a small fraction of their income and net worth on living expenses, while the poor need to pay essentially all of their income and net worth just to stay live. Consider a person with $100 million in net worth and no job. He or she probably makes about 7% of net worth per year from investments and spends maybe 1% of net worth on expenses, for an increase of 6%/year or so in net worth.


It is quite logical and surely true that a rich person only NEEDS to spend a small part of her income and net worth on living expenses. But it doesn't follow that that is what they actually do.

I don't know anyone with $100m, but I know quite a few people with about $5-10m, i.e. in the top 1 percentile, and I can assure you that none of them follows the 1% rule by spending only $50,000 to $100,000 on living expenses. And I doubt that many people with $100m limit themselves to spending $1m a year, either. They find all sorts of ingenious ways to boost their spending, quite sensibly, I suppose, because you can't take it with you. And many go too far along these lines, which is the only way you can explain the significant downward mobility of the top earners, making room for the upward mobility of the less wealthy.

Many of us aspire to have $10m or $100m (I would settle for 10!, if the gods are listening!), while continuing to spend miserly as we have up to now, but that's not what most rich people seem to end up doing.

dtb