March 7, 2020

"When I was in my late 20s... [m]y parents left me a seven-figure inheritance, in cash.... I took about two or three months off work, to execute everything..."

"... filing taxes, converting the cash into an investment portfolio. I wanted to park the money somewhere and not have to pay attention to it. After that, I just went back to work and tried to resume my normal life.... I’ve now had this money for three years.... I’ve already grown the portfolio by 50 percent. I haven’t spent any of it. I just reinvest the dividends and leave it alone. I make around $75,000 a year from my day job, and that’s enough for me to support myself and go on vacation and stuff like that. I haven’t talked to anyone about my inheritance. I’ve never told my friends, and I don’t have any other close family members.... My parents had a non-flashy, stealth-wealth lifestyle, and I’m the same way. I don’t even have a car. I don’t wear any labels. I ride a bike everywhere. I make my lunches. Nothing I do would elicit people to think, 'How does she afford this?'.... I think the biggest thing I’ve learned from this experience, and working for over ten years now, is that your job doesn’t have as much of a relationship to your net worth as many people think."

From "Inherited Millions and I’m Hiding It From Everyone" (New York Magazine).

ADDED: The anonymous writer of that piece also writes anonymously at Financial Orchid/Budgeting for Generational Wealth. I see a post about a Cracker Barrel restaurant. And "10 Frugal Ways to Land a Winning Next Date." The main idea is: Go for a walk!

74 comments:

rehajm said...

Corona took a good clip off that pile the last month or so. Enough to not be impressed with what's left...

rhhardin said...

Not worrying about useless ass-kissing of the boss is a free benefit you can't help noticing. You can in effect buy yourself a good boss without spending anything.

stevew said...

She is smart not to let anyone know about the size of her nest egg. Nothing positive comes from sharing, or bragging, about such a thing.

Leaving it alone to rise (which it will do over an extended period of time) is what wealthy people do. Poor people spend it.

RoseAnne said...

I lead a non-flashy lifestyle as well although it would take me nearly two years to earn that salary. My parents left me money (thousands, not millions) that I too invested for the future. Unfortunately that amount is now being reduced by inept politicians more interested in ratcheting up the panic to score cheap points off each other about the virus than competently working together to solve the problem.

lgv said...

It's also good she got it no earlier in life. She had established a life style that she could stick, even if it was tempting not to. She has my respect for not touching it. I couldn't have done it back then. She will now have options in life when she needs them, really needs them. She deserves credit for the discipline. She doesn't even understand how much stress she will NOT have because of her choice.

I got married young. Started a family. Bought a house. Had a non-working wife who outspent my income. Just before the divorce was final, I lost my job. Had to live in my old car for a while. Got another job. Promoted to VP. Got rid of all debt. Started saving. After the company was acquired, I was jettisoned. This time I had options. I had money in the bank. This working capital allowed me and my partner to start a new business, where we could grow and best our old company. That was 25 years ago. Couldn't have done it without living below my means and saving.

That's my advice to younger people. Save, invest, live below your means. It will give you great options in life later. Plus, it's never too late to start.

Danno said...

Similar to the "Millionaire Next Door" book that was published quite a while back.

Live below your means.
Accumulate assets via compounding over time.
Don't show off your wealth.

Not a novel idea.

Lucien said...

Rehajm:
Haven’t heard about many dividend cuts lately; and bonds have been doing rather well. So some paper losses in equities are tolerable. Should be a good year for matching capital gains with losses, if one so chooses.

Rory said...

If someone takes two to three months off to settle an estate, everyone knows there's money there.

rehajm said...

So some paper losses in equities are tolerable

First, paper or not, the losses are real but yes, you're correct. If you are fretting the present unrealized losses you probably shouldn't be invested in equities to begin with....

Second, since they no longer have tax advantages in a taxable portfolio you can ditch the dividend payers and selectively manage your tax consequences of a sale...

iowan2 said...

Sounds stupid to me.

Money is a tool. Not some sentimental trinket you keep around for the hell of it. I didn't hear anything about what her long term goals are. I think the responses would be much different of somebody that possed some other asset, maybe a talent, or apptitude, and never utilized that gift.

