by Frazer Rice
Some level of insurance can be useful in navigating medical expenses, whether it’s for you or your loved ones. The world of health insurance is evolving so quickly and families’ situations are so unique that it’s tough to plan for the future. In addition to life insurance, I advise people to maintain their health insurance as long as possible. Long-term care insurance can also help in mitigating future financial risk. Long-term care insurance can be fraught with issues, however. You can invest a ton of money in long-term care insurance only to discover that it has so many carve-outs that it won’t help your individual situation. It’s important to study those insurance policies and understand in detail what is and isn’t covered.
If you have a deep pocket, the medical community (and the government) will want to stick its hand in it. As a last line of defense, some wealthy individuals put plans in place to become as asset-light as possible in their later years. This enables them to tap medical benefits without derailing their estate planning goals. As with many strategies, this type of scenario can be a tight balancing act. When these types of matters are brought to my desk, I make sure all relevant advisors are involved to make sure that the client’s needs are addressed and their wishes are in line with the formulated plan for their future healthcare.
Personal Care and Fitness
Many people see personal care expenses as part and parcel of their professions, especially those in glamour industries such as athletics, music, or acting. They are on camera and must keep up appearances. I have a friend in New York who pays for eighty-dollar hair blowouts every other day. Seriously.
When it comes to body image, the pressure is intense. Wallis Simpson is credited with saying that you can never be too rich or too thin. Judging by what is popular on television and Instagram, that’s 100 percent true. When the pressure of a fitness regimen is present, you can start to see serious money exchanging hands. A membership at a fancy Equinox fitness club can start at $200 a month, and there will be additional expenses for personal trainers and spa visits.
It’s easy to spot people on the street taking it to an extreme degree. They may look excellent, but they’re not content with that and the spending follows. They’re running, spinning, or engaged in some other fitness class and pushing themselves toward malnutrition, osteoporosis, hip dysplasia, or other malady. Across the country, there is a large amount of personal investment in gyms and fitness venues to help people get fit and credit for being fit. This can cost big money, with additional expenses for trainers, classes, nutrition, and medical enhancements. Looking and feeling good is an expensive endeavor. For most, it’s necessary, so it’s important to account for it in your spending.
Nutrition and Organic, Healthy Eating
The wellness obsession extends into nutrition and eating. Many companies have figured out that people are willing to pay to eat well and make good nutrition a cornerstone of their lives. I’m a strong believer in fresh food, but it feels like marketing strategies are putting smoke and mirrors before substance. As evidence of this, look at the price tag on “healthy” food products. From gluten-free and organic products, to ten-dollar smoothies and expensive vitamins, the daily food bill is increasing. You can buy regular Michigan blueberries for four dollars a pint, or you can upgrade to the eleven-dollar, pesticide-free blueberries nursed from seedling to fruit by magi in California. The extra attention allegedly makes the eleven-dollar blueberries richer with antioxidants. This may be true, but it costs.
Additionally, there is a feel-good philanthropic aspect to the modern marketing of health foods. You feel you’re doing good by buying at the local farmers’ market instead of the nearby supermarket, and you pay a premium for that decision. Compounded over time, that additional expense adds up.
Of course, the final frontier of high-end nutrition is to hire a chef to control every aspect of the food you are putting into your body. I would love to have a chef. It would be amazing to control my nutrition and my intake and eliminate the time it takes to figure out my eating options and menu situation. Ah, someday…
If these concepts are important to you, understand that subscribing to this lifestyle comes at a cost. Incorporate that into your budget as you plan your future.
Plastic Surgery and Drug Usage
Plastic surgery is another component of the race to keep up with the Joneses. On the pathway to wealth, some people have made sacrifices involving physical fatigue and deprivation. After all that work, it’s understandable to want to improve your appearance to feel good about yourself. Retirees and older adults aren’t the only ones doing it either. You don’t have to look too far to see that plastic surgery is a competitive sport in this country. Many men and women are trying to find the fountain of youth or correct a perceived flaw. That quest for perfection can lead to a massive outlay of cash.
Drug usage is another expenditure that can be unleashed by the pressures that come with wealth. Money doesn’t automatically provide happiness, ease pain, elevate performance, or provide relief from dysfunctional environments. The shift from one tier of wealth to another can exacerbate deep-seated insecurities. People may turn to prescription drugs, alcohol, and illegal drugs to get through the day. Needless to say, those expenditures have high costs.
It may seem cynical to add drugs and plastic surgery as line items in a personal budget, but I find them to be appropriate considerations. Plastic surgery can cost hundreds of thousands of dollars. Look at the Kardashians of the world, who spend massive amounts of money to look and feel better. The price tag for drug usage can be equally high, especially in concierge medicine where a regular retainer is paid to a physician. People take human growth hormones, toss back amphetamines, and inject other performance-enhancing drugs. Even normal people resort to fortified vitamin IV drips to perform better at work. This is an arena where dependency can be a problem, as it was in the cases of Michael Jackson and Prince.
Theoretically, wealth should provide people with more freedom and less pressure, but it doesn’t always unfold that way. That can be its own cost.
