The Goldilocks Theory of Being Rich

goldilocks1

An Essay on the Apparent Perks and Perils of Being Rich…
and a Theory About the Ideal Amount of Money to Earn

According to one survey, the most common answer people give when asked what would most improve the quality of their lives is: make more money. And yet, we all know rich people who are unhappy. “You can’t buy happiness,” goes the cliché.

What’s the truth of the matter? This question is at the start of an authoritative piece on the relationship between money and happiness published by the good folks at 80,000 Hours. They explore the nuances of exactly how much money tends to matter to happiness. It’s well worth reading.

I’ll frame the topic a bit differently: What’s the ideal amount of money for a person to have? It’s one thing to consider whether an incremental X dollars adds to your happiness. It’s another thing to consider whether an incremental X dollars above a certain amount can actually subtract from your happiness through the additional hassle it creates.

It’s a great luxury, of course, to contemplate the unimportance of pursuing another few million dollars of wealth. A billion people in the world live on a dollar a day or less, and in America, the median household income in America in 2014 was ~$54,000. So I’m talking about a tiny fraction of the world population that already earns well above those levels of income.

But for this well-off fraction of the population—mostly educated professionals who were fortunate enough to be born in rich countries like the United States—these questions about making money are heavy and relevant. A lot of entrepreneurs, financiers, and general businesspeople I know, whether they’d admit it or not, strive (and indeed sacrifice) in order to try to make more money. More! More! More! As Sean Parker’s character famously quipped in the movie The Social Network: “A million dollars isn’t cool. You know what’s cool? A billion dollars.”

billions
There is a difference between a million and a billion. Let’s define the nuances of “rich.”  To simplify a model of wealth for this discussion, suppose there are three tiers:

Affluent – Still Have to Work. If you are “comfortable” but still must work to support your lifestyle then consider yourself affluent. Comfortable means having your basic needs met, health insurance, maybe a retirement account even if small, and some fallback if you find yourself unemployed. You have some money for occasional recreation. For some especially affluent executive types, their lifestyle is a choice. If they lived more frugally and saved, they might be able to retire early and bump up to the “Rich” tier.

Rich – Don’t Have to Work. Next are people whose net worth, corresponding to their lifestyle, means they do not have to work on stuff they don’t enjoy. They have *time* and they can do whatever they want with it. In America, their net worth probably points to $10mm or higher in certain expensive cities. They are Rich.

Super Rich – Have to Work…to Give Their Money Away. The final tier includes those with net worths in the tens and hundreds of millions of dollars and up. They have considerably more money than they could ever need for their personal lifestyle. Now they have the question of not just what to do with their time but what (if anything) to do with their excess money.

Which camp should you aspire to be in?

Because most people default to “more is better,” it’s most interesting to examine the pros and cons of life at the Super Rich level. I’m not Super Rich, to be clear, but living in Silicon Valley I’ve gotten to know people who need not work another hour in their life to maintain a luxury lifestyle—with all the sometimes-surprising advantages and, yes, hardship, that super wealth can involve.

What are the benefits of being super rich?

Sometimes you hear cash-poor intellectual types muse that many billionaires are probably secretly miserable. Let’s be clear: it’s better to be rich than poor, and it’s awfully nice to be super rich. There are many super rich people who are happy and maintain a healthy inner peace, including Reid Hoffman, who I have worked with for many years. So yes, it’s nice to be super rich. But maybe not for the reasons you think.

You’ll fly private jets, yes. You’ll eat nice food all the time, you’ll have aides and servants who will save you time. Problem is, we quickly adapt to these material comforts—what psychologists call the “hedonic treadmill.” The private jet doesn’t feel so special the 20th time you’re on it. Rather than marveling at the fact you’re on your own plane, you’re more likely to just compare it (oftentimes unfavorably) to other private planes you’ve been on. I’m not making up this anecdote. I was once on a private jet with a bunch of people (again, not Reid) and the owner spent an hour talking enviously about other people’s much nicer planes. Once he and his buddies were done with that topic, the conversation turned to offshore tax shelters, which they discussed with great sincerity. It was at that moment when I began taking notes on the conversation in Evernote so as to not forget such a stereotypically hilarious exchange.

The actual best part about being super rich, as far as I can tell, is this: You’re more likely to feel like you led a life of meaning. You might not be happy all the time or most of the time, but you will feel like your time on this earth counted for something. One way to distinguish happiness from meaning is that happiness is the day to day bounce of emotions while meaning is what you feel when you step back, take a minute, and reflect on what will go in your obituary. (Here’s my post on meaning vs. happiness.)

