During my trip to Chelsea Piers Yesterday, I stood witness to an impressive array of luxury yachts, neatly lined up along the dock. These were beautifully crafted vessels glimmering in the sun, host to their owners, men in their mid 40’s wearing the standard faded polo shirt tucked into khaki shorts and scruffy hair protruding from beneath their baseball caps. The faces were those of a relaxed person, no signs of concern about the $600 they just spent to have their tank filled with the high octane fuel necessary for the week. Motivated by my own inquisitive nature, and basic human emotion of Jealousy, I began looking for answers. How difficult is it to own a Yacht?
What it takes:
Such a splurge should not cut into your savings by more than 10%. A modest yacht would cost at a minimum $500,000, which most likely is financed with a down payment of 20%($100,000). Payments would resemble that of a mortgage.
One would be irresponsible to buy a boat, without first buying a house. So, I would first have to save $50,000 for a down payment, buy a house, save a million dollars so that my 20% Yacht down payment is only a tenth of my total savings. The final straw, an Income in excess of $250,000 would be needed to sustain both my home, and my fancy yacht.
Researching salaries in my respective career path, I observed I will be hitting a wall at the low 100,000’s. This is after 10-15 years in my field. Today my dream died of ever owning one of these monstrosities. The math simply does not work. I will never be anywhere close.
So how are people able to own these?
Well, I have the answer. Allow me to explain. These Yacht owners have the turned the tide. They are in the minority; they are no longer Slave to the dollar. Their money works for them, while people such as myself work for money. The capitalistic system is a complex engine; money flows though and accumulates at various junctures. Everybody must play their role otherwise the system collapses. I will break this extremely complex system down to the basics. In my example we have two people:
Working Class Man and semi-retired Investor Guy.
Working class man: let’s call him Mike, made $3500 this month as an insurance agent. He pays his rent/mortgage, buys gas for his car, and a BBQ from Wal-Mart. He puts his $200 leftover in a savings account where he will earn 3% interest(if he's lucky).
Investor guy: let’s call him Madison, owns stock in Bank of America, the holder of Mike’s mortgage. Madison also owns some Wal-Mart shares, as well as oil futures. Since his stocks had a good quarter because people like Mike are still paying their mortgage on time and buying consumer goods, they issue a dividend to Madison. Madison also knows oil always goes up in the summer so he invests in crude oil.
This summer a helpless mike will once again pay $4.00 a gallon to gas up his car. Since he drives to work, his income actually declines. Madison on the other hand, is protected from the fuel increase and has no concern over the rising fuel prices.
Who is the winner here? Madison has positioned himself at the top of the chain. His part time job handles his expenses, and his investments are generating as much income as Mike receives from his job. Madison is one step closer to his yacht, Mike, our Insurance salesman is happy to pay his rent on time.
Mike will never become Madison. It is extremely difficult rise more than one or two ranks in our dollar driven caste system in a single generation. For the rest of Mike’s life, he will be Slave to the dollar, but will work hard never acknowledging the limitations of his financial independence. This unrealistic hope is what keeps our system chugging along.
Side note: Mike’s inability to acknowledge his financial ceiling caused him to make excessive purchases. He wanted a swimming pool, a nicer car, and of course his children want to wear nice clothes like the rich kids. He has now maxed out his credit cards and depleted equity in his home. Mike has worked hard most of his life and wanted what Madison has, and credit gave him a taste of the good life, if only for a short period of time. There are many hard working people similar to Mike who are extended well beyond their means. This has contributed to our current credit crisis, pushing our banking system to the brink of systemic failure.
How does one get to the top?
Anybody will agree wealth facilitates further wealth generation. People will tell you the most common path to wealth is through rich parents or inheritance. This is for the most part true. A child born into wealth has their table is set for financial success well before they even work a day in their life. Better schools are available, and more importantly the pursuit of a high risk/reward endeavor is never off the table. Most non wealthy Americans are handicapped with significant debt after graduation. The unfortunate consequence is that Job selection becomes secondary to the pressure to generate immediate income. If you start off in a hole, the impulse is to start digging yourself out as soon as you can.
For those born into wealth, a high income job is an entitlement. Social ties and Ivy League degrees go hand in hand with a wealthy family. My family has social ties with people in the food industry, and the local cable company. Not the places where you find this six-figure income jobs. After graduation my finance degree was just good enough to dial numbers out of a phone book and solicit people for their money. I hit a wall.
The self made millionaire generates a lot of publicity. The entrepreneur is the epitome of the American dream. But for every one self made millionaire, there are 100 who put it all on the line, lose it all only to start over with nothing working for somebody else. Starting a business requires risk capital, social ties, ability to absorb failure. Let’s see, I was born into debt. I must pay off the countries debt through my taxes, as well as those pesky student loans.
With no money to invest, no safety net to fall back on, I will remain slave to the dollar. What keeps the system going is the golden carrot dangling on the string. It keeps us in check, working hard so investor guy can continue to collect. We are taught that anyone can be investor guy with enough hard work, but hard work is the least of it.
I offer no solution because a solution would first requires a definitive problem. While our system is nowhere close to perfect, I can think of no better methodology to distribute the wealth . After all, in America we put our emphasis on the individual. We are in constant competition with our selves, whether it be at work, in sports, getting the girl, or impressing the neighbors, we find our self comparing the horsepower of our cars, the karats in our diamonds, even the quantity of Christmas lights on our homes. In our build it bigger culture, how can any other system work?
