One of the biggest peculiarities for hard working folks who want to achieve financial freedom is that we often don’t know when to stop grinding. In other words, when is it OK to forsake Stealth Wealth and start spending more on a better life? After all, you don’t want to die with too much money.
Even if we get to our target net worth amount or passive income figure, we keep on going out of habit. After a lifetime of wealth accumulation, to start drawing down principal feels sinful!
Since first writing about The Rise Of Stealth Wealth, I’m proud to see a strong adoption from successful people who’ve decided to keep things low key.
Society was angry during the 2008-2009 recession, and Stealth Wealth became a way of life for those who wanted to survive. Now that we’re going through another great depression in 2020-2021, it’s very important to continue practicing Stealth Wealth.
Recently, however, I’ve started to get questions from long-time practitioners regarding when it’s OK to forsake Stealth Wealth and ball out a little. After all, most Stealth Wealth practitioners have seen their net worths more than triple since 2009.
Here are my thoughts for those of you who want to risk the wrath of a jealous society. As usual, I’ve set up some stringent conditions so that you’ll actually feel OK wasting money when the time comes!
When It’s OK To Forsake Stealth Wealth
Forsaking Stealth Wealth is allowed if you qualify for at least THREE of the following conditions.
1) When you hit age 40.
You’re half dead at 40. Anybody who rages against you after you’ve spent 20 years working is a moron. They either weren’t willing to grind as hard as you, don’t know how much effort you’ve put in, or simply like to blame society for all their problems.
It’s not a big deal for a 40-year-old guy to drive a Porsche 911, wear a Patek Philippe, and own a beachfront vacation condo. It’s not a big deal for a 40-year-old gal to drive a Mercedes SL convertible in $1,000 Manolos, if that’s possible. If you can’t live it up after the age of 40, when plenty of people die in their 50s, then it’s just a crying shame to work all those years for money not spent.
2) When your net worth equals 20X your gross income or more.
You’ve reached junior financial independence status once your net worth has hit 20X your gross income, e.g. $100,000 household income, $2,000,000 net worth. You’ve reached senior financial independence status once your net worth is 50X your gross income, e.g. $200,000 household income, $10,000,000 net worth.
If you’re still waiting five minutes to save 10 cents a gallon on gas, aren’t willing to turn up the heat when it’s freezing, or still tipping your minimum wage earning waiter less than 20%, you’ve got to slap yourself silly for being overly frugal.
For those of you who want to forsake Stealth Wealth because your net worth is equal to 20X or more of your annual expenses, sorry. Keep on grinding because it’s better to be safe than struggling when you’re too old to work.
Getting to 20X spending is relatively easy after a while. When people focus on a multiple of spending, they will often “cheat” by trying to spend so little to get to 20X. Instead, if you focus on 20X – 50X your gross income, then you CAN’T cheat in terms of being overly frugal. You’ve got to focus on building your wealth through income and hustle!
Related: Target Net Worth Amounts By Age, Income, And Work Experience
3) If you’ve owned property for at least 15 years.
Owning your primary residence is the responsible thing to do because you shouldn’t fight inflation. If you’re still renting, then it’s likely you haven’t come up with a 20% downpayment yet, don’t know what you want to do with your life, and/or don’t know where you want to settle down. That’s fine, because all of us go through this “finding out phase.”
But if you’re still finding yourself, the last thing you want to do is spend your money on wasteful things. If you don’t have a 20% downpayment yet, it’s not a good idea to splurge on a $10,000 trip to Europe on your credit cards!
The vast majority of people I know who decided to continue renting since I graduated from college in 1999 are much less wealthy than those who decided to buy. Deny homeownership all you want; there’s a reason why the median net worth of a homeowner is ~40X greater than the median net worth of a renter.
After 15 years of property ownership, you’ve not only increased your equity through appreciation, you’ve also paid down ~25% of your principal through regular mortgage payments. Such forced savings puts you ahead of the typical consumer because the typical consumer can’t save for donuts.
Related: Buy Real Estate As Young As You Possibly Can
4) Your house value is at least 20X your car’s value.
Let’s say you own a $500,000 home and drive a $20,000 car. You’re free to spend more frivolously given your ratio is 25:1. But let’s say you only have a $200,000 home, but drive a $55,000 BMW. It’s clear to me you’re overly focused on projecting status instead of building your wealth to take care of your family.
There’s no way in hell you should be spending any more money on things you don’t need. You can be more conservative and compare your home equity to car purchase price as well.
The better car buying rule to follow is my 1/10th rule. The 1/10th rule states you shouldn’t spend more than 10% of your gross income on a car.
Related: The Fiscal Responsibility Ratio
5) You have multiple sources of income.