How so? The feeling of meaning and making a difference manifests in real, concrete ways. Someone like Meg Whitman can walk the HP campus and see thousands of employees who support their families thanks to employment at HP; she can read stories about the millions of people who use HP products every day to be better at their job. That imbues her life with a sense that her life matters. If you don’t have a corporate campus to walk around—if, for example, you’re an options trader and not a builder of things—fear not. With a supple bank account, you can still take actions that generate meaning. Write big checks to charity and you’ll get thank you notes from the children at the public school you helped. You’ll get enough feel-good ooze from your charitable giving to last you a lifetime. Entrepreneur and billionaire Marc Benioff has said, “Nothing is going to make you feel better. Philanthropy is absolutely the best drug I’ve ever taken.”

The second best part of being super rich is that you can meet anyone in the world. As Andy Warhol once put it, the best part about being famous is the chance to meet other famous people. Someone like Larry Ellison can summon writers or professors or politicians or CEOs to his office at his convenience. The late economist Gary Becker argued that people are the most addictive thing on the planet. It’s an addictive itch super rich people can scratch easily.

So, here’s what I think lies at the end of the road if you make it, long after you’ve adjusted to all the material perks: a better shot at meaning and a better shot at happiness that comes from being able to befriend cool people.

So why do many people warn, “Be careful what you wish for?”

Given these benefits, among others, why do wise people often admonish youth who dream of vast wealth to “be careful what you wish for”? Just the other month, for example, Kevin Kelly, one of the most interesting men in the world, said, “You don’t want to have a billion dollars. You really don’t.”

To be sure, there’s always the question of whether Kelly–and even me–are just being self-protective. We’re not billionaires and likely never will be. We probably like to tell ourselves a story that we never wanted what we will never be able to get. But I do believe there’s something to Kelly’s advice.

First, having money just ain’t what it used to be. That’s a fact of the modern age. Just 100 years ago, the ultra wealthy enjoyed privileges average folk could never access: fresh food, medicine, information, a safe childbirth, etc. Today, there’s a tiny difference between the rich and the American middle class in terms of quality of life. Today, no Americans will die in childbirth. Virtually all have access to good cheap food, can fly anywhere in the world for less than a thousand bucks, access to all the world’s knowledge and culture with a click of the mouse, and so on. As my friend Tyler Cowen has noted, what “average” people in America share with the super rich Bill Gates is far more significant than what we don’t share with him. Gates has a bigger house than you or me, but for what really matters, we’re the same.

Second, as Tony Robbins says, “Your quality of life is determined by the quality of your relationships.” Any person you befriend while you are atop a perch of power is just trying to get something from you—or so you suspect, and suspicion alone is enough to careen a relationship. There’s a reason that many presidents, including President Obama, declared “no new friends” upon entering the White House. Existing friends can morph, too: an old pal who you considered a peer asks you for a loan to make a house payment, and suddenly there’s a hard-to-ignore power dynamic. When you see jealously in the eyes of the people you know, something changes.

Those changes in the nature of your relationships can make you lonely. Being super rich can be lonely because, as a character in Jonathan Franzen’s latest novel Purity says, “people around you constantly project themselves onto you…It’s as if you’re not even there as a person. You’re merely an object that people project their idealism onto, or their anger, or what have you. [And] if you try to talk about [the perils of being rich and famous], some young woman in Oakland, California will accuse you of self-pity.”

Third, with great power and wealth come great expectations to lead a purposeful life. “What should I do with my life?” is a question every thinking person grapples with. Kevin Kelly notes this question weighs heavier on good-conscience billionaires: “If you are a good person, the weight and duty of being responsible with the billions you have becomes a burden. And then it almost becomes criminal to pass that burden onto your kids. So what do you do with it but pay more attention to the billions. It is very hard not to have it run your life.”

Fourth, money changes your sense of morality, and usually not for the better. Berkeley psychologist Dacher Keltner, who’s run various studies examining the behavior of the rich, says, “As you move up the class ladder, you are more likely to violate the rules of the road, to lie, to cheat, to take candy from kids, to shoplift, and to be tightfisted in giving to others.” I’m not sure how much stock to put in these studies. What I do believe is that being super rich disconnects you from the day to day vicissitudes that define the experiences of most of your fellow humans. If you can’t remember the last time you waited in line at the airport and dealt with surly TSA agents, or if it’s been years since you drove your own car to a supermarket, you’re living in a different world than most of your fellow humans. It’s harder to relate; empathy goes down; and it’s not surprising that it’s harder for the super rich to remain compassionate toward those who lead such different lives.

It’s worth noting that fame magnifies the downsides of wealth. My super rich friends who are also wise suggest avoiding fame as much as possible. Don’t take your company public, which exposes your stock holdings to all. Don’t show up on any Forbes rich lists. Make your massive philanthropic donations anonymously. It’s possible to be really rich and not too famous, and those people seem to have more luck at getting the upside and avoiding a lot of the downside of wealth.

