Being wealthy can have a short shelf life

23 Nov

I’ve been a subscriber to Sound Mind Investing for several years. It’s a Christian-based financial newsletter that makes recommendations on investing in mutual funds. You can read all about their services here.

I read an interesting article on their website entitled, “Being wealthy can have a short shelf life.” After sharing a brief illustration of a friend whose real estate wealth went bye-bye, Austin Pryor makes the following conclusion: It’s not true that once a millionaire, always a millionaire. He then writes the following:

This is a relevant observation in this day of class warfare and demanding the “rich” pay more in taxes. Aside from the fact that the top 5% (those with adjusted gross income of about $155,000 and above) pay almost 60% of all federal income taxes, membership in this group is constantly changing. Yes, there are some who are “rich” for life, but there are far many more who, like my friend, are “rich” for a few years out of a lifetime of work. It’s easy to demonize the unseen “rich” who, in our imaginations, live extravagant and self-important lifestyles; it’s not as easy when you’re talking about “the millionaire next door.”

This is pointed out in this recent post from The Corner:

In the context of current popular sentiments about the rich getting richer and poor getting poorer, it is interesting to look at how long millionaires actually stay in that category. Will you be a millionaire for life if you start making over a million dollars a year? Is the super-rich club an exclusive zone with very little turnover? A look at the data suggests that it isn’t — that, in fact, most millionaires are not millionaires for long…

After the first year, roughly half of those who were millionaires (reporting over a million dollars in adjusted gross income) at some point between 1999 and 2007 were still millionaires. After two years, 15 percent — roughly 102,000 millionaires — retained that status. This decreasing rate of remaining millionaires persists, and only about 6 percent — roughly 38,000 millionaires — were millionaires for all nine years.

Interestingly, things look rosier at the bottom of the income distribution. That same Tax Foundation study also shows that about 60 percent of households that were in the lowest income quintile in 1999 were in a higher quintile in 2007, and about a third of those in the lowest quintile moved to the middle quintile or higher. In other words, while it is difficult for one to rise from rags to riches, and while it may be harder now than it was in the past, there is still real upward economic mobility in the United States.

Austin concludes the article with an exhortation toward those who are currently enjoying high income levels to not be presumptuous in thinking those same levels will continue into the future. He then emphasizes…

Four financial strategies:

(1) Get (and stay) debt free

(2) Build a healthy contingency fund for future unknowns

(3) Invest for the long haul from a personalized plan

(4) Diversify broadly and according to life-long priorities

And I would add a fifth…

(5) Honor God with all your wealth, giving generously to advance His kingdom (Prov. 3.9; 2 Cor. 9.6-7; Mt. 6.19-21)


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