If you’ve only got one source of income, it’s going to be much harder to achieve financial independence sooner than the average bloke. But if you can build at least one other income source equal to at least 30% of your day job income, you deserve to treat yourself to some fine shoes.
The person who makes $60,000 a year at her day job and $18,000 a year in freelance work is my hero. She knows that with more time, her freelance brand will continue to grow and so will her revenue.
From experience and discussions with other hustlers, 30% is the tipping point where people really start to believe that they can leave their jobs to pursue their passions. Just be careful though. Once you leave your job, you’ve got to start the equation all over again.
The other common way to build an additional income source is obviously through investing. It feels great having your money work for you so you eventually don’t have to.
Related: Ranking The Best Passive Income Streams
6) You’ve consistently saved 50% or more of your income for 10 years.
The 50% can include your pre-tax 401k/IRA contributions, your after-tax investment contributions, or a combination of both. After 10 years of saving 50% of your net income, you have 20 years of living expenses in the bank or brokerage account. There’s no reason why you can’t splurge on that three week Mediterranean cruise with a balcony.
If you successfully save 75% or more of your income for three years, you’re also free to splurge. The math is similar to saving 50% of your income for 10 years. Living like a pauper for too long kind of defeats the purpose of money.
Related: How Much Should I Have Saved By Income And Age
7) You have a profitable business that earns at least 2X the median income of your city.
One of the nice things about owning a business is that you can deduct meals, trips, vehicle expenses, and other equipment necessary to run and grow your business. If you can be in a fun business, even better!
Attending a conference in a great location is one example of a nice business expense. You can write off your plane ticket, hotel cost, half your meals, taxi fares, and cellular phone usage among other things. Therefore, your true cost is whatever the original cost is minus your effective tax rate.
But running a profitable business can be hard. Therefore, your business must have operating profits of at least 2X the median income of your city before you to start feeling like it’s OK to loosen your wallet a little, e.g. $160,000 in operating profits compared to San Francisco’s $76,000 median household income.
Related: How To Start A Profitable Website
8) Your kids are independent adults.
If you’ve managed to raise independent adults who aren’t coming to you for a mortgage downpayment, a place to live, a car, laundry, or your yummy meatloaf, then well done!
There are so many young folks out there nowadays who don’t give a crap about working hard because they know the Bank of Mom and Dad will simply bail them out.
There are kids in high school and college who brag about their fancy cars, even though their parents made the purchase. No wonder they get beat up all the time. What kind of insensitive idiot rubs their wealth in other kid’s faces when nobody has a full-time job?
There are college graduates who brag to their friends about their new condo their parents bought for them too. No wonder why they don’t get promoted or paid as well at work. Why should they when they’ve already told all their colleagues they’re rich.
Young adults are savvy nowadays. They know how to convince their parents to pay for everything even as adults. If you’ve been able to instill in your kids the pride of making it on their own, you deserve to live it up. There are just way too many spoiled rich kids ruining it for the rest of us because their parents have no discipline to tell them to make their own fortunes.
Related: Why Millennials Don’t Give A Damn About Money
9) You’ve got a pension that covers all your living costs.
If you’ve got a pension, count yourself as one of the lucky few who never has to worry about money again. To earn a pension that covers all your living costs comfortably, that must also mean you worked for at least 25-30 years at the same institution. That is an incredibly honorable feat that must be rewarded given everybody is afflicted with the “grass is always greener” syndrome nowadays.
Related: How To Calculate The Value Your Pension
10) You got a full-ride to college.
If you’ve somehow managed to side-step the burden of college tuition through merit, then you deserve to reward yourself for a job well-done. You likely won’t be one of those students who believes he deserves an “A lifestyle” while getting C’s.
A full-ride is tuition, room, and board 100% paid for by the school or an outside scholarship. Having your parents pay for everything does not count!
11) You’ve successfully not told anybody how much you truly make for 10 years.
When you’re young and insecure, it’s very tempting to tell all your friends how much you make, especially if you know it’s more than most people. By bragging to your friends, you end up making enemies.
If you’ve been able to keep your true income and wealth under wraps for at least 10 years, you’ve been able to overcome your insecurity. Your mindset changes from trying to feel better about yourself, to trying to help others.
Related: Never Tell Anybody How Much You Truly Make
12) You pay more than $100,000 a year in total taxes.
If you’re paying almost triple the average household income in the form of taxes, you should be able to splurge on that $100,000 wedding after buying a flawless two carat ring.
Such expenditure might keep you in the rat race for years more, but hey, you deserve it. You’re helping subsidize a high percentage of Americans who pay zero income taxes to keep the country humming. Live a little.
