What the Media Never Told You About the “Millionaire Janitor”
I swear by the 1930 financial guide The Richest Man In Babylon by George S. Clason. I practice its principles religiously. But the book was written before the health insurance crisis, predatory credit, and the lockdown. My forthcoming The Richest Man In Babylon Action Plan is a no-bullshit companion to the original. Here is an excerpt.
I hardly need to tell you about the dangers of revolving debt on credit cards, which generally carry yearly interest rates of more than twenty percent. (Cash advances are even higher — avoid them like exposed electrical wires other than in an emergency.) The compound effects can be staggering. Billionaire Mark Cuban was once asked for his core financial advice for everyday people. Don’t use credit cards, he said.
For a billionaire such advice seems plain — and I honor it. But I also know the real-world pressures that lead to debt, including high-interest credit-card debt. The fact is: at some point in life nearly all of us are going to use credit cards to purchase things we need, either medical, educational, or work-related. In such cases, you can attempt to take out a low-interest loan to consolidate and payoff debt. Some banks even offer such loans on the remaining balance of your card — but be wary: while these loans may carry a fixed yearly interest rate as low as 8.99 percent (less than half your average credit-card rate) they often come with a high monthly repayment schedule. Taking them on is the equivalent of a D-Day assault on your debt. Be ready for it.
Credit cards or any kind of loans are poison when used to purchase luxuries. A word of advice: always buy or lease a car one step below the class that you afford. A lawyer told me that he knows a client is responsible when he or she drives a car below their tax bracket; that, he said, is an infallible indicator of financial responsibility.
In terms of personal accoutrements, it is far better to pay cash for one or two quality items, such as a Schott leather jacket or Chanel skirt, than a closetful of so-so items purchased on credit. A friend who studied fashion in Paris told me that one of her teachers would come to class each day wearing the same black Chanel skirt. At first, she thought it was weird. Then she realized the teacher was exemplifying a principle. In Rome, the best cabdrivers wear designer suits. In many cases, it is the only suit they own. They always look great.
Fashion or consumer items aside, I want to revisit the question: what are appropriate or necessary expenses? In that area I am guided by the 1860 essay “Wealth” by Ralph Waldo Emerson. The Transcendentalist philosopher declares, chin out, that the individual is “born to be rich.” And by riches, Emerson means cold, hard cash. But he also identifies accumulation of capital as befitting only that person who uses it to productive ends. Emerson writes:
Every man is a consumer, and ought to be a producer. He fails to make his place good in the world, unless he not only pays his debt, but also adds something to the common wealth. Nor can he do justice to his genius, without making some larger demand on the world than a bare subsistence. He is by constitution expensive, and needs to be rich.
Emerson concludes that only those purchases that expand your power and abilities leave you any richer. Indeed, wealth that fails to accompany expansion is wealth thrown away. “Nor is the man enriched,” he writes, “in repeating the old experiments of animal sensation.” Rather, you are enriched when you increase your ability to earn, to do, and to grow. When you are contemplating a purchase outside of basic needs ask: Is there a circuitry of return on this item or am I just spending money on sensation? Wealth, properly understood, is power — and power must be renewable. Bear that in mind whenever you part with any your resources, including your time.
In sum, Emerson’s advice is to spend in ways that increase your capacity to earn. In today’s terms, that might mean investing in technology, training, and tools of your profession, art, or trade. “The man who seeks to learn more of his craft shall be richly rewarded,” George Clason writes. Seen in that light, anything that enhances your abilities is a worthy expense and, to me, a legitimate reason to take on debt if properly managed and monitored.
Given that I am writing these words during the Covid pandemic, which is shaking the finances of nearly every household, I must add a special caveat. During periods of financial crisis it is vital to maintain liquidity. You must have cash on hand. In such cases, it is advisable to cease paying down debt (other than managing legally minimum payments) in order to sustain your cash access. Depending on the interest rate of your debt, you may instead opt to suspend setting aside ten percent of your income in savings — yet the ten-percent set aside can be used for on-hand cash whereas debt repayment does not necessarily translate to liquidity. In all realism, it is sometimes necessary to break a rule in order to remain solvent during periods of crisis. Break or suspend a rule only during periods of true urgency.
Finally, I must say word about a source of debt that Clason did not address and that was not the same issue in his era that it is in ours: medical costs and healthcare insurance. Healthcare, prescriptions, and health insurance present a grave financial difficulty, and often impossibility, for millions of Americans. Political reforms may eventually control pharmaceutical prices, create a public option, expanded Medicare, or some other form of affordable insurance (universal basic income, or UBI, coupled with price controls may accomplish this, too), and protect consumers dealing with recalcitrant and misleading insurance companies. The last of these problems could be helped by transparency laws that regulate and shine daylight on arcane coding schemes insurers use to deny or delay coverage. Until reform arrives, or if it ever does, my operative principle is that most health insurance in America today is organized crime with a refrigerator magnet. Hence, their “services” — which are based on a model of taking in as high a premium as possible and paying out as few claims as possible — must be approached with prudential thought and caution.
If you work in a corporate or union job and receive good health insurance you are fortunate. Yet even those plans have gaps and lock you into a group model where you have very little consumer choice. If you are an independent worker, service worker, or contractor, the options become thinner and more stressful. Most personal finance writers ignore or gloss over this reality in their programs to wealth and solvency.
For example, starting in 2015 (and continuing through 2020) financial journalists fell in love with writing about a Vermont janitor who died with $8 million in the bank, which he left to his local library and hospital. It sounds like a great American parable: the “millionaire next door” makes good through savings and thrift, and it’s all the more touching that the self-made philanthropist was a laborer. But the news coverage omitted one crucial fact. The man served in World War II — and there’s the answer: he had lifelong healthcare through the Veterans Administration. That’s what made it all possible. I know a cat sitter in Manhattan who has amassed a huge portfolio through his Roth IRA. He’s a wonderful eccentric who lives cheaply in a rent-controlled apartment, eschews digital culture, cable, cell service, eating out, and most luxuries. He exists like an urban Thoreau. Like the janitor, he’s also a millionaire. And like his counterpart, he is a veteran, in this case from Vietnam. He receives lifelong VA coverage, which got him through a harrowing illness.
If these thrifty men didn’t have VA coverage, all of the money that they wisely invested would’ve been wiped out by a single health emergency, chronic condition, or purchasing of their own insurance. It is that simple. Few people who write on investment strategies or personal finance get it. We need more working people in financial journalism who know what it means to purchase insurance or otherwise cover health costs without a corporate or family net.
For freelancers and contractors, I wish I had a magic bullet to offer, but I do not. If you have children then you need insurance; it’s that simple. Some states help close that gap. If you’re single, look carefully at the question of health insurance. Most of the Affordable Care Act, or Obamacare, plans that are anywhere near affordable are limited in coverage, do not include prescriptions, and come with high deductibles. You might consider whether they are worth it at all. I wish there existed catastrophic-care plans that really held down costs and allowed you to plan for emergencies, but those are difficult to find especially if you’re over 40.
All I am really trying to say is: if you are independently employed do careful research (including into healthcare savings accounts), consider whether or what coverage makes sense for you, and think flexibly about your needs.