How to Get Rich, Feel Rich, and Stay Rich

Gary Kremen founded online dating site Match.com. When The New York Times interviewed him in 2007, he was 43 years old and worth $10 million. Still, he didn't feel rich. He lived in Silicon Valley with friends who were far richer. Kremen "logs 60- to 80-hour workweeks because, he said, he does not think he has nearly enough money to ease up," the Times wrote. "You're nobody here at $10 million," Kremen said.

Now meet Pete, who doesn't want to give his last name. He's 39 years old and has been retired for almost a decade. He lives in Colorado with his wife and 8-year-old son in what he calls "a badass life of leisure." Pete and his wife quit work at age 30 when they owned a house outright and had around $600,000 in investments, generating enough money to spend $25,000 a year for life, "which goes quite far if you have no rent or mortgage to pay" he told MarketWatch this week.

Wealth is relative. Those are probably the three most important words in personal finance. Gary makes $25,000 a week and feels inadequate. Pete makes $25,000 a year and feels so rich that he retired eight years out of college. How rich you are has very little to do with how much money you have in the bank and a lot to do with your expectations of what you need that money to do for you. It's a two-part equation, and a lot of people become miserable ignoring the second part. 

I've seen this firsthand. During college I worked as a valet at a private country club. The clientele had more money than I could dream of, with private jets, yachts, and Lamborghinis. But the more I worked with them, the more I realized they were some of the most unhappy, uptight, stressed, and unsatisfied people I had ever met. Part of this is because they were Type-A personalities who couldn't slow down. But part of it was because for every dollar of wealth they gained, they moved the goalpost of success two dollars down the field. The only thing that grew faster than their bank accounts was their burning desire for another house, another car, and another boat. Anyone in that situation won't feel rich, regardless of how much money they have. It's worse than running in circles. It's running backward, 60 to 80 hours a week. A person who makes $50,000 a year but only needs $30,000 to be happy is much richer than the person who makes $1 million but needs $1.1 million. This seems obvious, but it's shocking how many people ignore their expectations when trying to improve their financial lives. 

It's simple psychology. After basic needs are covered, each dollar in extra income doesn't produce much extra happiness because you get used to your new car and nice clothes pretty much overnight -- it's called the hedonic treadmill. But what does increase people's happiness, more than almost anything, is having control over your time, autonomy in your work, and flexibility in your schedule. The wealthy folks at my country club didn't feel rich because the more money they made, the more stuff they wanted, which required them to work harder, which made their lives more busy and complicated. Pete felt rich because he kept his expectations low and used his modest savings to take complete control over his time and retire at 30. Here's how he put it:

The quickest way to turn things around [in your financial life] is to realize that you are in much more control than you realize. The time to reach retirement depends on only one thing: your savings rate as a percentage of your take-home pay. And this depends entirely on how much you spend. So the moment you can learn to live a less expensive life, suddenly the clouds clear up and the financial picture brightens considerably.

This doesn't mean everyone should learn how to be happy sleeping in a tent and living off cat food. I don't want to live like a monk. But regardless of how much money you think you'll need to be happy, the key to feeling rich and staying rich is allowing your money to grow at the same rate as -- or faster than -- your desire to spend it. The people who feel the richest have a relationship with money that looks like this:

Not like this: 

Kurt Vonnegut and novelist Joseph Heller were once at a party hosted by a billionaire hedge-fund manager. Vonnegut pointed out that their wealthy host made more money in one day than Heller ever made from his novel Catch-22.

Heller responded, "Yes, but I have something he will never have: enough." 

Most of us would be better off with more of that kind of thinking. 

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics. 

 


Read/Post Comments (43) | Recommend This Article (164)

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  • Report this Comment On January 21, 2014, at 4:29 PM, anash91 wrote:

    This really is a great article and how I look at life. I want to retire early and live modestly, not retire late and live exorbitantly. I think $25,000 a year sounds like more than enough to live on. Without a mortgage, that is tons of money to work with.

  • Report this Comment On January 21, 2014, at 4:48 PM, JamesBrown wrote:

    A mismatch in the Income-to-Expectations ratio between a married couple can make for an unhappy marriage.

  • Report this Comment On January 21, 2014, at 8:12 PM, jlclayton wrote:

    Another terrific article and a great reminder to really think about how possessions are valued in your life. I can honestly say that there were times in our life that we spent every bit as much as we made, and when we made more, we spent more. Once we realized that living that way was putting stress on our marriage, my husband and I made decisions that led to us making less money, but we are now definitely happier. We don't take expensive vacations, we buy used cars and keep them for several years, and our house isn't filled with every electronic device that comes out. Since we have to be more careful about what we do purchase, I feel we enjoy our possessions that much more, which is the purpose of having them in the first place.

