A Lifetime of Lessons

Over the past week or two, some of you may have heard the story of Sylvia Bloom, a legal secretary who, on a mid-20th century secretary’s salary, carefully amassed a fairly sizable fortune (around $9 million) by being very wise with her money. In 2016, Bloom passed away and donated most of her estate to charity, including a single large donation of $6.4 million to her favorite charity, the Henry Street Settlement.

The article tells of some of Bloom’s habits:

The couple lived modestly in a rent-controlled apartment, though “she could have lived on Park Avenue if she wanted to,” Mr. Hyams said. “She was certainly not a spendthrift,” Ms. Lockshin added. “She didn’t have any minks.”

She attended public schools, including Hunter College, where she completed her degree at night while working days to make ends meet.

Ms. Bloom was known for always taking the subway to work, even on the morning of the Sept. 11, 2001, terror attacks on the World Trade Center, not far from the firm’s offices.

Just before she retired, Mr. Hyams said he saw the 96-year-old Ms. Bloom trudging out of the subway and headed to work in the middle of a fierce snowstorm.

“I said, ‘What are you doing here?’ and she said, ‘Why, where should I be?’” he recalled.

The article also relates several other similar recent events:

Like Ms. Bloom, Leonard Gigowski, a shopkeeper from New Berlin, Wis., who died in 2015, left his secret $13 million fortune to fund scholarships. Grace Groner, who lived in a one-bedroom home in Lake Forest, Ill., and directed that her $7 million estate go to her alma mater when she died in 2010 at 100, shopped at thrift stores and chose to walk, not drive.

Donald and Mildred Othmer, who settled in Brooklyn Heights, lived relatively simple lives; he was a professor at Polytechnic University in Brooklyn and she was a former teacher and buyer for her mother’s dress stores. They invested wisely in Berkshire Hathaway, run by a family friend from Omaha, Warren E. Buffett, and died in their 90s with three-quarters of a billion dollars, most of which they donated.

These stories have a few obvious things in common.

First, they center around people who spent their lives living below their means. In order to accumulate wealth, a person has to live by the mantra of spending less than they earn. This might mean high earnings or it might mean low spending (or both), but if you don’t keep your spending below your earnings, you are never going to accumulate wealth. Each of these stories centers around people who earned a relatively modest income and then lived below those means.

Second, these stories mostly center around people who earned a relatable income. It’s sometimes hard to relate to people who earn more in a month than many people earn in their lifetimes. It can feel obvious that such people would be able to accumulate wealth and donate it. What’s surprising in these stories is that the people involved were able to give such gifts without an enormous income. Sylvia Bloom earned a secretary’s salary; her husband earned a similar salary before he passed several years ago. This isn’t the story of someone who started a big business or earned a giant salary.

Third and finally, they center around people who used their accumulated wealth for a large charitable gift at the end of their lives. It’s that charitable gift, which is a very public act, that garners the attention that these stories receive. There are many others who accumulate wealth in a similar way that do less public things with their wealth. Perhaps they donate it anonymously or maybe they give it quietly to relatives. The thing to remember is that these stories got attention because of the way they chose to use their accumulated estate.

So what does this mean for me and for you?

You Don’t Need to Be Wealthy to Accumulate Wealth

It is simply not true that you have to have an enormous salary to accumulate wealth. Most of the people in these stories had salaries that were a tiny fraction of the wealth they accumulated. You don’t need to be making a million dollars a year to become a millionaire.

Instead, what you need is the ability to consistently spend less than you earn and then do something smart with what remains. That is the recipe to building wealth, no matter your income level. Over every measurable time period, spend less than you earn. Spend less than you earn each pay period. Spend less than you earn each month. Spend less than you earn each year. If you do that over and over and over again, you will eliminate all debt and build wealth, provided you do something more than stick the extra money in your mattress.