Locally there is a guy that hit the lottery big. He built a new football field/sports complex for the the high school. Built a grocery store, because the community did not have one. A health center/gym. So the family has a goal to give back to the people.
We also had a little local seed company that sold out to Monsanto. $2.02 Billion.(that .02 is important!) He gave each of the full time employees a minimum of $1 million. On top of that he too has invested in the community. Community centers, ball fields, up grade golf coarses,and pools. Senior living complex.

You get the idea. A pile of money is no more interesting than a pile of bricks. Until you create something with it.

cacimbo said...

The writer clearly views her inheritance as a responsibility she has a duty to manage well. That she has no friend or extended family member she feels close enough to discuss this topic with makes it sound like her life is very lonely.

rhhardin said...

Money doesn't just sit around. It's always being used by somebody. Even if you stuff bills in your mattress it's being used (because the Fed notices that the money supply is a little low and prints more temporarily).

She isn't using it, is all.

traditionalguy said...

Security is a wall of money. But you can’t take it with you, said the Wills and Estate lawyer. Interestingly, old folks who rely on the money often cannot trust it’s care and keeping to their own children. So they chose charities or strangers who flatter their frugality to be their heirs...thinking these won’t spend it. We have to carefully suggest they will actually spend it faster.

tim in vermont said...

There is a well raised child.

I happen to think that most things that wealth buys is overrated. Flashy cars, boats, three or four “homes,” etc. But one thing that is *not* overrated about wealth is security.

"Haven’t heard about many dividend cuts lately; and bonds have been doing rather well.”

Yep, and might be a good time to sell some investable real-estate to the panic stricken fleeing the market.

stlcdr said...
This comment has been removed by the author.
rhhardin said...

Saying you should spend it is saying that you should get somebody else to do something for you. That's not necessarily what you want. Just let the money sit and you may be happiest. It's there if you need it someday but you don't need anything now, and may never need anything.

stlcdr said...

Global warming could use some of that cash. There’s a starving child or two that you can feed for pennies a day. We need to fine the evil in the world, donate now, anything will help. We can drag icebergs from the arctic to Africa to supply fresh, clean water.

JAORE said...

I live a stealth-wealth life too. It's so damn stealthy not even I know where it is.

tim in vermont said...

BTW, another way to get security is to minimize your needs. Keep that monthly nut low.

Brian said...

Why does she apologize for her parents frugal lifestyle? Why does she apologize for not having to take out loans, for having a paid for condo, for living her own frugal lifestyle.

In Dave Ramsey language, "the paid off mortgage [should take] the place of the BMW as the status symbol of choice." But in our society, something is wrong if you don't spend the money, or give it away, or allow it to be taxed so someone else can spend it. I'm not objecting that it is this way, I'm objecting for why it has to be this way. We should celebrate this woman for not living beyond her means. Her parents would certainly celebrate her actions to date with the money they left.

A pile of money is no more interesting than a pile of bricks. Until you create something with it

She's in her 20s. She might NEED a pile of bricks later in life. She has a long life ahead of her. And right now those bricks are multiplying in her pile under her careful stewardship. At some point they could be a cathedral. Instead of a patio.

tim in vermont said...

The more stuff you “do” with your money, the more your money becomes a job. There are no two ways about that.

Ann Althouse said...

She had the example of her parents — the way they lived. And she had the experience of losing her parents at an early age. That shaped her psychology.

She concentrated on handling the money competently, and she didn't reward herself with travel and purchases or quitting her job. Maybe she enjoys her job and her relations with co-workers and wants the stability of life staying the same after the jarring loss of her parents.

She is thinking of what to do with the money. The use of the money is something only visualized now. She wants it for her children, if she ever has them, and if not, she wants to leave the money to a good cause — to do charity, within her family if she is able to rebuild one and beyond her personal realm if she does not.

Ann Althouse said...

"Money is a tool. Not some sentimental trinket you keep around for the hell of it. I didn't hear anything about what her long term goals are."

Then you didn't read the whole article, so why attack her?

tim maguire said...