  • Report this Comment On January 21, 2014, at 10:00 PM, KayakerRW wrote:

    Morgan,

    This is another fine article about the real value of money and what it can and cannot do.

    This is a classic theme in literature. Although not all writers or readers take this to heart; many great literary works illustrate the same principles.

    There is of course Charles Dickens’ Micawber principle: “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery."

    In Dickens’ Great Expectations, the young man Pip, on learning that he has a benefactor who supplies him with seemingly unlimited funds, takes up the imagined life of a gentleman and states that: “We spent as much money as we could, and got as little for it as people could make up their minds to give us. We were always more or less miserable, and most of our acquaintance were in the same condition. There was a gay fiction among us that we were constantly enjoying ourselves, and a skeleton truth that we never did. To the best of my belief, our case was in the last aspect a rather common one.

    Finally, in Chaucer’s Canterbury Tales, when a knight accuses his bride-to-be (a woman who has saved his life, but he doesn’t want to marry) of being poor, she replies:

    “Whoso will be content with poverty,

    I hold him rich, though not a shirt has he.

    And he that covets much is a poor wight,

    For he would gain what’s all beyond his might,

    But he that has not, nor desires to have,

    Is rich, although you hold him but a knave.”

    As these and other books illustrate, the inability to keep spending and expectations less than one’s actual income are a result of more complex factors than an inability to do simple arithmetic and keep track of spending. It’s the result of something important missing in one’s life, which leads to a false belief that more money can supply what’s missing.

  • Report this Comment On January 21, 2014, at 10:17 PM, MelissainVA wrote:

    I would add that often those we think are rich because they have multiple houses and boats etc are really living pay check to pay check. Our society tends to make conclusions about someone's perceived wealth based on their consumption of money rather than their preservation of money.

    We automatically assume that someone living in a modest house, driving an older car and less than the latest fashions automatically has modest amounts of wealth. When frequently it is this modest life style that leads to wealth.

    Stanley really articulates this well in his Millionaire Next Door books. These were pivotal for me and provided the final push I needed to take more control over my financial life which eventually led me to TMF, for which I am very grateful. I will give these books to every young person I know and recommend them to everyone.

  • Report this Comment On January 21, 2014, at 11:53 PM, bornboring wrote:

    I have no confidence in that there will not be hyperinflation during the rest of my life.

    The next situation to ponder is on how to live through a retired life. Hyperinflation is not up to me to control. When greed turns into a torrent, and not being controlled, it would be paid off with the savings (retirees' or not) and sweat of the masses eventually. We just went through one.

  • Report this Comment On January 22, 2014, at 7:24 AM, sagitarius84 wrote:

    I like the quote from Vonnegut about having "enough". At some point people should stop comparing themselves to others, and stop being stuck in the rat race with desires for bigger houses, cars, more expensive vacations etc, while having less and less time to enjoy it..

  • Report this Comment On January 22, 2014, at 1:23 PM, rabdelazim wrote:

    how did Pete have $600K in investments by the time he was thirty?

  • Report this Comment On January 22, 2014, at 1:28 PM, TMFHousel wrote:

    ^ You can read more on his site, MrMoneyMustache.com.

    Basically, he and his wife never earned more than $100k each, but saved the majority of it and invested it, mostly index funds.

  • Report this Comment On January 22, 2014, at 5:03 PM, OldTimeFool wrote:

    This is a great article. Today was definitely a day that I needed to be reminded that wealth is relative.

    Thank you for writing this article.

  • Report this Comment On January 22, 2014, at 5:42 PM, ifool100 wrote:

    Sometimes it's good to remember that we each exit this world the same way we arrived, barefoot and penniless. Thanks for the moment of perspective.

  • Report this Comment On January 22, 2014, at 6:27 PM, xetn wrote:

    With Fed's QE programs of creating nearly 1 Trillion new currency units a year (OK, I know they have reduced (tapered) 10 billion a month) but the value of the US dollar and many other currencies are declining. The guy with the $25K per yr income could see his live style dramatically lower in future years, along with all the retirees on fixed incomes.

    This cannot be overlooked.