That doesn’t mean that the recipe is easy. It’s not. It’s actually rather hard to put into practice, though the concept itself is easy. Our culture practically begs us to spend a lot of money and that constant cultural and social pressure is hard to resist. It’s a constant and rather subtle pressure most of the time; we don’t even typically notice it in a conscious way. Instead, it constantly nudges and pushes us to spend money on the myriad of temptations around us. It’s even harder to pull this off when your salary is relatively low and you have to start making harder choices about what you’re going to do with your money.

Still, the core point remains: anyone can do this provided they’re willing to commit to a really simple strategy.

Keeping Your Eye on the Horizon Is Important

The people who achieve these kinds of results do it by keeping their eye off of the here and now and their eye on the horizon. Even if they didn’t strictly set a big savings goal for themselves, they were still looking ahead at the future and put substantial value on having money in the bank.

Some of them may have accumulated wealth to support themselves in the late stages of their life. Others may have simply fallen into the practice and stuck with it because it was natural. Still others may have had the big goal of giving it all to charity (or family) at the end of their days.

Whichever of those paths that they happened to be on, they were keeping their eyes on the distant horizon rather than focusing on the day to day. They saw great value in accumulating wealth because of the security and life flexibility that it brought and the huge opportunities that it provided at the end of their lives.

Humans are naturally short term thinkers. Most of the time, we scarcely think beyond the next week or two. Even our “long term” plans often amount to things that are less than a year in the future. In order to pull off building a long term nest egg, you have to consciously raise your eyes to the horizon and keep doing so until it becomes natural. You have to recognize that the day to day work of your life can be used to build the long term life that you want and that building that life is a huge priority, bigger than some of the day to day comforts and pleasures that you might desire.

Persistent Slow Effort Win the Race

On an ordinary salary, you’re not going to become a millionaire overnight. It’s going to take decades of sticking with a plan through thick and thin.

Let’s say you save 10% of your salary each year. For example, you make $50,000 and save $5,000 a year. To accumulate enough wealth to equal ten times your salary – $500,000 in this case – you’re going to have to stick with it for 43 years (assuming that you’re earning a typical 7% return on your investment). That’s slow and persistent effort with a big goal.

Let’s say you double that to 20% of your salary each year. To get to wealth equal to ten times your salary, you’re going to have to save for 29 years. Again, that’s slow and persistent effort with a big goal.

The point is this: You absolutely can put aside just a small fraction of your income and build substantial wealth, but you’re going to have to be patient. It’s not going to happen overnight. Patience is an enormous virtue in this journey.

Many people struggle with the patience needed to make this happen. It takes a long time to build wealth on a relatively small income and the pace of the progress causes a lot of people to give up hope. Don’t.

One great strategy to follow is to just automate everything. Make a regular contribution to your 401(k) and/or your Roth IRA automatic, deducted from your paycheck or transferred from your checking account automatically. That way, you never have to think about the decision. It just happens for you without having to make a conscious choice to save.

Trimming Back Big Expenses Has a Huge Impact

One common thread you’ll find amongst stories like this is that keeping the big expenses in life as low as possible is essential. The people that achieve these kinds of financial goals consistently keep their spending low on their housing and their transportation.

Sylvia Bloom could have afforded an apartment on Park Avenue later on in her life. Instead, she lived for her entire life in a modest rent-controlled apartment. She could have owned any car she wanted. Instead, she rode the subway to work every day and also rode the subway to her social gatherings, too.

This meant that she spent a lot less of her income on housing by percentage than she could have. It also meant that she spent a lot less of her income on transportation by percentage than she could have.

These are common themes in stories like hers. Most of their financial success was earned by spending modestly on the big expenses in life, like housing and transportation. People who have these kinds of stories typically live in houses far below their means and drive economy cars (if they drive at all). They also often eat most of their meals at home, as food can end up being a tremendous cost as well.