Entertainment
People who have suddenly become wealthy have newfound time and resources with which to play. There is nothing wrong with using those resources toward enjoyable activities, unless those entertaining activities are accompanied by addictive behaviors that destroy wealth.
Entertainment can have escalating levels of expenditure. This can include tickets to Broadway shows or luxury suites at professional sports stadiums. Country clubs are another commonly large expense, and you can blow tons of money on their violently expensive membership fees. Sailing—the so-called sport of kings—can be unbelievably costly. Horse ownership and other fancy pursuits fall in the same category.
Gambling is a particularly dangerous form of entertainment because many people cannot control their gambling behaviors and habits. There is a practical limit to how much you can spend on your dinner, but there’s no limit to what you can bet at the horse track or casino. I’ve had tough conversations with people who believe they’re skilled at gambling, but their gambling record indicates exactly the opposite. I explain that if the gambling continues, they’re going to end up like celebrities who have to appear in crazy reality shows because they gambled away their massive fortunes. Bankruptcy Island is not where you want to be.
Collectibles are another form of entertainment that can carry a hefty price tag. It’s certainly understandable to want to collect things you enjoy, from rifles to cars to comic books. Some collections may have investment attributes, but they’re typically nothing more than expensive hobbies or fads. Pokémon cards aren’t going to pay for college.
There’s nothing wrong with trying new ventures and activities, buying things that give you joy, or even indulging in some naughtier habits like gambling—in moderation. However, when any of these forms of entertainment become all-consuming, you’re headed for a fall. That fall can be ruinous to your family, your wealth, and your
happiness.
Social and Philanthropic Events
For some people, the pinnacle of wealth is the social scene. From high-society parties to see-and-be-seen fund-raisers, public exposure is important for the wealthy. It can be fun to mingle with an interesting successful set. It can drive philanthropic goals. It can serve as the stamp that you’ve “made it.” However, it costs time and money to remain relevant and stay visible on the social scene, and this puts pressure on personal care, upkeep, and the cash flow for ongoing donations.
If you’re entertaining within the Palm Beach circuit, for example, you may need a staff, catering, tent rentals, and thousands of dollars of other entertaining expenses. This type of socialization is expensive, especially in combination with philanthropy.
Philanthropy is an expensive undertaking of both time and money, and it should be treated as such. There is a social element to philanthropy in addition to the expense of the actual donations.
Some wealthy people seek out opportunities to support philanthropic efforts, but in many cases, the philanthropies will seek out the wealthy. Philanthropies are well-oiled machines when it comes to locating the wealthy and benefiting from their benevolence. Philanthropy is something that can run awry. For those who are extremely involved, from chairing programs to serving on boards, there is an expectation they will contribute in significant ways. It may be the sponsorship of a table at a fund-raising event, a sizable donation, or a commitment to bring in other donors. Once you’re on that treadmill—as personally rewarding as it can be—it doesn’t stop.
When I meet philanthropically inclined wealthy people who want to join boards for business or social reasons, I advise them to enter those commitments slowly. Not only is it financially expensive, but it can also be a lot of work and a huge time commitment. Additionally, if you join a board without understanding what you’re walking into, you could be accused of mismanagement and end up unknowingly liable for someone else’s misdeeds. That’s the worst outcome of all and can digress into a feeling that no good deed goes unpunished. There’s nothing like the frustration of having an altruistic action turn against you. It can be an expensive and poor use of your time.
Stardom and Publicity
Some people strive to graduate to the next level of wealth to boost their presence in the public eye. This may be linked to social aspirations, business purposes, or philanthropic goals. It may be someone who designed a jewelry collection she wants to launch publicly, or a family who wants to see its home on the cover of Architectural Digest. Regardless of the reasons behind desiring stardom and publicity, a personal brand requires the professional services of public relations experts.
A cottage industry has risen around marketing personal brands and propelling individual achievements into the public spotlight. How do you get invited to the right events? How do you snag publicity for something you’ve done? These can be fun endeavors and lead to exciting new opportunities. Bear in mind, you’ll often need to pay a four-figure monthly retainer for the expertise needed to answer those questions.
Also, remember that when you’re “out there” as a public figure, you become a target. With good reason, many wealthy families guard their privacy with the intensity of a Kardashian looking for a camera. Reading the newspaper is the easiest way for grifters, gold-diggers, thieves, and other predators to find their next mark. Publicity and stardom is a significant threat to wealth, and we’ll devote more attention to this topic later in the book.
Clothing
Clothing may not seem like a significant expenditure for consideration. However, you don’t need to be the wife of a Philippine dictator like Imelda Marcos to have a massive shoe collection. Believe it or not, I have come across people who earmark $50,000 a month for wardrobe acquisitions to project their status and wealth. This is especially prevalent in a high-society culture where a woman might buy a $7,000 dress to wear once, or a man stockpiles thirty or forty Savile Row suits at $5,000 each. Clothing can bust budgets.