  • Report this Comment On January 22, 2014, at 6:28 PM, marei wrote:

    Dollar cost averaging from bond to stock index mutual funds. It also helps to remember that what you give is what will be remembered about you. Every coffin is roughly the same size.--Tom Reilly

  • Report this Comment On January 22, 2014, at 6:32 PM, ghstflame wrote:

    I've read the entirety of mrmoneymustache.com and it sure is awesome. I've changed my ways, and daily try to figure out how to be "more baddass"

  • Report this Comment On January 22, 2014, at 6:40 PM, cmalek wrote:

    @sagitarius84:

    "At some point people should stop comparing themselves to others"

    It will never happen until people become secure in themselves. "Keeping up with the Joneses" is a symptom of insecurity in how others will perceive us. Pete is comfortable with his definition of success and doesn't give a damn that his definition does not "measure up" to that of others.

  • Report this Comment On January 22, 2014, at 7:06 PM, twobeerjohn wrote:

    I think I have enough to retire right now (at 54), but the health insurance cost scares me. And the O'Bummercare doesn't fix it. Health insurance was cheaper on ehealthinsurance.com last year before O'Bummercare. It was half what it is now on O'Bummercare or ehealth.

  • Report this Comment On January 22, 2014, at 8:50 PM, jsanmarco wrote:

    Unless I am missing something, this article makes tremendous assumptions that may be unreasonable. 1) How long do you plan to live?, 2) How much will you budget for health insurance as you age (won't be constant or even linear)? 3) How much will you budget for a major sickness or event as you age (won't be constant or even linear)? 4) What metric will you use for annual inflation? etc., etc. What an irrisponsible article!

  • Report this Comment On January 22, 2014, at 9:49 PM, johnsonle9 wrote:

    Pete inherited $800K, paid off his house and retired.

  • Report this Comment On January 22, 2014, at 10:40 PM, TMFTomGardner wrote:

    Another fantastic article -- which forces each of us readers to think, actively. Thanks, Morgan.

  • Report this Comment On January 23, 2014, at 1:26 AM, GuidedByFools wrote:

    Wonder how much of his $600k is in retirement accounts which he can't access for 30 years?

    And wondering what his annual cost for health insurance is?

  • Report this Comment On January 23, 2014, at 6:26 AM, pa13 wrote:

    Good article and comments. We spent only moderately and felt we had enough until recently, when we realised our 2 children (approaching age 30) are struggling, and even if we give them all we can, will be far worse off financially than we were. I fear governments over-taxing savers, but suppose UK govt will take more from us through inflation than actual taxes.

  • Report this Comment On January 23, 2014, at 7:51 AM, Bulgogi wrote:

    Dear all complainypants (those of you complaining and whining about this great article).

    If you actually bothered to take a few moments of time and ACTUALLY READ http://mrmoneymustache.com your questions will be answered instead of expecting one article to detail it all.

    p.s. there is already an article written about all of you:

    http://www.mrmoneymustache.com/2011/10/07/how-to-tell-if-you...

    Morgan - thanks for bringing attention to MMM on the Fool, to me it seems like a match made in heaven. Would love to see an interview with him.

    Keep up the great work, love your articles.

  • Report this Comment On January 23, 2014, at 8:49 AM, KBecks wrote:

    I'm pretty doggone sure I read that Pete guy's blog, and its' awesome.

  • Report this Comment On January 23, 2014, at 12:31 PM, bdh2067 wrote:

    Love the article.

    The other thing both Heller and Vonnegut had that no hedge fund manager ever will is the realization that they actually CREATED something. You could argue hedge fund managers create something - a portfolio, a company, wealth. But that's not the same as creating a piece of art that will live much longer than most people or even companies.

  • Report this Comment On January 23, 2014, at 3:17 PM, bernbern0 wrote:

    Thank you Morgan for another uplifting and positive article. Can I give a plug for your ebook?

    I bought it on Amazon in November 2011, and I refer to it often.

    Only 99 cents, the biggest bargain there is.

    If you like Morgan's articles, do a search for this title:

    Everyone Believes It; Most Will Be Wrong: Motley Thoughts on Investing and the Economy

  • Report this Comment On January 23, 2014, at 3:20 PM, TMFHousel wrote:

    ^ Please do, thanks!

  • Report this Comment On January 24, 2014, at 11:00 AM, deckdawg wrote:

    Good article, and thanks for pointing out the Mr. Money Mustache site. I had made the initial assumption that Pete was counting on the rest of us to subsidize his retirement through Medicaid, Food Stamps, etc. Apparently, this is not the case. I read his article on acquiring health insurance back in 2012. I'm wondering if those very high deductible plans will continue to be available under the AHCA. The new law mandates all sorts of things insurance plans must cover. (With his low income, the rest of us will probably be subsidising his insurance going forward .. if he chooses to buy through an official exchange). But, he's got a great site that I believe would be of interest to most folks (of any age) considering retirement. Maybe retirement is not quite the right word ... it would be of interest to anyone interested in stepping off the treadmill of our extremely materialistic society.