Related: Scraping By On $500,000 A Year
Or, you can be like this person who makes $100,000 a year, but pays a more reasonable ~$22,500 in property, state, and federal taxes.
Related: How To Pay Little To No Taxes For The Rest Of Your Life
13) You’re donating at least 15% of your gross income to charity.
Did you know the average percentage of income donated to charity is less than 5%? If you’re consistently donating 3X the average, you’re doing a splendid job! And hopefully, if you can afford to donate 15% to charity and pay taxes, then you’re likely relatively well off.
14) You got dependents and need to focus on safety.
Before having a baby boy, I cared mostly about convenience when driving a car. My Honda Fit that would neatly park in 25% more spots around San Francisco. It was economical as well at only $234/month charged to my business. But several months before my wife gave birth, I decided to focus on safety.
I could not forgive myself if anything happened to my little one in an accident. I also suddenly started focusing on the need for my wife and I to live for at least 18 more years as well!
Therefore, I decided to trade in my Fit for a Range Rover Sport. With thicker doors, larger buffer zones, more safety features, and a heavier weight, the Range Rover should protect the passengers more than a Fit. I gladly was able to forsake Stealth Wealth for safety.
Forsake Stealth Wealth Only For A Bit
Despite a lot of uncertainty in the economy, at least we experienced a 12+-year bull market. It’s become slightly more acceptable to live a wealthy life now. But the longer the government shutdowns last, the more dangerous it is to spend your hard-earned wealth.
The more mindful you can be about other people’s financial situations, the better people will treat you. In fact, I encourage you to be more humble and seem less knowledgeable than you really are to get ahead. The people who are shouting from their rooftops about how rich they are aren’t as happy as the people who feel no need to do the same.
Forsake Stealth Wealth by spending some of your savings so you don’t have to think to yourself, what’s the point of working so hard and saving so much. We’ve been through some pretty difficult times during the pandemic. I think it’s OK to be less frugal and live it up more!
Related posts:
The YOLO Economy Is Here To Stay
Readers, what are some more examples that will allow people to forsake Stealth Wealth? Do you qualify for two or more of the items above?
Hey Sam, nice Blackbird shot. However, you might want to find a nice F-22 photo instead. The Blackbird was the first aircraft intentionally designed towards a reduced radar signature, but alas was not super-stealthy (reduced radar cross-section, meaning they can see it coming but hopefully not in time to get off an effective missile shot). It’s a mach 5, 100,000-foot operating ceiling rage-beast of an aircraft; when you’re going that high, that fast, you don’t really care if they see you because they can’t hit you anyway. The F-22 on the other hand has actually managed to join formation on Iranian fighters without them even knowing it was there; given the Raptor’s hefty price tag I’d say there’s your stealth wealth mascot right there.
I like how you throw this one up, “When you hit age 40. You’re half dead at 40. Anybody who rages against you after you’ve spent 20 years working is a moron.” Anyway, the society really wants you to fit in. Feed you on what you must have nor have to get, so you couldn’t struggle on your life when you get older enough that you can no longer do a job that youngsters could do. Basically, on this article it shows the average from the present to future amount of money that you must have. On how much your property would value in the future. Seems helpful enough to the readers that wants to be aware on what’s ahead of them. But, i suggest to see a professional person that could explain and give you some important informations regarding on this matter. Good job on making this article. Keep it up!
The best old book I can recommend to younger people working is to read “Financial Passages” by Ben Stein (yes the actor and finance expert) He is very clear on knowing how and when you need to own a home, or stay free of it, having kids, saving, etc. Even though its from the 1980’s!!
So I’d like to follow up on controlling cost of living. I’ve lived in the Bay Area, owned modest homes on the peninsula when I was married, and knew when I moved away in the 1990s I’d not be able to afford to return. I agree with Ines who had freedom by renting!! For 14 YEARS while I bounced around in and out of California -by choice- I rented and loved all the time saved on not doing chores and fixups all the time ..but I saved quite a bit too because I had no owner cost to repair the place, I invested it, AND I always had the same police, fire and amenities of parks, etc as the couples paying 3x as much for a mortgage right next door to me. I’ve known apartment-living people in silicon valley who bought homes in Colorado and other areas, rented them out for years, then retired there with cheaper cost of living..using those years to build equity. I did choose the lower cost place I wanted to be, bought a home and am satisfied with that decision.There are ways to plan for future costs you know are coming. This is what Stein talks about.
No matter how much money I had, I would still probably practice “stealth wealth.” I’m too concerned with value to spend extravagantly, so I could never flaunt my money with luxury goods.
Well thought out post, thanks Sam. It really shows how important setting goals actually is. I think this will help a wide range of people of different ages.
