How Much Money Do You Really Need?

The Daily Reckoning Presents: a DR Classique originally broadcast on Friday, 20 August 1999.


“Women,” said my old friend, Mark Ford. That’s the reason we earn money.

I misunderstood at first.

Yes, a woman can cost a lot to maintain. She will need food, clothing, transportation, shelter. Her children will need braces and tuition. But it is not need that underlies man’s drive for wealth…it is desire.

People do not buy chateaux because they need a place to live. Nor do they invest in stocks because they need pocket money. They seek wealth and its trappings for other purposes.

Dorothy Parker said, “You can’t be too rich or too thin.” But when Howard Hughes died, it looked like he was both. Hughes had the kind of wealth that meant he could do what he wanted. He didn’t have to listen to anyone. He was so rich he could eat Campbell’s chicken noodle soup every day if he wanted and wander around with Kleenex boxes on his feet.

In the end…Howard’s wealth may not have helped him much. It cushioned him from reality…protecting him from the things that might have brought sanity to his life.

He might as well have been on welfare. Those people, too, are cushioned from the reality of everyday life…so they never have to learn how to earn a living and get along in the real world. That is also often true of the children of rich people. They don’t have to learn how to hustle…and many never do. In this sense, wealth is not merely a burden like the Chateau de Bourg Archambault…but a threat.

At Ouzilly, deep in the French countryside, you can live well on very little money. On a beautiful day, you can sit out on the terrace of a stone farmhouse…you can drink local wine…you can eat local food…you can putter in your garden and take day trips to visit medieval towns. Life can be quite good – even with very little money.

But when you don’t have money, you don’t have the option of changing your lifestyle. As long as I am content to live in rural France, or rural Arkansas, for that matter, I can do so on little money. But what if I want to live in New York? Or Paris?

I’m going to find out how much it costs to live in Paris in a couple of weeks. We’re moving to an apartment near the Trocadero. The modest, 4-bedroom apartment rents for 17,000 francs per month-about $3,000. Not bad. Cheap by New York standards. Paris is actually one of the cheapest major cities in the world. Still, with school fees, meals, transportation, maintenance, furniture, utilities, professional fees…we estimate it will cost us about $100,000 a year to live there. But the tax rate in France is 60%…so I will have to earn $250,000 just to keep my head above water.

Hmmm…this won’t be cheap. How much capital would I need to earn $250,000 per year? Well, if I could get a reasonably safe return of 6%…it would mean that I would need $4.3 million. This does not provide a luxurious lifestyle by any means. In fact, it barely pays the bills of a bourgeois American family…with six children in school.

[Bill has since moved his family to a much larger place in the fashionable 16th arrondisement of Paris. Of course, I can tell you this while he’s on vacation – he will scarcely notice… Addison]

Most people think you need at least $10 million before you can be considered rich. That amount would provide you with about $600,000 in income. Most people could live comfortably on that much.

But wealth is not always forthcoming when, and in the amounts, we want it. So, in practice, people don’t really calculate how much they “need” to live the way they want. Instead, they try to earn as much as they can and adjust their sights accordingly. They do not need to live in Manhattan…life in Omaha is good enough for Warren Buffett, after all. They do not need to go to the Tour d’Argent for dinner. The food at Madame Grammond’s is just as nourishing. So why the pressure to earn ever more money?

Bunker Hunt said that money was “just a way of keeping score in life.” But to what end? What’s the prize, in other words? Once you have a comfortable place to live…and decent food to eat…does additional wealth really add to your quality of life? Does it help your children…or does it hurt them? Does it make you happier? More secure?

The major thing it does is expand your field of choice. You can decide for yourself whether you want to live in Omaha or New York, for example. More choice leads to more thought…about what living well really means. This, in turn, may have the effect of enriching your life in unforeseen ways. Or it may simply make life more complex and difficult…like having to choose a long distance phone service or an insurance program.

“Women,” repeated Mark, “without women, money would mean nothing.” At last I grasped his meaning. He was reaching for the deeper truth. For all the practical advantages of having wealth, men strive for it for impractical reasons. Money is status. There is some reproductive imperative that causes men to seek status and women to prefer men who attain it. To express it crudely, money is a way of scoring (metaphorically, of course)…not just keeping score.

Bill Bonner
July 31, 2001

*** “When you look at the US economy, what are you worried about?” The question was put forth by “avuncular” secretary of the Treasury O’Neill.

*** Apparently, according to the Financial Times, O’Neill has sifted through the data, read the reports, asked the pointed questions…and determined that “since 1945, every severe economic downturn had been associated with a shakeout in the car-sector and falling demand for housing.”

*** But cars and light trucks have “held up well”…and housing is okay…so O’Neill has “a lot of confidence” in the present economic situation.