How much money should you strive to earn?

Tim O’Reilly has led what appears to be a good life. (While we’ve met a couple times and have run in the same circles, I don’t really know him personally.) He’s a highly successful founder and leader of a profitable company, O’Reilly Media. He lives part time in Sebastopol, a beautiful town about an hour north of San Francisco.

Tim has put forth a good metaphor for money: he said money is like gasoline while driving. You never want to run out, but the point of life is not to go on a tour of gas stations.

Suppose the real treat in life is, say, hiking through Yosemite or spending time with good friends in New York. By Tim’s metaphor, some ultra ambitious crazy people are stopped at some gas station in the middle of nowhere trying to get enough gas so that they can drive from Yosemite to New York City without once having to re-fill. Sadly, for some of them, it takes years and years—even a lifetime—for them to figure out how to extract enough petrol from the station, and they go to their grave having lived out what Tim Ferriss would call a “deferred life plan.” They had a plan designed to make them enough money so they can eventually live the life they actually want…but they never ended up getting around to living the life they really wanted.

So we’re left with a critical question: how much gas should you ideally have in the tank at any one time? How much money in the bank account promises a bunch of the pros and not too many of the cons of wealth?

Maybe wealth needs its own Goldilocks porridge story: you want not too much, not too little. And I think that ideal middle ground is the “Rich” category in the hierarchy I opened with. More crudely, this ideal amount of money is termed “fuck-you money.” With fuck you money, you can’t fly around the world on a private jet (so you’re not as rich as the Super Rich) but you do have the power to say fuck you to essentially anyone or anything that doesn’t interest you (which means you’re richer than the merely affluent).

Put another way, if you work on stuff that doesn’t excite you for more than one day a week, in my estimation you do not have fuck-you money. You’re still working for the man. At the other end of the spectrum, if you find yourself being invited to more than a few charity galas a year, worrying about physical and cyber security at your home, and asking a PR person to review your public statements, you have a lot more than fuck-you money and all the corresponding drawbacks.

Nassim Taleb put the ideal balance this way: You want to have a sum of money “large enough to get most, if not all, of the advantages of wealth (the most important one being independence and the ability to only occupy your mind with matters that interest you) but not its side effects, such as having to attend a black-tie charity event and being forced to listen to a polite exposition of the details of a marble-rich house renovation.” With enough money, you live entirely on your own terms.

tenmillion copy
How much exactly counts as “rich”? In Silicon Valley, people talk about $10 million in savings as the number when you’re truly independent. I realize that will sound absurd to many people in lower cost-of-living places. The exact number that qualifies as “rich” will depend on the person, their lifestyle, and their aspirations. But it’s probably a number that’s attainable for many educated, privileged people who focus on making money.

For some people, it’s probably worth sacrificing a bit of short term happiness for some finite period of time in order to earn several million dollars. That “sacrifice” can mean working longer hours than you’d like, doing some work that you don’t absolutely love, maybe seeing friends and family less than you’d like. Of course, this logic becomes tricky. A lot of investment bankers hate their life but they are on one of the surest career tracks to piling up low double digit millions in their savings account. But it takes many years. Is not loving your work for 15 years worth it if you end up at the end with $10mm+ in the bank? I don’t think so.

Indeed, long term, as the 80,000 Hours folks point out, insofar as you care about maximizing happiness, “once you get to an individual income of around $40,000 [higher if you live in an expensive area], other factors, such as health, relationships and a sense of purpose, seem far more important than income.”

It’s complicated. What is clearer in my mind is that mega, outlier wealth — the kind of wealth promised by unicorn success in Silicon Valley, the Super Rich category — comes with enough hassle that it shouldn’t compel someone to spend 20 years of their life, working 80 hours a week, trying to get it…unless they truly love the work.

Yes, it’s better to drive a Tesla than a beat-up Honda Civic in the road of life, but stopping with your BMW every so often at a gas station isn’t too much of an imposition, and it might even save you some unexpected hardship.

What really drives the already rich to keep striving?

Did those who achieved the “super rich” level consciously strive to do so? Are billionaires billionaires because they wanted to be billionaires, or at some point in their journey to mega wealth did money become secondary in their motivations?

What about people who are just “rich” and don’t need to work—why are they continuing to work?

If you’re suspicious that what drives the rich or super rich is something more like a compulsion than specific financial goals, I’d have to agree with you. Here’s my companion essay which explores this topic. It’s titled Happy Ambition.


(Thanks to Nathan Labenz, Stephen Dodson, Jessie Young, and Dave Jilk for commenting on a draft of this essay.)