From just getting into the game, starting my own blog, and reading more blogs than I ever have my whole life, it’s really comes down to a few fundamentals that can have a huge impact to ones wealth.
1. Home ownership
2. Passsive income
3. Save save save
4. A diversified investment portfolio
5. Don’t splurge until you reach your goals
Thanks and goodnight
I met 8/13 but dropping to 7/13 now that I’ve splurged on new wheels.
We feel grateful for your kind words of advice. In fact, we inherited our house, and used some of our savings in our late thirties to add more rooms.
We started saving religiously from 2004 onwards. Before that one of us had been denied salary for 20 months while the other didn’t even have a job and we already had our first baby. In India, we must pay for medical insurance and the social security benefits are practically non existent. The number of aspirants seeking quality education far outnumber the opportunities available too. Therefore we must fend for ourselves. Our aim has been to pay for the education of our boys without burdening them with educational loans.
When the cash flow resumed in 2004, we found that we had been spending 40% of our pre-tax income. Since we had already taken a firm decision to become financially independent, we started cutting down on all needless expenditure and to begin with we chose Dr. Thomas A. Stanley and Robert Kiyosaki as our guides.
For the next three years we averaged 70% savings but since 2008, it has been consistently 75%. Over the years our expenditure has grown 5 times while our income has grown 8 times. We keep 50% in equities and 50% in bank deposits. We have been compounding our savings at 29% with equities growing at 40%. Our savings comes to 14 times our average pre-tax monthly income (both our salaries + interest income) during the last 13 years.
Our car is 12 years old and we are thinking of replacing it as our children have far outgrown our small Suzuki hatchback. This year one of our private investments will be sold off and we are planning to use 25% of the net profit to pay for a premium hatchback. This is the splurge we have been thinking about.
We greatly appreciate your guidance and direction and wish to empower ourselves through your insights.
Many thanks,
Our average age is 45. For the past ten years we have been saving 74% of our income and paying 10% for charity. We have been living in our home since 1975 and it costs 20 times more than the cost of our car. Our passive income (equity both private and listed and bank deposits) is 50% more than our annual income and we have no debts or mortgage to pay off. We need to fund the education of our boys who are just 15 & 10. When we retire our pensions will adequately cover our living expenses. But, since our net worth is only 11 times our annual gross income, would it be better if we wait until it doubles before we begin to splurge?
You’ve met at least 3 conditions. Splurge away, but responsibly! At age 45 and a 74% savings rate, you have fiscal responsibility EMBEDDED in your DNA! I don’t see you permanently falling off the bandwagon.
Great job. However, if you’ve owned your home for since 1975, how did you manage to buy it at age 3? Is there also a nice inheritance behind?
Income is a terrible way to measure anything. Expenses are the correct metric. Many financial bloggers make this mistake by focusing on income instead of expenses, but you take it a step further. You actually preach AGAINST using expenses to measure how you are doing. That is very strange to me. I don’t need to replace my income in retirement, I will need to replace my expenses.
Using income, every time I get a raise, I’m now doing WORSE meeting my savings goals, according to you. When my wife quit her job, suddenly we were doing MUCH better financially even though we just lost half our income. That doesn’t make any sense at all.
Focusing on expenses, neither of those two events made any difference at all when calculating how we are doing. If our expenses are $50,000 a year, and we have a million saved, we’re already in good shape. If I get a big raise, I’m in BETTER shape (since I can save more), not WORSE shape as your calculations would show.
Or, you can motivate yourself to do better and accumulate more wealth after each raise. That’s the beauty of everything. We’ve all got the freedom to choose.
I submit that you haven’t learned the lesson of having “enough” yet. Some people may indeed think they always need “more”, but money alone is not the goal for most of us. The goal is freedom. Raising your expenses every time your income goes up can be a recipe for never getting off the hamster wheel.
In any case, using a net worth to income ratio as a formula for splurging doesn’t make sense. If I get a big raise, I CAN’T splurge because my ratio goes down? And likewise, if my wife loses her job, and we lose half our income, now we CAN splurge? It’s ridiculous. Base it on expenses instead.
I definitely have NOT achieved enlightenment or monk like status yet, that’s for sure. This post is about helping those of us who’ve been frugal all our lives to live a little since life is finite.
I’m curious to know though, if you’ve achieved “enough,” why are you still working? Or have you stopped working? Share with me more your background. I left my well-paying job in 2012 at age 34 because I had enough at the time.
I’m always looking to get more insights from early retirees and other people who passed on earning a good income/opportunity because they are enough. How did you overcome the fear of giving up that income?
Here’s to finding that balance!
Thanks