It’s those big savings that really make a difference. Small choices, like choosing to buy only store brand items, are useful, but if you’re choosing to buy store brands while driving a $70,000 automobile and living in a house that you can barely afford, it’s not going to add up to wealth.

Focus on the big costs in your life. The biggest parts of the budgets of most families are housing, transportation, child care (if they have children), and food. Focus on keeping those costs as low as possible by making wise choices in those areas. Choose the modest and economical vehicle. Choose the modest home. You’ll find that wealth is easy to accumulate.

Daily Choices and Lifestyle Inflation Have an Impact, Too

One of the surest ways to derail your financial progress is to slowly inflate your lifestyle. You talk yourself into a particular expense because of a short term desire, telling yourself that you can afford it, and it’s pleasurable for a little while, then it just becomes the new normal and you desire something else and the cycle repeats itself.

If that cycle persists, you find yourself no longer able to save for the future or, sometimes, no longer able to make ends meet, and your reward for that isn’t persistent happiness. In fact, your overall satisfaction in life doesn’t grow with more spending beyond a certain relatively low point (somewhere around the average American salary, depending on location). However, more spending can definitely add more stress and more job dependence as a counterweight to any joy you might get.

A much better approach is to keep your lifestyle in check. Keep an eye on your budget and how much you’re spending on various things like entertainment, clothing, food, and so on. If that number is creeping up, you’re seeing lifestyle inflation at work; make an effort to bring that number back down a little.

Remember, beyond meeting your basic needs in a reasonable fashion, additional spending doesn’t bring any lasting happiness to your life. It might bring a short term burst of joy, but that joy fades quickly, and it dulls if you keep repeating it – it just becomes a more expensive “normal,” and that’s the enemy of financial success.

Your Goal Doesn’t Have to Be a Big Contribution to a Charity in Your Estate Plans

These stories often get publicized because someone has used their lifetime of accumulated wealth to donate to a charity. Don’t get me wrong – that’s a laudable goal. Donating to a cause that provides help for the disadvantaged or provides a public good is always a wonderful choice as it helps to lift up all of society.

However, that doesn’t have to be your goal. Your goal might simply to be to help out your children or grandchildren. Your goal might be to give smaller amounts to lots of charities, or to start a trust of some kind, or to launch your own small charity or scholarship or something similar. Your goal might be an anonymous gift of some kind. Your goal might be to simply have security until the very end of your own life (in fact, this can pair well with the other goals mentioned here).

While stories like Sylvia’s are the ones that get publicity, there are many more people who follow a similar financial path who have very different goals, goals that don’t result in posthumous publicity. The key is to choose a big goal that’s really important to you. What matters the most to you? Is it security until the very end of your life? Is it helping out your children and grandchildren? Is it starting a trust?

Figure out that big goal, the thing that really inspires you. Remind yourself of that goal constantly until it becomes a natural part of your thoughts. When that happens, making choices with that goal in mind becomes natural, too.

Wealth Is Freedom

One final point that isn’t really addressed directly in Sylvia’s story or other similar stories is the idea that having wealth represents a certain kind of freedom. It represents freedom from a lot of life’s risks and freedom to have access to a lot of life’s opportunities.

At the first stages of a person’s financial journey, these freedoms aren’t as apparent. Often, a person’s goal in their twenties and thirties is to simply shed educational debt and get a firm career footing. Many people start their financial journey by trying to shed credit card debt or mortgage debt.

Underlying that beginning is a sense that debt restricts your choices and your freedom. Not having money in the bank restricts your choices and your freedom. Having bills that constantly roll in make this a clear truth in your day to day life. It really impacts your short term choices.

Where wealth really makes a difference is that it impacts your bigger long term choices. It impacts your career decisions. It impacts when you can retire and how nice your retirement is. It impacts how much you can help your family as they start to make their way in the world.

Wealth is freedom, and Sylvia’s story provides a path that anyone can follow to build that wealth for themselves.

All you have to do is have the courage to start and the conviction to stick with it. It’s up to you.