Life & Leisure
The key to wealth may not be golden

In his new book, a longtime financial journalist suggests that what we do with money may be more important than money itself.

Paul Sullivan covers money issues for The New York Times in his Wealth Matters column. He’s written for Fortune, Condé Nast Portfolio and Barron’s; he was also a writer and editor for the Financial Times. In his latest book, The Thin Green Line: The Money Secrets of the Super Wealthy, he discusses how the richest people in the world think about finances and how people of all means can make better use of their money.

In your book, you discuss a simple approach to finances that’s been used by the rich and championed by behavioral economists. Can you describe “bucketing”?

The concept of bucketing comes from the field of mental accounting, which was created by Richard Thaler. He’s a Nobel Prize winner in economics, and he’s from the University of Chicago. He realized that people of very modest means quite literally put money into cans, into buckets.

One is for rent. Another is for food, one for clothing. If there’s any left over, that would be for some fun. He thought, “Well, that’s fairly a logical way to divide up your money. What if we started thinking that way in our minds?” That really helps people get comfortable with the totality of money, which otherwise can be a little overwhelming. 

You have a bucket for yearly expenses, then another for a rainy day fund, one for those further off expenses like college and retirement. If you’re lucky, you have one for philanthropy or leftovers. As long as you have the first three taken care of, it’s okay if there’s fluctuation in those last two. You know that whatever crisis comes about, you’ve got those essential buckets filled.

Do you bucket your finances?

Of course. I wouldn’t write about something I didn’t do in practice. My wife and I have come together as a couple and agreed that there are certain things that are so overwhelmingly important that we have to bucket them: money for our children’s education, retirement for us, those fixed costs that we have in our lives, which are our mortgage and property taxes.

Some of those expenses are big numbers, but it helps us relax as much as we can. We know we don’t have to argue about whatever’s left over in that other bucket. We can say, “Okay, you want to eat. I want to go play golf.” We know there’s enough in that fun bucket. And that’s really key — make sure, if you can, to have a fun bucket.

So knowing what’s essential to you is a key part of the process?

Let me give you an example. I often talk about my aunt Carol. She’s a retired schoolteacher. She’s not rich, but she’s one of the wealthiest people I know. She never made a ton of money, but she put money away in her 403(b). She had some good insurance policies. She invested on her own. Now she can do whatever she wants. What she happens to want is to visit my cousins, take some trips with their church, volunteer.

The central point of my book is that division between rich and wealthy. There are people who are rich but they don’t have choices. They have a lot of money, but they could have a lot of obligations or they could have a lot of debt. Being wealthy is the complete opposite, and you can be wealthy without having a lot of money.

For people who are both rich and wealthy, they’ve been able to say, “Okay, I’m worth $100 million, $500 million, a billion. That money is going to help me live a life in which I make my own choices.” Rich is just a number. Wealthy is a more holistic mindset around the money that we have and what we can do with it.

Once you’ve made these decisions for yourself, how do you communicate these values to the next generation? How do you keep them from thinking money makes them superior or entitled?

Somebody far wiser than me told me: “Kids don’t listen to what we say. They watch what we do and how we go about our daily lives. Are we ourselves entitled?” We have really deep-held feelings, almost subconscious feelings, about money. For many of us, money is self-esteem, it’s about our rank in the world. That’s problematic.

For example, one of my daughters once asked me a question that made me think, “We are raising this super-entitled kid in our nice suburb.” But she was just asking an honest, genuine question. She asked me, “Daddy, how come we don’t have a movie theater in our house?” I said: “Are you kidding me? What do you mean, a movie theater?” She named off a list of her four best friends, and it’s true. They all have movie theaters in their houses. One even has a full basketball court in his house. 

What did my wife and I say? We certainly didn’t criticize the choices of her friends’ parents. We just said, “Look, everyone makes different choices, and this is important to them.” Once we realized where the question was coming from, I think she had some peace with it. “Entitlement” is one of the dirtiest words out there, but it’s really just the opposite of having set expectations for a kid. All of us like to have set expectations, and when they’re there, we try to achieve them. That’s the greatest cure against entitlement.

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