  • Report this Comment On January 24, 2014, at 11:25 AM, sagitarius84 wrote:

    This is totally unrelated, but how I can view ALL articles written by Morgan Housel on Fool?

    Not just last 50?

    Any help would be much appreciated!

  • Report this Comment On January 24, 2014, at 11:47 AM, TMFHousel wrote:

    ^ I'm not sure there's a way, actually. Sorry.

    (I've written 3,500 articles, so the list would be a joke anyway.)

  • Report this Comment On January 24, 2014, at 4:16 PM, The1MAGE wrote:

    This is a good article that people don't seem to get.

    The concept I am trying to follow is not to work for money, but to work to create an income. The first you are trading hours for dollars. The latter your time is simply building the machine that generates the income, then you just work to maintain that "machine." Or even hire somebody else to manage that machine for you.

    Another part of this philosophy is to create the income, then you spend it.

    A real world example was a person who wanted to buy a boat, but somebody talked him into using the money to buy a rental property instead, and now that renal property is paying for his boat, and once paid off, that money will still be coming in.

    I have already replaced a quarter of my income, and plan to have the other third replaced by the end of the year. In one to 2 years I expect to have my Wife's income replaced also.

    Once that happens, we don't need to think about retirement, life expectancy, or any of that BS. But if we want to increase our lifestyle, we first increase our income.

  • Report this Comment On January 24, 2014, at 4:30 PM, lovelalique wrote:

    Look I was born with learning issues so Its takes me longer to catch up with more time spent rereading, so much of this I dont understand, first off I am on disability making less then 639 a month with no option to make any other monies, I feel like im just waiting away and truly dont know what to do, I see what's going on but how do you invest when you have nothing to invest? is there no hope? dealing with health issues, I have no one but me. I saved and saved for a car and paid 3500 it lasted four months or so, with repairs way beyond what I can afford, I am having a hard time deciding what to do. LL

  • Report this Comment On January 24, 2014, at 5:46 PM, The1MAGE wrote:

    lovelalique,

    Stephen Hawking is disabled, yet if the number I read is correct, his net worth is $20M. There is a good chance he is more disabled then you, so don't let it be an excuse.

    No matter how disabled you are, there should be something you can do. It looks like you are not having any trouble with posting with a computer, so that is one place to look. (Just don't start searching for scams out there. The are plenty of legitimate ways to make money online.) There are plenty of jobs out there for the disabled, and organizations that help people get those jobs.

    Too many people get on disability, and think that is all they are allowed to earn. Don't fall into that trap.

    Some people make the mistake of taking their disability into account, and attempt to work only up to the point they will start loosing benefits. This is a trap that locks a lot of people into an income. The faulty reasoning is that many people don't want to work more for the same, and sometimes even less income. But where this fails is that you have just set an upper limit on how much money you could ever make.

    Cars are the biggest sucker of cash. $3.5K for a car should have got you a decent one. Next time either bring a mechanic, or ask to take it to a mechanic to get it checked out before buying it. This will cost more upfront, but if you can avoid a lemon, it is well worth it. There is a difference between being frugal and being cheap.

  • Report this Comment On January 24, 2014, at 11:26 PM, iamredplanet wrote:

    I was so miserable in my well to do childhood home that I learned early on money does not buy happiness. But the law of unintended consequences took over: I didn't pay enough attention to money. I was naive and broke at times and taken advantage of. An education in the power and necessity of proper funding of a life would have been nice.

  • Report this Comment On January 25, 2014, at 11:54 AM, BigT wrote:

    An excellent article, although I refer to almost anything that supports a personal philosophy as such.

    Great comments here as well (see first sentence!).

    IMHO; It (contentment) is relative and personal, and without effective communication and significant others 'buying-in' could lead to grief at any financial level.

    T

  • Report this Comment On January 25, 2014, at 11:57 AM, IJustDoItNow wrote:

    I agree with this post as we try to know how to get money and financial tranquility. I am a big believer of living below your means as much as possible as you increase your income. My goal is to live of off 50% of all the income I bring in and eventually take it down to 10%...I got lots to invest in and I have projects that are worth more than just for me living in a 20K sqf mansion...Don't get me wrong, I love luxury but it has it's place. I can rent a yacht for the weekend instead of buying one and experience the same amazing feeling as owning one...test drive is my game...then check it off the list and move on

  • Report this Comment On January 25, 2014, at 12:04 PM, IJustDoItNow wrote:

    I agree with this post as we try to know how to get money and financial tranquility. I am a big believer of living below your means as much as possible as you increase your wealth. My goal is to consistently live at 50% of your income and eventually taking down a notch to 10%. Investing of course is where a huge chunk will go to and I have so much valuable projects that outweigh living in a 20K sqf mansion with all the luxury that the world can afford. Don't get me wrong though, I love the high life...but if I can rent a yacht for a weekend than buying it..I will end up having the same feeling of owning it...test drive is my game...eventually I will check of from my luxury list and go on with life. This website has tips on money basics... www.moneyandfinancialtranquility.com

  • Report this Comment On January 25, 2014, at 9:52 PM, GoodPyrenees wrote:

    I hope the Colorado couple have health insurance since that is one potential problem that could destroy their idyllic plan.

