Paul is a 50-year-old resident of Denver who worked in the oil and gas business for 20 years. He has
been independently wealthy since his parents passed away a few years ago, making
him the beneficiary of a family legacy that began several generations ago, when
one of his ancestors made a fortune in the tool business in Illinois. Paul now
commits time to charitable endeavors and to investing. He estimates that he has
approximately $8 million in investable assets, but he is a very conservative
spender and only needs to spend approximately $150,000 a year. "I think as far
as spending goes, it’s probably constrained by the fact that I have a family
history of not being showy with it," he says. "At the front of my mind is living
a comfortable life, but not having a real opulent lifestyle; I live in what you
might call an upper-middle-class area; my son goes to the local public
school."
Paul is currently spending around 2 percent or less of his
portfolio annually, a figure well below that which would be considered dangerous
in terms of long-term wealth preservation. However, he still carefully tracks
his spending in Quicken. "I report back to my advisor what my expenses have been
for the previous year, and he rolls that back into his model. From my expenses,
and assuming an inflation rate and an investment target return, he calculates
the money I need to have working for me in order to meet my day-to-day living
expenses."
Unlike many affluent families that lose their wealth by the
third or fourth generation, Paul’s family has successfully sustained its wealth
over time. "I think they were lucky in that they didn’t make any huge financial
mistakes from generation to generation," he says. "The previous generations were
financially conservative like me." Indeed, the single biggest purchase he has
ever made was when he wrote a check a few years back to pay off his $300,000
mortgage. "My advisor actually says we don’t spend enough, and has encouraged my
wife and me to increase our spending," he says.
Clearly, his family tradition of never being ostentatious has served to
ensure wealth preservation, and continues to do so. "I’m well aware that markets
in the United States and around the world could drop a lot," he says. "If they
did, then I wouldn’t be happy about it, but I could maintain my lifestyle
without any compromise at all."
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