Much has been written about greed and how excessive greed brought about the financial crisis of 2008, which is sadly still upon us. Greed, one of the seven capital sins, is probably a bad thing in any religion. Yet, many people associate it with “ambition”, a word that may have a positive connotation as in “the wish to achieve something”. Many have defended “greed” in its less selfish format, in this “achievement motive” format.
Actually, research has shown that the Anglo-Saxon cultures (which have dominated the world for the past 200 years through the UK and US) value competition and achievement more than any other culture, combined with individual freedom and egalitarianism. This combination of values has not only become the norm for Anglo-Saxons, it has been exported throughout the planet as THE way to manage people and to live your life “as it should be”.
In many other cultures in addition to the UK and US, job advertisements typically ask for people who are “ambitious, driven to excel, good team players”. Paul Arden wrote an international bestseller entitled “It’s not how good you are, but how good you WANT to be!”. Many people spend their careers trying to do more, climb higher in the corporate higherarchy, perform better, earn pay increases, higher bonuses… and then realize, typically when they reach 50, that they have too much money and not enough meaning to their lives.
Ambition is great, but can you have too much of a “good” thing? Is there a limit to ambition, a limit beyond which ambition becomes unhealthy, both for yourself and for those around you?
Personally, I am a firm believer in trying to live “on the razor’s edge”, seeking a dynamic balance. Some people might think that leading “a balanced life” is kind of boring, and I can see their point. I am not advocating that you should never experience the extremes, and that is why I mention a “dynamic” balance. The old joke talks about the guy who had his head inside an oven and his feet inside a freezer, but “on average” his body temperature was all right! What I advocate is indulging a little bit in overheating and a little bit in freezing, but not enough to get yourself killed…
So, what does this “dynamic balance” mean for ambition? (This is me, talking to myself.) It means having enough ambition to keep you excited and engaged in what you do, but not enough to get you into a mental institution with a nervous breakdown.
Everyone needs to be aware of his own limitations, as Dirty Harry (played by Clint Eastwood) used to say. This means understanding how much ambition is too much ambition for your own good, among other things.
Show Me The Money
OK, so this is all very nice and cozy, but can we talk numbers, here? Can we have some measurable references and standards? Well, actually, we can.
When I reached 50 myself, just at the turn of the century, I started thinking about how much would I need to have in accumulated savings to be able to no longer depend on revenue from my own work. To me, not having to work is the meaning of “being rich”.
When I was a kid I noticed that our family was “well off” compared to the families of my best friends in our neighborhood: one of my friends’ family had a shabby bar next door to our rented house; my other best friend’s single mom was a live-in cleaning lady at a house down the street. My parents were both young university professors; as such they certainly did not make a fortune, but they were doing well comparatively where we lived.
I asked my mother “Are we rich? We have stuff at home that my friends don’t have, like a record player and a TV set.” My mother’s simple answer was “No, we are not rich. Rich people are people who have so much money that they do not need to work, they can live from the income they get from investing their money. We don’t have that much money. We have nice things because your dad and I both work and our income comes from our work; but if we stop working, we will not be able to afford what we have, starting with paying the rent for our house.”
That simple lesson in home economics stuck with me for life. So, when I reached 50, I asked myself “Am I finally rich enough to be able to stop working?” The answer was “no”.
“OK, so how much more do I need to save before I can say that I work because I want to, not because I need to?”
Let’s make some simple calculations and then maybe you can stop with the pesky questions (I said to myself).
We need roughly a net income of €120,000 a year to maintain our current lifestyle, including holiday trips abroad, dining out once a week, getting two kids through college. In order to get that kind of income from investments, let’s take a fairly conservative estimate that we could get about 4% income from an amount of capital invested in stocks and investment funds. It basically means we need to have a €3 million portfolio, which will generate that kind of income, on average, consistently.
“Is three million Euros a huge fortune?” Well, I guess not, but it depends on your standards of comparison… To Bill Gates that might be “pocket change”, but to my childhood friends it would be indeed a huge fortune.
“So, how about those guys at Wall Street? Are they stabbing each other in the back every day and burning out like crazy because they are trying to ultimately make four million bucks (the US Dollar rough equivalent of three million Euros)? Hell, no! They make that in a couple of years! Some of them make that in a single year, and on a bad year, at that!
“Then why do they keep at it to the point of cheating on their clients, faking their bookkeeping, swindling each other and bribing regulators? Don’t they already have more than they need?” Well, that’s exactly it: they are not really in it for the money, but for what money represents: recognition, a sense of self-worth that they can never attain, a sense of fulfillment, something to fill the void inside… Like the Arab Sultan Amar said in “Day Of The Falcon”: “They have a thirst that can never be quenched…”
Let’s just say that my €3 million to €120,000 a year equation is modest; I don’t drive a luxury car, don’t live in a palace, don’t drink Chateau Lafitte every week-end. So let’s say a big spender would like twice that much, or even three times. That would mean accumulating €9 million and earning €360,000 net every year. Certainly nobody needs more than that… It becomes an exercise in vanity, in trying to quench that unquenchable thirst.
Actually, most people need far less than that. The math formula still holds true, whatever the amount: €3 million is 25 times € 120,000. In order to live from investment gains alone, all you need to do is accumulate and invest an amount equivalent to 25 times your necessary annual income. If you want to live with 30,000 a year (whatever your currency is), you need to accumulate 25 X 30,000 = 750,000. If your investments yield 4% a year, you are fine. If they yield more than that, you are doing even better than necessary and can choose to accumulate more for uncertain times, spend more on even more comfortable living, or donate to the needy.
I read with amusement the news about people terrified because of the hike in taxes for the rich that has been proposed by the French government: 75% for whatever exceeds €1 million a year. People forget that in the 1940’s the maximum tax rate for the rich in the United States was 94% (yes, that’s right!). It has been going down ever since.
What is at stake here is actually “how much is too much”. What the proposal stated was that if you make more than €1 million a year, you need to pay 75% of that as a contribution to the well-being of society as a whole. Nothing wrong with that, if you consider that €1 million a year in income is NINE TIMES more than what I have demonstrated above is quite enough for an affluent family.
You may have objections about whether the proposal was just a promotional gimmick for Françoise Hollande from the beginning, because he knew all along that the opposition from the elite would be so big that they would find a way of blocking it. You may also have objections to taxes on the grounds that corrupt governments make poor use of public funds, and I will not argue with that.
I do want you to think about “how much is too much”. I think we should all think about that.
I read that the French “Conseil Constitutionnel” ruled that the proposal was against the principle of equality in face of the law… That is total rubbish! If this would be true, then all “progressive tax rates” all over the world would be “illegal”, and that system is the most widely used.
Before getting into a discussion about what is an agreeable tax rate for the rich (which varies from 27% in the US to 55% in The Netherlands, by the way), we should discuss “how much is too much”. The discussion about whether something should be done about it or not, that’s a different discussion. Ideally, we should have more people like Warren Buffet: he realized that he had accumulated much more than his family would ever need, so he gave it away. Not to Government, mind you. Perhaps he did not trust the efficiency of governments (I certainly am skeptical of that). Buffet chose to support the Gates Foundation as a way of contributing to the greater good.
This is a discussion worth having: how much is too much and what should be done about it.