Let's assume you're a regular Joe or Josephine. The 99%'ers, if you will. Suppose someone hands you a nickel. Just like that. You get a nickel in the mail, say. Like a refund check from the credit card company overcharging you. What would you do? Well, if it's a check, you might bother to walk it over to the bank and deposit it. If it were a nickel coin, you might stick it in your pocket together with your kleenex and lint and bus transfer and other useless items. Then, after a week, before you put that pair of jeans in the wash, you notice the nickel and drop it in your change jar. Or, if someone actually handed you the nickel out on the street, you might walk up to the next homeless/beggar and drop that nickel into the cup. Not another moment's thought.
How about 50¢? Well, for four-bits, you might keep that change and actually use it for bus fare or a soda. But, if someone handed you the 50¢ out on the street, you might as well just drop it in some beggar's cup again. Still, if you had that 50¢, you'd keep it and use it to round out your coffee purchase.
Now, suppose someone handed you $5. An abe, a fiver, a fin. Now this is serious money. Most likely, you won't drop it in a beggar's cup. But, if it's a good street entertainer, say a crazy violinist-acrobat-magican, you'll toss that $5 into the violin case. You might splurge on a quickie fast food: go to McDonald's and get the value meal. Or you might head to a bar for a beer, especially if you got the $5 in the late afternoon.
And with $50? With $50, you'd probably replace that broken iPhone earbud with a better one that has a microphone on the wire. You might even buy two so in case you lose one again. Or, you'd buy that book you always wanted to read. Maybe treat your friend to a movie and quickie dinner. Sure, why not. Someone just handed you a $50, have fun, right? Hey, you might even offer a bigger tip at a dining establishment that actually expects tips. Depending on the circumstances, you might use it for emergency stuff, like gas for the car, groceries for the week, or depositing it in your checking account to cover for the possible overdraft when your utility bill check clears before your paycheck is deposited in your bank.
But notice that dropping that $50 into a beggar's cup is probably out of the realm of possibilities.
At $500, things go a bit dicey, but in today's world, $500 is still play money. You might buy a replacement iPhone instead of new earbuds. You'd make a date for dinner with a special friend at a special location. You know, white table linens, crystals, the works (and still have change, probably). If you have a family, then you'd take the whole family out to some amusement park or a weekend at Tahoe or Yosemite (assuming you live in the greater Bay Area, for context). Or, you spend it on groceries for your family, hold the rest for utilities and other bills for the month. But, essentially, that frees up money that you would have used for groceries and utilities to be used in other discretionary ways, like getting that iPhone or a new sofa.
So what happens when you get an unexpected windfall of $5000? Now the decision becomes more weighty. Let's say you're already reasonably well off. That is, you're not living paycheck to paycheck. You don't have a large nest egg, but you can enjoy a night or two per week out with no negative financial ramifications. Then, that $5000 becomes a nice discretionary gift. You might buy that super cool flat screen. Or a nice stereo system, if people do that anymore now. Or take a weekend or a week flight out to Italy with your significant other. A cruise? Unlikely since there's more prep work to get a cruise booking. If you have kids, you would definitely consider putting it into a college fund. Winter time? Ski trip! Spring time? Golf outing! Summer time? Camping! Also, you can take a portion of it and add it to your IRA, if you have one. Leave the rest for fun or rainy-day spending. Fix up that garage door or leaky window.
At $50,000, decision options expand. Note that any thoughts of dropping any amount to a beggar has gone completely off the table. Maybe it's time for the new car. Upgrade that water heater and air conditioner. Put some towards the kids' college funds. Trip around the world, baby! Load up on the IRA. At $50K, you might be asking for some expert advice. Someone more expert than your uncle or cousin, unless your uncle or cousin is a certified financial planner. You might even buy a few shares of stock, not because it's an investment, but probably as a trophy stock, so you can say to friends, "Yeah, I have some shares of Apple."
When we get to $500,000, that money changes from something to be traded for an item into a money-making vehicle. A one-time $500,000 windfall would most likely go into real estate or investments. In the former case, if the person has a mortgage on a home, then that half-million would help pay down the principal. In the latter case, the person already has a home and the mortgage is low enough to ignore, so the person would put the money into a safe, conservative investment vehicle, perhaps a mutual fund with a mix of growth and value equities and some bonds for stability.
At $5,000,000, the person becomes what the government can legally call an accredited investor. As such, this person can use the money explicitly for investing in high-risk, high-return opportunities like private placements, first round investments in start-ups, and so on. Here, the person no longer considers the use of the money as "spending it," but rather as "investing it."
And here is the nutshell. When a person is so rich as to be in the investment mentality, such as those in the 1%, expenses no longer exist; there are only investments. They're either good investments or bad investments. When such a person buys a cup of coffee, it's not an expense anymore. It's an investment, and if the return on investment for that cup of coffee is $0, according to his thought process, he'd like to get that coffee for free.
When people have a lot of money, they really do treat money differently than when they didn't have as much. Money has no value if it's not spent. It does have potential value, much like potential energy. When someone has so much money in potential, they're not using it, by definition. Money that is spent, that flows through the economy, enables others to succeed (on the monetary metric), and will likely help that person ultimately increase his own monetary potential.
