I mentioned that a while back that I met up with a friend of mine for dinner who comes from money. Like, major money.
She’s 25, never worked a day in her life, has always kind of been in school and is finishing her Masters right now.
Her parents live in Europe, and they send her money to run the household, buy cars, fix the house, etc.
She lives alone in the house with her aunt who was moved over to Canada for better healthcare.
She once mentioned that it costs around $10,000 to run the household each month with her aunt being sick, as she had to hire a full-time nurse to take care of her aunt, and live-in nurses don’t come cheap.
On top of that, her parents sent her money to buy 3 cars: Mercedes, Audi and Acura to fully pay them off.
She needs 3 cars because a lot of family members visit often, so they each need a car. She also gets extra money to spend on renovations for the house, clothing or whatever else she wants.
I did a rough guesstimate and her parents send her at least $120,000 a year net in cash to run the household, and another $120,000 just to pay for the cars and other things.
All in all, she gets sent $240,000 in her bank account every single year, or $20,000 a month, net.
With the money, she’s been fairly smart with it.
She’s saved a lot of it, she doesn’t pay more than she has to, and she entertains family members who visit (and they visit a lot).
So now, age the age of 25, she has $100,000 saved in cash and $250,000+ in the stock market. And this is just money from her parents, saved aside from what they gave her each month.
That, I think is admirable, and taking care of her aunt is also amazing, being so young to give up her freedom as a young, vibrant 20-something to do that.
And that kind of independence is something that really drew me to her a couple of years ago when we met through mutual friends. She and I got along so well in temperament, we stayed friends even as I turned into a wanderer, drifting from city to city.
I went to go see her the last time I went back, and she has completely changed.
She still has all of the same things that she’s done before, but she has quit going to school (still hasn’t worked, by the way), still gets $20k in her bank account each month, and is has increased the full-time help which means… she doesn’t do anything except run the household with paying bills for example. Or cooking food. Sometimes.
This has been nothing new.
We all run households.
We all write cheques, or pay bills online, or have to talk to contractors for renovations, save up for vacations, etc.
She just writes a bigger cheque for each amount than most. And her entire attitude has changed to one of a pained martyr who has to deal with big girl stuff.
She complained about a LOT of things and I’m going to just highlight 2-3 things that bothered me.
First, how she can’t travel back to Europe to see her boyfriend who lives there because she doesn’t have time which I understand…..
But not everyone is able to just up and go to Europe every 3 months the way she used to before.
Not everyone has that kind of cash to do that, and even if she does, it’s exceptional to be able to go overseas 4 times a month for 3 weeks, because we all have jobs, are in school and/or can’t afford it.
And I totally get that she’s on a different level of income than the rest of us.
But given the fact that she hasn’t earned the money from her family, she cannot consider that as earned money (which by her pained attitude she did), AND I don’t believe she really values money.
She has never had to slave in a fastfood restaurant, flipping chickens for $5 an hour, which is fine – but generally, people are aware of this if they come from money.
So they shudder at flipping chickens for $5/hour just to save a couple thousand for the ticket back to Europe and for spending money, and they don’t complain about plebian things.
This one was not a big a deal, but she made it sound like the world was going to end because she had to cancel a trip to Europe because of her aunt.
Second, she starts lecturing me on finances… y’all love that right?
G: You know FB, you should think about saving that money you’ve earned, aside.
FB: I already do. *weird look*
Inside FB’s Head: How the hell did she think I climbed out of debt?
G: I mean, REALLY save it aside. For an emergency. I mean, what if something happened?
FB: I know, I do save money aside. I have about $36,000 in liquid cash.
G: It’s not enough.
Inside FB’s Head: Umm.. WHAT? Considering that most people take 5-10 years to save $36,000 on regular salaries, I’d think that’s pretty good. I earned a good chunk near the end with that contract, but it was gross, I still have to pay taxes and dividends, and now you’re telling me that $36,000 is not enough?
I think its fine.
I have a low overhead each month of around $1500/month unless I go back to Ontario to visit, and with that cash, I could go for a year and a half to two years without working or more.
FB: So what’s enough? $50k?
G: No, like $100k. Everyone should save $100k saved aside.
Inside FB’s Head: Okay this girl has gone and bumped her head like some monkey on a bed.
Who the hell saves $100k aside in a normal income bracket?
If I was in her income bracket with Mommy and Daddy throwing $20k my way each month without working for it, I’d save $100k aside too.
But does she have any idea how much work and time it takes to earn $20k a month NET? That’s over a quarter of a million gross to get to $20k net.
NORMAL people don’t have the means to save that by the age of 25.
The average Canadian earns $33,000 a year!
If a person were to set aside $1000 a month, in 7 years they could do it at a compounding interest of 5%. But on a salary of $33,000 who can afford the luxury of saving $1000 net each month?