My in-laws amassed a large nest-egg on a middle class income through a lifetime of living simply.

Iowan, that money bought peace of mind and a comfortable retirement. That same money will be the foundation of a similar peace of mind for their children and probably even their grandchildren. That’s not nothing.

tim in vermont said...

At times like this, the dividends buy more stock than they would when the market is on an upswing. So these are the times when her strategy sets her up for the long term.

Ann Althouse said...

"Why does she apologize for her parents frugal lifestyle?"

What are you reading as an apology? I didn't see that.

gilbar said...

Save, invest, live below your means. It will give you great options in life later. Plus, it's never too late to start.

There's the old saw (that SURPRISINGLY (some) people actually don't get; about the 2 brothers

They have the same job, the same obligations; but one spends $5 a month (week/day/doesn't matter) MORE than he earns; the other spends $5 LESS than he earns
One is on the (quick) path to poverty, the other on the path up.
You'd be surprised how many people will say: It doesn't matter! unexpected costs will cripple both brothers... which shows that people don't understand what "LESS than he earns means

(apparently) most lottery winners (and sports/musicans/etc) that come into a few million, have it used up awfully quick. It's really kinda sad

On the OTHERHAND: Lots (and Lots (AND LOTS)) of charities are running commercials telling people about "legacy trusts"... asking people to put the charities into their wills. The girl in this article is doing great, for now; but
since she (like most "correct" americans will die without heirs, either a charity or the government will get ALL the money she doesn't spend

rhhardin said...

Giving it to a good cause is delusional, usually. It takes the money out of whatever it was doing and gives it to the good cause instead. How do you know the good cause is a better use of the economy's resources. Usually it's not, and it reduces the standard of living of the nation.

What the money was doing (behind your back) at least had people making mutual gains from it.

Michael said...

Danno referenced the book, The Millionaire Next Door. There are many millionaires walking around among us. You just don't notice them due to lack of public displays of wealth.

rhhardin said...

The Trump economy got there by taking money out of good causes and letting people decide what to do with it.

Money Manger said...

A million dollars today might earn you $30,000 incremental annual income. $20,000 after taxes. Nice to have, but you are not moving next door to Thurston Howell III.

John Lynch said...

Good for her. I have one piece of advice for her: spend the money while you are alive, so you can choose its purpose. Otherwise, you don't know who will end up with it. She's a good steward, which is great, but don't be a good steward for someone who doesn't deserve it.

So, die broke is what I say. Spend the money on kids when they need it, and don't plan on leaving a large estate as a hostage to fate. Failing that, create a trust that at least provides for grandchildren if you don't like your kids.

Danno said...

rehajm said..."Second, since they no longer have tax advantages in a taxable portfolio you can ditch the dividend payers and selectively manage your tax consequences of a sale..."

WRONG! Qualified dividends are taxed at the capital gains rate of 0, 15, 20 or 23.8% and have been since the Bush tax cut. This regime survived the Trump tax cut.

rehajm said...

I happen to think that most things that wealth buys is overrated. Flashy cars, boats, three or four “homes,” etc. But one thing that is *not* overrated about wealth is security.

One splurge that's a common denominator amongst the frugal wealthy: general aviation. The one life upgrade nobody seems to pass up...

Ann Althouse said...

There are also people who are showing off possessions — designer clothes, luxury cars, etc. — but who have less than zero money.

I would say if you're going to buy something to enjoy, buy a good house in a good location.

And it's important to remember that if you spend all your money, you are on the hook to keep making money, and you might lose an important opportunity. You might want to limit your spending to the salary level of some other job that you think you might enjoy (e.g., a lawyer might aspire to become a judge).

Ann Althouse said...

I took a 30% pay cut to become a law professor. Never regretted that decision. But in fact, a 30% pay cut didn't lower my standard of living because we moved from NYC to Madison.

rehajm said...

WRONG! Qualified dividends are taxed at the capital gains rate of 0, 15, 20 or 23.8%

My point was relating to the flexibility of realizing a gain at all, not the rate. Dividend payers produce a recurring taxable event, reducing flexibility of a taxable portfolio vs the advantages of timing the realized gain in a stock sale.

jaydub said...