*** Really, what do we expect him to say? “Sorry folks… the ‘crotte’ is hitting the fan.” No. That task is better left to less-than-avuncular newsletter editors…

*** For example, when we look at the US economy, we see corporate profits tanking – Intel down 94% this year, GM down 74% – over 1.1 million jobs eliminated since the beginning of the year and unemployment rising at it fastest pace since 1992.

*** Do you suppose it too presumptuous of us to ask the Great O’Neill if these figures are cause for concern? Perhaps it is…

Eric, what’s new on Wall Street?


Eric Fry reports from New York:

– “Summertime and the livin’ is easy”… means, among other things, it was a snoozer on Wall Street yesterday.

– The Dow fell 15 points to finish at 10,402, while the Nasdaq dipped 11 to 2,018. The S&P 500 broke even on the day. Few individual stocks or sectors distinguished themselves. Motorola jumped almost 10% and semiconductor stocks bounced a little. (Hope springs eternal!)

– Still, there was a mite of activity that faintly resembled news: three of Wall Street’s hot-shot investment strategists lowered their earnings estimates for the S&P 500.

– In a burst of curiously synchronized bearishness, Credit Suisse First Boston’s Thomas Galvin, UBS Warburg’s Edward Kerschner and J.P. Morgan’s Doug Cliggott each decided yesterday that their prior estimates were too high.

– Maybe these guys played in the same golf foursome over the weekend. Or maybe these bearish seers think so much alike that they can’t help but agree…at exactly the same time.

– Yet, not all three gentlemen are in complete agreement about what the lower earnings might mean for the stock market.

– Cliggott, who cut his 2001 operating earnings per share for the index from $50 to $44, warned clients, “A very cautious approach to the U.S. equity market makes a lot of sense until there are unambiguous signs of a real earnings recovery.”

– By contrast, the slightly more upbeat Galvin expects stocks to begin moving higher well in advance of a bona fide earnings recovery. Wisely, Mr. Galvin declined to mention exactly when the stock market rally might occur.

– $38 billion worth of tax rebate checks from Uncle Sam are starting to arrive in mailboxes across America. Wal- Mart, ever the opportunist, has offered to cash the checks at no charge. Helpfully, consumers can also convert checks into pre-paid Wal-Mart shopping cards.

– Thanks to Wal-Mart, therefore, consumers can instantly invest their tax money in family size packages of Pringles…super-sized squirt guns for the kids…and Armor All.

– I spent the better part of the last two weeks in California – ground zero of the disaster – and I can report seeing very few signs of toxic economic fallout. Indeed this morning’s San Franciso Chronicle headline proclaimed, “Tax Revenue Leaps with Home Values.”

– Of course, most of this “good news” is rear-looking. The Chronicle writes, “Last year’s red-hot real estate market pushed the Bay Area’s overall property values to record heights – and now county tax collectors are raking in the riches…[A]ssessed values on property rolls jumped more than $75 billion in the nine Bay Area counties.”

– Unfortunately, property taxes for the newly-assessed homeowners will now rise just as their property values are starting to fall.

– The local Marin Independent Journal reports that May’s median home price in Marin County was 11.3% below the April median home price – “the largest single month-to- month decline in several years.” The median home price in the tiny Marin County hamlet of Mill Valley plunged 35% in June from May levels.

– Across the Golden Gate Bridge, the residential rental market in San Francisco is feeling the heat, too. The number of apartments available for rent has increased 600% since Labor Day of 2000. As with the tech bubble, it looks like ® the Valley ¯ is already showing leadership with respect to real estate… in the wrong direction.

Back to you, Addison…


Addison reporting from Paris…

*** The “Misery Index” indicator, all-but forgotten between 1998-2000, is being trotted out once again. According to the Dismal Scientist, the index – which is the sum of the unemployment rate and the rate of inflation – reached a four-year high in May.

*** “Job Seekers Get Professional Help” reads a headline in MSNBC. “The job market, which had been slowing since December, has crumbled in the last few weeks,” the article reads. One placement firm in Scranton, PA, reports a 20% increase in job seekers in the past month.

*** Kelly Staffing Services reports their second-quarter earnings have dropped 70% from a year ago. “When companies go through down times,” says a company representative, “the temps are the first to go.” Kelly also revised fourth-quarter recovery estimates, saying they don’t expect a turnaround until some time in 2002.

*** Jobs. Paychecks. Money. Who really wants a “job” anyway…and why? How much money do you really need? Bill posits just such a question – in a DR classique below…

*** Misery could be measured on a different scale in Paris today: the centigrade scale. It’s sweltering. And while the city takes on the kind of haze you might like to see in a post-card of the Seine…air conditioning is rare.

The Daily Reckoning