And on top of that, they have to save for retirement and all this other stuff?
ARE YOU KIDDING ME?
FB: *mouth slightly open*
G: Yea, I think everyone should save $100k. It’s the only reasonable amount. Anything less than that is stupid. And it should be in a high interest savings account.
Inside FB’s Head: ……….. Girl, I didn’t even have more than $1k saved when I was in debt. You have never been in debt to know how hard it is to save!
You don’t even know how hard it is to save $1k when you’re actually working for it and not being handed the money.
And the whole proud moment she had about her bit about a high interest savings account made me gag.
FB: Well, I can’t save money if I don’t earn it, so I think $36k is pretty reasonable right now. And I tried to save money during the time I cleared my debt, so I have about $20k in investments as well.
Inside FB’s Head: Which is pretty good for a 25 year old!!!!! I think!
G: It’s not enough, FB. What if you need to pull out $50k and give it to a family member who wants it?
Inside FB’s Head: The hell I’d give it to a family member.
I’d pay for their mortgage or their food each month if they needed a helping boost, but I wouldn’t just up and give them $50k without asking what it’s for.
I don’t have that kind of cash lying around to give without crippling my own finances.
I’d give maybe $10k which is reasonable considering I can still live on what I have left, but not $50k. That’d basically wipe out everything I have and I’d be struggling from scratch, and putting my own life in financial danger.
I do not owe anyone that kind of money.
FB: Well, I’m pretty careful with my money, but I don’t think I’d have $50k lying around to give to someone.
G: Yeah, you are pretty cheap. *distasteful wrinkle of her nose*
FB: ……… Um. Yeah. *forced laugh*
Inside FB’s Head: So…. first you tell me to save $100k in savings, but then you call me cheap.Which is it?
I cannot be saving $100k in liquid cash, including a retirement fund, and regular savings to go on trips, AND THEN go out and spend like a muthaeffin’ bajillionaire on dinners out every night, clubbing on weekends, day-long spa trips and treating all my friends to rounds of Starbucks, now CAN I?
I’m careful with my money, I’m not CHEAP with it, I just spend it on what I prioritize, like a meal out with friends (which by the way, you are not one of mine any longer), or travelling back to see everyone, and buying technology to make my life easier (hello? Garmin GPS?)
G: Anyway, I guess I lost a lot in the stock market, like around $100k, so I’m more nervous, maybe.
FB: *casually* that’s like what, 50% of your portfolio?
G: Well. Yeah. Around 40%.
Inside FB’s Head: *quick calculation* 40% means she had $250,000 in the stock market, and she just told me she has another $100,000 just lying around. So she had close to half a million dollars in before the stock market dropped.
G: And my financial advisor …..
Inside FB’s Head: *DING DING* I’d never pay for a financial advisor. I don’t have the cash for that, and I know enough or am able to research/learn enough to do it on my own.
After hearing those stories of those advisors who were duped by Madoff, I’d be leery.
G:… retired. So I was interviewing other financial advisors, and I picked one with 20 years experience who came prepared.
FB: What do you mean prepared?
G: He came with a risk assessment quiz for me to take so that he could allocate my money into different funds in different percentages. That was really prepared versus the other ones.
Inside FB’s Head: Uh huh.
And I bet those funds were managed by him so he gets a cut of that, or some sort of commission, and that risk assessment quiz can be found online at almost any bank as well as on a ton of blogs that will tell you ALL about asset diversification (i.e. not putting your egss into one basket).
That is not preparedness, it’s just that he knows how to sell after 20 years. And I’d do the same, for sure if I wanted to get bidness.
G: And he had 20 years dealing with high net worth clients, and won’t take anyone who’s portfolio is under $250,000.
Inside FB’s Head: Not that I think bankers like that are scum, but usually that doesn’t mean crap.
Whether he deals with million dollar or $10,000 clients, it’s the same thing in the end – a small percentage of a big portfolio over $250,000 is a lot more money per year than a small percentage of a portfolio at $10,000.
Of course financial managers want high net worth clients. Even I like clients with money so they can pay me my rate.
The more money a client has when you take the on, the higher your cut will be. Simple.
FB: Sounds interesting. *slight sarcasm* So how much does he charge you a year?
G: Umm..something like 3%.
Inside FB’s Head: *quick calculation* 3% of $250,000 is $7500 a year or $625/month, plus he gets commissions off the funds he sells her.
He also gets 3% guaranteed every year, no matter if she loses $100,000 or gains $100,000.
Of course, he’d like to see her gain the money, but what does he care?
He’s still collecting cash no matter how she does. So if she gets 10% each year in returns, 3% is inflation and 3% is taken by him, so her real return is 4%. Huh.
G: And with his 20 years experience it was reassuring.