"A million dollars today might earn you $30,000 incremental annual income. $20,000 after taxes. Nice to have, but you are not moving next door to Thurston Howell III."

Money manager, huh?

Danno said...

Iowan, money in the capital markets is not sitting idle. Where in the world did you obtain your finance knowledge?

Sounds like you'd be a Big Shot if you ever came across some money.

rhhardin said...

One splurge that's a common denominator amongst the frugal wealthy: general aviation. The one life upgrade nobody seems to pass up...

I've owned three airplanes, and the most expensive cost $1800, less than a car even in those days. Costs $25 monthly tie-down fee, $100 liability insurance, maybe $300 depreciation.

Used airplane of course. Everything when up after manufacturers became liable for idiotic mistakes by consumers and all the new US airplanes disappeared at reasonable prices.

Bill Peschel said...

She's doing much better than the woman my wife knew back in the day. She received an insurance payout of $80K. Money from heaven.

She went on a spending spree. Out every night, buying drinks for everyone. Clothes. New car.

Then the money ran out and so did her friends.

Economists would applaud because she circulated the money, but I doubt she was happier for it. Economists know the value of money, but not the price of happiness.

jaydub said...

What this young woman has is called financial freedom, not wealth - at least not yet. Her parents left her with life options which will allow her to take professional and investment risks and make choices that someone who depends on the next paycheck cannot afford to do. Based on her attitude, I would say she will likely use her freedom wisely and become both wealthy and happy.

mockturtle said...

Good for her. The advent of wealth shouldn't change a person's lifestyle unless one is living in abject poverty.

Mike Petrik said...

Bill, economists know that investing is essential for market capitalism to thrive. Consumption is neither worthier nor more beneficial than saving.

Mike Petrik said...

It is true that net worth and income are very different measures, but they are not unrelated. Most wealthy people achieve their net worth through prudent long-term investing -- i.e., The Millionaire Next Door" thesis cited earlier. Savings is essentially income not consumed -- i.e., delayed gratification. Those who inherit often allow their experience to draw them into a mistaken inference, which is that high net worth is a function chiefly of luck since that was true in their case. The conceit of conservatives is that luck is a trivial variable, whereas the conceit of liberals is that it is the dominant one. They are both mistaken, but a society ordered more closely on the former assumption will end up better off than the alternative.

BleachBit-and-Hammers said...

the other end of the spending spectrum. she could indulge a wee bit.

Mostly ya hear about formerly wealthy or well off or well paid people who lost it all because hollywood fired ya for being a conservative. Thing is, ya should plan for the day when the paychecks stop. no matter what. Millions in the bank or not. Dave Ramsey's plan. It's a good one.
you cannot retire with that pile of crap you bought or with credit card debt.

the attitude from some young people is - why save when the governmetn will take care of me. Wrong answer.

Wince said...

I had the huge advantage of not having student loans, but I also was careful about keeping those costs low. I chose a local university and lived at home while I was getting my degree.

The people you want to hide and protect your wealth from, and who will screw you over for your frugality given the chance, are DEMOCRATS.

Phidippus said...

"...your job doesn’t have as much of a relationship to your net worth as many people think."

In an otherwise sensible-seeming article, I found this statement a bit puzzling. She's right in the case that you inherit a couple of million in your twenties and live off a $75K salary job.

OTOH, for many of us who inherited little or nothing, the only reason why we have a nonzero net worth is from working like hell for 40 years or so and living below our means. It can be done, but you'll miss out on new cars, skiing vacations, cruises, and living in a big fancy house. In that case one's net worth is entirely due to one's work ethic, discipline, and a certain amount of luck.

It drives my wife crazy the way e.g. I roll up the toothpaste tubes to get every last bit out of them (binder clips are handy for the plastic ones that unroll as soon as you let go of them). Unlike her family, mine didn't even have the memory of wealth, much less the actual article. "Fix it up, use it up, wear it out, or do without." (I heard a lot of that last one growing up.) Lifetime habits...

I agree with John Lynch about the proper role of trusts for one's grandchildren (if any), if they are correctly administered. There is also a role for charitable donations in my view, but not foundations, which always seem to be corrupted over time and stray from their original charter.