Hollywood personalities and professional athletes, for example, feel they must project an image that enhances their careers and brands. For them and for those who aspire to their lifestyles, clothing may be an expense rationalized as necessary. That’s fine when financial resources are plentiful. However, clothing expenses take on a different, darker tenor with people who are accustomed to a certain cash flow and then undergo a sudden drop in wealth. In those situations, people often have no idea what they spend. Exuberant spending on clothing can easily spin out of control. To maintain a healthy lifestyle of looking good without creating obsessive and destructive long-term spending habits, a measure of self-control and management is vital.
Dining
As wealth is acquired, there may be a new zest for life marked by dining at the finest restaurants. If you are wealthy and want to experience different cuisines, that’s a valid endeavor and can be one of the great joys of life. However, expenditures can be problematic if every meal unfolds at a high-end restaurant with seventy-dollar Dover sole.
Dining is also a social event, but not every meal needs to end with you picking up the entire tab. Even if your social circle is one in which your success is highlighted and you feel the pressure to be magnanimous, my feeling is that true friends would not need you to try to impress them in that way.
Some wealthy foodies become so serious about food that they end up buying restaurants they don’t need and can’t afford. The restaurant business is a difficult one, and being good at eating at restaurants doesn’t mean you know anything about running them. Are you doing it to create a social club for yourself, or are you doing it to operate a business? There’s a big difference between the two.
Wine is another interest that can quickly shift into an aggressive hobby. Satisfaction with a perfectly adequate fifteen-dollar bottle of Malbec may be quickly replaced with a never-ending thirst for a $300 Bordeaux. A wine obsession can cascade all the way into the ownership of a vineyard. The lifestyle of the gentleman farmer or wine-producing land baron is enticing. This is a capital-intensive gamble. If you have the means to open a winery, you absolutely need to know what you’re doing. You may think the intelligence and savvy that already brought you success and wealth can be applied to a restaurant or a winery, but that is often a fallacy.
Travel
Wealth can open the door to exceptional vacations and remarkable travel experiences. To see the world is an irreplaceable adventure. Imagine a safari in Africa, followed by a tour of Rome, skiing in Gstaad, and a beachside party in St. Barts. Now imagine the $200,000 price tag.
In many ways, globetrotting is its own reward, offering new and enriching experiences. It can be educational or provide much-needed relaxation. Additionally, traveling with a charitable purpose can add a meaningful dimension to international adventures.
Like many other expenditures, travel can become problematic if it becomes excessive. People who overindulge in luxurious travel lifestyles with their friends, spending wantonly in fabulous vacation spots, are often indulging in escapism as much as anything else. For most of those people, their lifestyle will be difficult to perpetuate due to their front-loading of spending. This returns us to the powerful concept of compounding, where assets are given time to grow exponentially. When you spend your wealth early, you have fewer assets with which to compound wealth later. Travel is an activity that can quickly eat up resources.
However, if you do plan to travel, it makes sense to do it while you’re healthy. Traveling with health challenges is less enjoyable and can be an expensive proposition. As people age, there’s typically a decline in their energy level, curiosity, and tolerance for inconvenience. Travel experiences may not be as rewarding in later years.
The decision of when to travel becomes a matter of balancing your travel desires with the resources you’ll need later. I have recently retired clients who are traveling aggressively, and they have the means to do that. They realize they h
ave both the time and the means to embark on these adventures, and they have also examined the possible consequences. That’s a great place to be.
Jets, Cars, and Boats
As people graduate to higher levels of wealth, upgraded forms of transportation can be among their most pleasurable and destructive expenditures. In terms of air transportation, the difference between flying coach and flying first class is the first quantum of wealth. From there, people shift from flying first class to flying privately via NetJets and other pooled services, to chartering a private jet, to owning a private jet.
Private air travel is the billionaire’s crack. I think many wealthy people would send their kids to a public school before they’ll give up flying private. You have to really hate flying first class to justify a membership with a service such as NetJets or Wheels Up. It’s a terrific luxury. Chartering a jet is even more serious. There are many options and payment plans, all of which warrant analysis, but one fact is certain: people with full or fractional shares of ownership in a private jet are taking on an unbelievable expense.
Automobiles represent far more than transportation, and this is especially the case with the wealthy. Cars may serve as a status symbol, a way to reclaim lost youth, or a collectible. Traditionally, people gravitate toward one class of luxury car, then scale up to the next level of luxury. Then, they might add to the number of vehicles they own, putting a car in each place they need one. From there, wealthy car enthusiasts often move into high-performance or collectible models, and that’s when things can get seriously expensive.
Boats are fun and enjoyable, and people buy them for good reasons. If you have the means, boating can be a fun way to see beautiful places, meet interesting people, and become part of a like-minded community. However, there’s no workaround for the fact that boats are money pits. There is truth in the adage that the two best days for a boat owner are the day they buy the boat and the day they sell it. While it’s fun, I’m sure Microsoft’s Paul Allen gains no peace by having a mega-yacht. If you acquire a big vessel like that, you’ll end up needing to hire Navy SEALs to protect you from pirates like he does.