Inside FB’s Head: Even financial managers don’t know WTF is going on.
Your last one couldn’t rub a crystal ball and see that the stock market was going to take a dive, that’s why you lost $100,000.
You could have done the same job if you had put more time into researching on basic financial terms rather than leaving it all up to one person to handle it.
Financial managers have been known to have bilked people in the past. HELLO? BERNARD MADOFF, anyone??
G: So for example, since my risk profile is fairly high because I’m young and I have a long ways to retire, so I put some of my money in emerging markets.
Inside FB’s Head: RETIRE FROM WHAT? You haven’t WORKED.. a day in your life.
FB: Uh huh.
G: So you should think about a financial advisor. Like, after you start saving more money. We should really be careful with emergencies, and retirement and making sure we’re financially independent.
FB: *jaw drops*
Inside FB’s Head: Girl, PLEASE!
I could run circles around you about being financially independent.
You’re sponging off your family, and you’re lecturing ME on independence? You are totally dependent on your family sending you $20k a month.
I’m the one that f*cking went to a business school, and became obsessed with money after I graduated.
I then clawed my way out of $60k of debt in a year and a half on decent income ($65,000), and took fairly ballsy steps in my career to clear the rest of my debt and manage to save aside $80k+ in savings/retirement in 2 years.
I’m the one that could work financial circles around you.
I am not doing any kind of finance as a job and I don’t have the 20 years experience, that’s true.
But no one is more interested in my money than me.
And that’s the same for everyone.
I actually lost about 30% in the stock market, but even though I couldn’t foresee what happened (maybe I could’ve if I studied all the industries all day as a job which he’s supposed to be doing), and he sure as hell didn’t!
But it sounds to me like I knew just as much as your precious financial advisor because you lost 40% in the market with $100k in the market that he couldn’t foresee.
These guys can help people take care of their finances, if they don’t know what to do or need direction.
I understand that.
But if you know about your own finances, and have learned the financial terms, been reading articles, blogs… you know more than enough to handle your own money and manage it properly. It’s only if you don’t have the time, or don’t want to learn that stuff (insert “G”) that you get a financial advisor.
But it was so presumptous of her to assume I was some blockhead who didn’t understand the basics of saving, investing and retirement to run around and spend $80,000 in one shot.
She talked down to me like I was some sort of country bumpkin who managed to get some money in her bank account.
And I may be reading into this too deeply, but i felt like because I didn’t come from money, I didn’t know how to handle it.
G: I think I could score some GREAT financial advice for you, FB, and pass on the information I get from my advisor for free to you so you don’t have to pay for it. And it could really help you out in your financial situation and with your finances.
Inside FB’s Head: That’s nice. Isn’t it?
I’m not passing up that information, any information even if I don’t follow it at all, is interesting, but this is like her version of a charity case!
I am someone’s financial charity case!
And to help ME out with MY finances?
You have NO idea.
Gawd. This has just too many angles to deal with right now.
G: I also think that you should think about saving for a down payment on a mortgage.
FB: I’m not interested in buying a home now. I’m moving to the States. *getting irritated*
G: I know, but I don’t get why people rent. Just buy! I don’t get it. Why we throw money away on rent each year, and we could rent and build equity at the same time.
Inside FB’s Head: Yeah, it’s so easy for you isn’t it? Not everyone can afford to buy a home.
Not everyone has Mommy and Daddy to buy a house for them cash, outright so that don’t have to rent. And then fork over money for the expenses, the cars, and the spa trips or travel trips to Europe.
A downpayment is a lot of money, people take years to save for money, even up to 10% or 20%, and then they have to figure out the mortgage and how much it costs to run the place.
And people sacrifice a LOT to save for a house, and in the end, they can get screwed if the prices drop and they can’t unload a high mortgage that’s eating their income each month.
FB: …… Some people can’t afford to do anything, BUT rent. I’m sure they’d love a house but can’t afford it, I mean look at what happened to the States when they tried to overextend themselves.
G: They can always find a way to buy a house. They have so many ways to get a house today, I don’t see why anyone still rents.
Inside FB’s Head: I am not even going to touch that.
She clearly has no idea what happened with subprime mortgages down south with that kind of mentality with people who felt bad for throwing their money down the drain, so they followed the advice of their financial advisors and bought as much house as they could afford just so that they could build equity instead of renting.
I could bust out a whole theory about doing the calculations of renting versus buying a half a million dollar home in Toronto (which is the size of a small townhouse), and seeing that renting may actually be cheaper in a very expensive city.
You have to do the proper calculations and see the comparison between renting and investing the rest of the money you’d normally funnel into a house or your mortgage. If you do the math, in some very expensive cities, it may work out to be a lot more advantageous NOT to buy a home.