Phidippus said...

Separately, my hat's off to rhhardin for owning and flying three airplanes that cost less than $2000, and living to tell the tale. It's got to be some kind of testament to his piloting skills (including knowing when not to), and luck.

I thought the entry level for a flyable airplane these days was more like $25K. Maybe the limited supply has driven up the prices they get for them.

Aggie said...

I read through the comments quickly, but nowhere did I see a mention of gratitude. The girl seems very grateful for her inherited wealth, and it would appear that she has also inherited many of her parent's values. You know what? In addition to being happy for this stranger's good fortune,I am also grateful that our society is still capable of producing people who embrace such values. They are the essence of conservatism - not the modern brand, but the classical one. She has backbone.

I am surprised to see so much criticism though, some of it pretty snarky, and the number of folks who think she's a fool to invest her wealth to make it grow. Yes, money is for enjoying and some should go to charity. But investing young and reinvesting the dividends to grow is going to get her about 10% a year, long term. Assume she's 25 and do some simple compounding math. In 9 years she'll more than double it, 16 - quadrupled. In 25 years it will be worth 10 times. Good for her! I hope she continues to grow with her wealth.

Brian said...

What are you reading as an apology? I didn't see that.

After re-reading I may be projecting a bit. I think it may stem from the headline which states shes "hiding it" from everyone. And the commenters on that article chastising her for not giving it away.

She talked about not having to have student loans, but also how she didn't spend a lot either. She talks about having the paid for condo, but it's not a big condo. That rang as "I'm lucky and I know I'm lucky but I'm not THAT lucky so don't hate me for it".

I don't doubt that she would give every penny to have her parents back.

She should be proud that she is honoring them by stewarding her money the way they would have. That should be the message of the headline and of the commenters there.

Ann Althouse said...

"I think it may stem from the headline which states shes "hiding it" from everyone."

Yes, it's an "as told to" presentation, and though "hiding" is in quotes, I'm not convinced that she used that word. What does it say about our sense of privacy that not telling people something is regarded as hiding?

Is choosing not to buy things that display wealth to be called "hiding" wealth? It could be modesty and frugality.

I was brought up around people who wouldn't even say what their income is, let alone how much money they have in the bank or investment portfolio. Talking about it would be seen as the active choice, and the choice not to talk about it wouldn't be considered hiding.

There are some people who openly try to guess whether you have money aside from the income from your career. Some people think they can tell from how you act if you have family money and like to tell you about somebody if they know or think they know a person has extra money.

Brian said...

Non-business related general aviation is not a money saver, or even a time saver a lot of times.

You can usually drive somewhere cheaper and with more flexibility at the cost of a few hours of travel time.

GA gives you the opportunity to get somewhere faster than driving at minimal notice but at the risk of weather. But only for certain ranges. Less than 100 miles its almost faster to drive unless your destination is actually the airport. More than 300 miles it's better to fly commercial. It's always a question of mission.

GA could be better if there was more infrastructure around GA airports. But it's not there yet. It's a lot of fun though.

For business it makes more sense because you could turn a multi-day trip into a single day trip. That increases productivity.

As self-driving cars become more advanced however, the productivity gains might diminish.


Brian said...

Talking about it would be seen as the active choice, and the choice not to talk about it wouldn't be considered hiding.

I agree Ann. But we are quickly moving to a society where saving is hiding and we need to "liberate" that trapped wealth. It's only going to cost $0.02 on every dollar a year.

tcrosse said...

Slightly OT, but recent changes in tax laws mean that if a non-minor child or non-spouse inherit your IRA/401k, they now have ten years to empty it out, rather than a lifetime. Failure to do so results in confiscatory fines. Compliance could have dire tax consequences for the heirs. Some sharp-pencil guy will probably figure out a way around this.

James K said...

Agree with Money Manger that a $1 million inheritance isn’t enough to change a middle-class lifestyle. (Of course “seven-figure” could be $9 million, which would be more of a nest egg.) Interest rates being what they are, even before the latest meltdown, even $30,000/year is generous from $1 million, especially if you want inflation protection. I’d bet an indexed annuity to a 35 year old would start at more like $20,000/year for $1 million.

