Escape the Broke Upper Class

Are you in the Broke Upper Class?  How did this happen?  How to escape?

Year 2000, I’m in a cab with a fellow Wall Streeter, and he’s complaining about all his costs… vacation home, multiple houses, kids in private school heading to expensive colleges.  Hoping to calm him a bit I say:

“But stepping back, we all have enough money.”

He looked at me as if I had lost my ever-loving mind.

Like a treadmill at the gym with and accelerator and no OFF button, the earning to spend treadmill starts slowly.  The treadmill increases every year you are on it, until you are making hundreds of thousands, or even millions, and feel broke.

You get a second house in the Hamptons. You purchase another car for your vacation home.  Kids in private schools are more likely to get into Ivys which, well, who can refuse?  With your income, you pay full load for colleges.  On and on.

Spending is tough to decrease. 

Sell the second home?  Stay in the city for the summer while your kids’ friends and your work associates (and networking opportunities) all go to the Hamptons?  Pull your kids out of private school?  Rip the cord on their Ivy dreams?

That’s a recipe for strife at home.  For these reasons, my friend, and many others in the broke upper class, are not about to cut their spending.  The other way out is a big step up in wealth.

Equity.  

Not buying small amounts of stock via a brokerage.  Nope.  This equity is shares you get in addition to your salary.  This type of equity can lead to a big change in your wealth. 

Step off the treadmill and move into a leveraged career!

The only way out of this mess is separating your hours from wealth.  

You have to pick the right moment, and the right opportunity.  It may include short term pain (lower pay, higher risk).  It may make you uncomfortable.

But the other path is one of misery.  Doing nothing is still doing something.

Building equity includes your day job having a high equity or performance component.  You are either at a high growth company where you are being paid equity that could change your wealth.  Those equity grants are larger and have more upside at startups, because startups have more upside AND because you are making a bigger impact at a startup vs a large company.

Or you are at a fund company, being paid “carry” or a percentage of the profits you earn by investing other people’s money.  Your earnings go up by how much you are managing - run billions and make a percentage of profits - and get paid multiples of what you made before.

This move to the equity phase isn’t easy.

You have to think differently.  Strategically.  Every day.

You have to pick the right company, because you are betting your time, your life, that this will be a winner.  Research this more than any stock you’ve ever bought.  And once you get there?

You are at a new phase.  Adjust.  You may move to a smaller company.  You may need to stay strategic when your instinct is to get into the trenches and hustle (that’s all you know).

Like my friend in the cab, we are comfortable staying the same, and complaining.  We are safe there.  But this can be the way to a slow death.  

Break out to the next phase.  The equity phase.

Equity (and a new mindset) is the way out of the broke upper class.