I’d buy a home if I were to keep it forever (ideally) and out of sentimental reasons. Nothing more.
Plus with renting, you don’t get the maintenance hassles, the renovation problems, utilities through the roof and a whole host of other expenses that come with owning a home. But you also trade off a backyard…..
FB: *changes subject to avoid getting into an argument*
..followed by G lecturing me on my love life when she has a nonexistent one with a boyfriend in Europe whom she doesn’t even think she’d be allowed to marry, and they now only see each other once a year and she keeps avoiding the issue of committing to him at all.
G: I just want someone to take care of me. *sigh*
Inside FB’s Head: All right. I’m never calling this girl again.
She’s gotten too big for her head and this entire dinner conversation was irritating and stilted.
And taking care of her for a change?
Girl, you don’t do ANYTHING! You’re at a spa all day, and now you’re out to dinner with me. Whaddya mean you need someone to take care of you for a change? That’s ALL your family has been doing lately!
See, Living Almost Large wrote a great post a while back called “Given a choice“, talking about how people eat what they eat because they sometimes don’t have a choice. It’s a really great post, so I encourage you to read it.
It’s something that people with money don’t think about. I’m not trying to slag people with money, but my aunts, uncles and cousins are all uber rich (hah, only our family isn’t rich by their standards at all).
But G had, has and will never have ANY idea about what it’s like to struggle by.
Believe me, I know there are people out there struggling on regular incomes. Even on minimum wage incomes.
With debt up to their eyeballs.
And in fear of losing their jobs.
So to me, her callous remarks about how just anyone can buy a home outright for cash, why they rented in the first place, or why people don’t have $100,000 saved aside for emergencies really hit a sore point and got my back up in arms.
Some people just don’t have the choice, as what LAL mentioned in her post above.
It may be a good idea for some (whatever is comfortable for you) to save aside $100,000 (I know Revanche is salivating as this thought), but for me, $50,000 is the maximum.
$36,000 is really the minimum considering I’m paranoid about the future, and this is just liquid cash.
I’d have more money saved aside in retirement and other non-liquid assets, for sure. But $100,000 to me is excessive, and just because her financial advisor (or her parents) feel that it’s an appropriate amount considering her assets, doesn’t mean that it applies to ME.
Each of our investing risks, and personalities are very different.
And no one single formula will work, which is why we have to take an interest in our own cash and not leave it up to anyone completely, even a so-called professional financial manager.
To me, financial advisors are just like super smart gamblers.
See, it’s not their money that they’re playing with.
And if they win, they win big and are pleased with themselves, showing you sexy graphs of their returns from the past 3 years at 50%.
If they lose, they shrug and say “Gee… sorry. You know, the stock market. Everyone’s doing poorly.”
Anyway, even if you do use a financial manager for convenience, make sure you know what you’re repeating to others instead of spouting out fancy terms like “MER” just to show off that you have financial terms down, like downtown.
She’s just a parrot repeating what her financial advisor is saying without really understanding what it means to have a diversification of assets.
She couldn’t even tell me what her percentages were in each pie (emerging markets, bonds, metals, etc).
She stumbled over the term “MER” even though she tried to pepper it throughout our conversations and I politely refrained from correcting her.
And I know she has never done the math with percentages and compounding interest rates because she came up with ridiculous numbers in her calculations.
She has also never had debt before, so she can’t understand how on the other side of the coin, it can cripple you and your lifestyle.
She says she can imagine it, but really, she can’t. Just like how I can’t imagine being as rich as her.
She can’t imagine what it’s like to wake up, stressed out, feeling deflated (yet strangely exhilrated) to put $2000 a month towards debt just to clear it as soon as you can, so you can finally feel free.
To her, it doesn’t matter at all what all of that means.
And that’s completely true.
She doesn’t have to worry about any of that stuff.
But what bothers me the most is her immediate, controlling attitude towards my finances and her flippant attitude towards other people as if they should be on the same level as her because she’s only 25 and has a quarter of a million in assets, not including the house and 3 cars.
And if someone is 40 they should have triple what SHE has, because they’re naturally, 40 years old!
It was as if she was the mother trying to take over with a child who managed to get her paws on $10 and doesn’t know where to put the money in her piggy bank, just because I don’t come from money or have a rich family to be able to afford a financial manager, which is the general impression I got from her.
Oh, and ignoring the fact that I went to a good business school, love personal finance, talk about my budgeting sheet like it’s my baby and got out of debt in 1.5 years, while investing throughout the entire time when I first started working.
I’m not going to cut her off, but I don’t think I’ll ever call her or meet up with her again if I come back to visit.
And don’t try to talk me out of it, saying that friendships are gold, and I should cherish them. Blah blab blab. I have other friends and if not, I’ll make some. I don’t need this kind of toxic energy around my chakra. LOL