This investment mentality is why rich folks are generally bad tippers. This is why rich folks hate taxes (they can't control how the taxes are being "invested" towards their personal favorite needs, unlike a charitable contribution). This is why they will never pay retail. This is why they prefer to pay almost nothing for employees, because they don't see how it's a high ROI opportunity. The human mind actually will change its view of money from being a transactional fungible device to an investment vehicle.
How about 50¢? Well, for four-bits, you might keep that change and actually use it for bus fare or a soda. But, if someone handed you the 50¢ out on the street, you might as well just drop it in some beggar's cup again. Still, if you had that 50¢, you'd keep it and use it to round out your coffee purchase.
Now, suppose someone handed you $5. An abe, a fiver, a fin. Now this is serious money. Most likely, you won't drop it in a beggar's cup. But, if it's a good street entertainer, say a crazy violinist-acrobat-magican, you'll toss that $5 into the violin case. You might splurge on a quickie fast food: go to McDonald's and get the value meal. Or you might head to a bar for a beer, especially if you got the $5 in the late afternoon.
And with $50? With $50, you'd probably replace that broken iPhone earbud with a better one that has a microphone on the wire. You might even buy two so in case you lose one again. Or, you'd buy that book you always wanted to read. Maybe treat your friend to a movie and quickie dinner. Sure, why not. Someone just handed you a $50, have fun, right? Hey, you might even offer a bigger tip at a dining establishment that actually expects tips. Depending on the circumstances, you might use it for emergency stuff, like gas for the car, groceries for the week, or depositing it in your checking account to cover for the possible overdraft when your utility bill check clears before your paycheck is deposited in your bank.
But notice that dropping that $50 into a beggar's cup is probably out of the realm of possibilities.
At $500, things go a bit dicey, but in today's world, $500 is still play money. You might buy a replacement iPhone instead of new earbuds. You'd make a date for dinner with a special friend at a special location. You know, white table linens, crystals, the works (and still have change, probably). If you have a family, then you'd take the whole family out to some amusement park or a weekend at Tahoe or Yosemite (assuming you live in the greater Bay Area, for context). Or, you spend it on groceries for your family, hold the rest for utilities and other bills for the month. But, essentially, that frees up money that you would have used for groceries and utilities to be used in other discretionary ways, like getting that iPhone or a new sofa.
So what happens when you get an unexpected windfall of $5000? Now the decision becomes more weighty. Let's say you're already reasonably well off. That is, you're not living paycheck to paycheck. You don't have a large nest egg, but you can enjoy a night or two per week out with no negative financial ramifications. Then, that $5000 becomes a nice discretionary gift. You might buy that super cool flat screen. Or a nice stereo system, if people do that anymore now. Or take a weekend or a week flight out to Italy with your significant other. A cruise? Unlikely since there's more prep work to get a cruise booking. If you have kids, you would definitely consider putting it into a college fund. Winter time? Ski trip! Spring time? Golf outing! Summer time? Camping! Also, you can take a portion of it and add it to your IRA, if you have one. Leave the rest for fun or rainy-day spending. Fix up that garage door or leaky window.
At $50,000, decision options expand. Note that any thoughts of dropping any amount to a beggar has gone completely off the table. Maybe it's time for the new car. Upgrade that water heater and air conditioner. Put some towards the kids' college funds. Trip around the world, baby! Load up on the IRA. At $50K, you might be asking for some expert advice. Someone more expert than your uncle or cousin, unless your uncle or cousin is a certified financial planner. You might even buy a few shares of stock, not because it's an investment, but probably as a trophy stock, so you can say to friends, "Yeah, I have some shares of Apple."
When we get to $500,000, that money changes from something to be traded for an item into a money-making vehicle. A one-time $500,000 windfall would most likely go into real estate or investments. In the former case, if the person has a mortgage on a home, then that half-million would help pay down the principal. In the latter case, the person already has a home and the mortgage is low enough to ignore, so the person would put the money into a safe, conservative investment vehicle, perhaps a mutual fund with a mix of growth and value equities and some bonds for stability.
At $5,000,000, the person becomes what the government can legally call an accredited investor. As such, this person can use the money explicitly for investing in high-risk, high-return opportunities like private placements, first round investments in start-ups, and so on. Here, the person no longer considers the use of the money as "spending it," but rather as "investing it."
And here is the nutshell. When a person is so rich as to be in the investment mentality, such as those in the 1%, expenses no longer exist; there are only investments. They're either good investments or bad investments. When such a person buys a cup of coffee, it's not an expense anymore. It's an investment, and if the return on investment for that cup of coffee is $0, according to his thought process, he'd like to get that coffee for free.
When people have a lot of money, they really do treat money differently than when they didn't have as much. Money has no value if it's not spent. It does have potential value, much like potential energy. When someone has so much money in potential, they're not using it, by definition. Money that is spent, that flows through the economy, enables others to succeed (on the monetary metric), and will likely help that person ultimately increase his own monetary potential.
This investment mentality is why rich folks are generally bad tippers. This is why rich folks hate taxes (they can't control how the taxes are being "invested" towards their personal favorite needs, unlike a charitable contribution). This is why they will never pay retail. This is why they prefer to pay almost nothing for employees, because they don't see how it's a high ROI opportunity. The human mind actually will change its view of money from being a transactional fungible device to an investment vehicle.
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