Stephen said...

Living below one's income over a long period --like regular exercise--is difficult. Let's say you labor away as a staffer in a bank, law firm, or Fortune 1000 company and drive a 10-year-old Datsun or Chevy Nova. Is driving an old, though paid-up car holding you back from that promotion? Do your bosses secretly look down on you because you don't look like an executive? Should you upgrade to the most expensive house you can afford to impress people with your zip code? Frankly, I think the pressures to keep up appearances were stronger before social media existed, and yes, geezers always talk that way.

Phidippus said...

Stephen: My 16-year old Corolla with the dents and rust didn't slow me down too much, at least as far as I know.

My secret was being better at my job than anybody else. They kind of didn't have a choice.

tim in vermont said...

I won’t buy a plane because I have an unreliable heart. Otherwise I would have a float plane, like many of my neighbors when I am in Vermont.

tim in vermont said...

Fractional jet looks a lot better during Covefe-19 though.

glam1931 said...

All this is interesting to me; I'm 64, have always been relatively poor, unemployed for years, live with my elderly mother in a nice home we own with plenty of land, have a small state pension. Single with no children, just a nephew as my sole beneficiary when I die. Recently my stepmother died and left me a large IRA and a six-figure inheritance which is in the final stages of being disbursed. I live extremely frugally and am in moderately good health. Outside of some home improvements I really don't anticipate any major lifestyle changes. But I am quite unsure what to do with all this money beyond just keeping it socked away.

tim in vermont said...

"But I am quite unsure what to do with all this money beyond just keeping it socked away.”

Look at a nursing care policy in that case. They are not as expensive as you might think, unless you have some condition that makes nursing care a high probability, but when the time comes, if you need it, it’s better to be able to afford a nicer place to live, a single room, or somebody to come around and take care of you, depending on the coverage. Nothing will suck you dry like an extended stay in a facility, and once it’s all gone, you are thrown on the mercy of the state. You may even be forced to sell the land.

tim in vermont said...

Oh yeah, and an umbrella policy, so that if you hit a patch of ice or something and accidentally hurt somebody, you don’t lose everything. When you have nothing, you are not worth suing.

tim in vermont said...

Watch out for these guys who want to manage your money though. Especially if they make sweet sounding promises. Stick with a respected institution that’s been around and has safeguards.

JaimeRoberto said...

My parents are a couple of those millionaires next door. My dad likes to say that the benefit of money isn't what you can buy. It's the bullshit you don't have to put up with.

Etienne said...
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Etienne said...
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Barry said...

Even though we have accumulated 8 figures of net worth, we still live a middle class life. We would be uncomfortable flying 1st class or eating at an expensive restaurant. I still look for items on sale and use coupons. We could buy anything we wanted but we don't want much more than we have. We are concerned about the effect the money will have on our grand kids when we are gone. Will it make them happy or ruin their lives? I don't think anyone could come close to guessing our net worth,(including our children.)

mockturtle said...

Barry says: We are concerned about the effect the money will have on our grand kids when we are gone.

Aside from property, most of my money is going to the grandkids because I have already given a great deal to my daughters, who have shown themselves to have very poor sense of priority and judgement in financial matters.

Paul Snively said...

JaimeRoberto: My dad likes to say that the benefit of money isn't what you can buy. It's the bullshit you don't have to put up with.

Money can't buy happiness, but it sure can reduce misery.

MikeR said...

Seems wise.

Kelly said...

My in-laws were the opposite of flashy. Children of the depression, they were frugal penny pinchers. My father-in-law delivered bread up until his retirement. My mil never worked outside the home, she raised five children. My kids never got a Christmas present from them, not that they ever noticed. They adored their Grandparents. Imagine our surprise to find out they’d saved close to 700,000 on delivering bread.

GRW3 said...

Besides being a secure nest egg, it’s also F*** Y*** money. That will make her a more effective employee - no fear.

muddog16 said...

It's never what you have, it's what folks think you have..........it drives them nuts!