Why Suze Orman Shunned a Million-Dollar Penthouse

There is perhaps no greater financial danger for advisors’ wealthiest clients than the age-old desire to “keep up with the Joneses.”

People with high-paying jobs and millions of dollars in the bank normally don’t have much to worry about, financially speaking — save their own ability to burn through their fortune in pursuit of an imprudently lavish lifestyle inspired by comparisons to people with even higher-paying jobs and billions, rather than millions, socked away for the future.

In fact, according to the bestselling author and former Merrill Lynch broker Suze Orman, advisors must be wary of all their clients’ ability to “learn” to spend excessively, and they should not assume that millionaires can’t run into liquidity problems thanks to poor decision-making about spending and investing.

Orman underscored the insight by means of a few personal anecdotes shared in a recent interview with ThinkAdvisor, during which she was joined by fellow SecureSave co-founder Devin Miller. The pair said SecureSave’s emergency savings platform is experiencing rapid growth, including via its recent adoption by Humana, and a big reason why is the solution’s universal appeal for savers at all levels of the income spectrum, including those who don’t necessarily expect to face a short-term cash crunch.

Why Some VPs and Executives Can’t Retire

“The truth of the matter is that, for so many people, it’s the more you make, the more you spend,” Orman said. “They think, ‘If I could just make $10,000 more a year, then I’d be set, or if I get past $100,000 or $200,000 per year, I’ll be content.”

The reality is that people generally become accustomed to spending more as they earn more, and it’s all too easy for one’s spending behaviors to outpace even meaningful salary growth. Plus, people often don’t think about the tax ramifications of higher earnings, and that can put an unexpected damper on their ability to balance the budget as their income grows.

“You can picture it,” Orman said. “Your salary gets bigger, but so does your house. Your clothes get nicer and your jewelry becomes more expensive. In the end, you can easily end up with less disposable income than you had before, and you don’t even see it coming.”

Back when she was doing brokerage work in the late 1980s and early 1990s, Orman explained, many of her clients were in the field of gas and electric utilities.

“Among the workers, there were lots of successful early retirements,” Orman recalled. “The typical workers might have only $100,000 in their 401(k), but they got $2,000 a month from a pension, and they could happily retire because they knew how to live within their means.”

Ironically, it was vice presidents and executives who often couldn’t retire — because they were paying for boats, second homes and vacations. As Orman put it, their lifestyle creep meant they were less financially secure in retirement than workers who enjoyed far more modest wages and benefits during their careers.

Free Money Is Free Money

According to Orman and Miller, SecureSave’s emergency savings accounts are enjoying impressive take-up rates across all manner of employers and economic sectors, and this is for a few reasons.

Learning From Personal Experience

Asked to share with advisors one key tip to help their wealthy clients see the importance of budgeting and living within one’s means — substantial as they may be — Orman offered up the following.

“Everyone needs to ask themselves the same two questions,” she said. “Are you buying something you can truly afford and is it something you truly need, versus something you just may want? These are essential questions to keep in mind, especially as a person starts to earn substantially more money.”

Orman pointed to her own experience grappling with these questions following the publication of her first highly successful personal finance book in the late 1990s.

“For example, I can remember back in 1998, I was making a serious sum of money through my book, and I could easily have afforded a million-dollar penthouse in New York City,” Orman recalled. “But I knew that I didn’t actually need it. I knew I could be happy in a more modest place, and so I bought a $240,000 unit in a co-op. The rest of the money could be invested and grow.”

Orman further noted that many people who enter a higher-paying job are also entering a higher-stress job, and “you can literally see people falling into retail therapy to cope with that.”

“Every time you go to buy something, ask yourself, is this a want or a need?” Orman advised. “For those who feel like their spending is a bit out of control, if you have a reset and you can be disciplined for six months or a year, you will have a change in perspective. You start to get more pleasure out of saving than spending.”