  • Report this Comment On January 26, 2014, at 11:51 AM, TMFHousel wrote:
  • Report this Comment On January 26, 2014, at 1:29 PM, endofthetunnel wrote:

    Don't wanna appear negative but in reality this attitude totally sucks on a macro scale - something that much taxed Adam Smith who observed that if everyone sat around living modestly (apart from being very dull) there'd be mass unemployment and no economic growth.

    I think I prefer the answer to the question of: How much is enough? to be "a little bit more than I have". For most of us it's the dream and the hard work which is its own reward (regardless of whether we ever get there).

  • Report this Comment On January 26, 2014, at 5:00 PM, SamOTing1911 wrote:

    Being rich is being free from financial pressure, and able to make choices how and where to spend our money.

  • Report this Comment On January 28, 2014, at 3:33 AM, The1MAGE wrote:

    endofthetunnel,

    I don't think you get it. Living below your means doesn't mean living without luxury, or negatively affecting the economy, in fact over the long run it should make the economy run better.

    If done right, eventually you should be living better, and being able to spend more then if you didn't.

    I am a good example, as I became very frugal, cutting my expenses to the bone in the years before the "Great Recession." The effects were that when it hit, even with my cut in both pay and hours, we had more money in the bank then ever. We kept on paying off debt, but our bank account was still growing. While everyone else was supposedly struggling, we were doing better then ever.

    Now, while I am not quite living luxuriously, I have relaxed, and spent some money. Money I would not have, had I not been that frugal. My current frugality is only there while I take the money I have, and use it to create more income. Once that is accomplished, I will be living below my means, but those means will be way higher then they are now, with the goal of living on half of my passive income, and increasing that income, and my lifestyle every year.

    You seem to assume that living "modestly" is the end goal, and that you are to be stuck there for life. Unfortunately some people who lived high on the hog end up being forced to live a modest life, always spending their income on high interest credit cards, instead of on the luxuries they could have afforded had they not mortgaged their lives.

  • Report this Comment On February 02, 2014, at 5:41 PM, awarenessrus wrote:

    Morgan,

    You've done it again!!

    Thank you.

  • Report this Comment On October 28, 2014, at 3:21 PM, dynaruzacaj wrote:

    Don't be foolish and fall into the trap of trying to measure your wealth by the value of your assets. Markets change. Valuations fluctuate. Instead, measure your wealth by the amount of cash flow your assets consistently generate.

    Do This -

    1) Pay off your debts as fast as you possibly can. If this means living in a crappy studio apartment and eating ramen everyday for a couple of years, do it. If you want to buy a car, get a reliable beater. Get insurance for $25/month from 4AutoInsuranceQuote. Forget about buying a house until your debts are paid off.

    2) Once you are out of debt, stay out of debt. The only exception to this rule is a vehicle and a house. If you want to get a nicer car, buy used and be able to pay it off in a year or 2.

    3) If you are going to stay in the same spot for at least 10 years, buy a house, preferably with at least a little bit of usable land. An acre is good, 5 acres is better. Take the amount you are pre-approved for and cut it in half - that's how much you should spend on a house. Come to the table with at least 20% down and make a couple of extra mortgage payments every year. If you're going to be transferred or relocate every 5 years, forget about buying a house and rent instead.

    4) Develop multiple revenue streams. Do contract work. Start a business on the side. Invest in a business as a silent partner. Raise chickens, breed dogs or grow apples. Build websites. Buy and sell antiques. Acquire rental property. Sell something that generates residual income. Learn to play the currency markets or trade stocks. Do whatever you can to generate income from multiple sources.

    5) Grow these multiple revenue streams to the point that they generate enough consistent and reliable cash flow to replace your current income.

    6) Make as much as you can. Save as much as you can. Give away as much as you can.

    7) Retire!- the sooner, the better. Be sure you understand that "retirement" doesn't necessarily mean you stop working, it just means having the freedom to do what you want to do, when you want to do it.

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