Last Friday, J.D. Roth at Get Rich Slowly posted the kind of post that drives people nuts in all kinds of ways as evidenced by the 225 (at last check) comments generated. He posed a reader questions to his audience that centered on this point:
Just yesterday, I read an article on an entertainment site about Steven Spielberg’s $200 million personal yacht. I think that this is a crazy, immoral waste of money. He could make a HUGE difference by using that $200 million for charity.
I guess my point is: Am I really any better? No, I’m not buying a yacht anytime soon, but I do buy luxury items. And someday I’d like the satisfaction of being able to buy my husband a Range Rover. (He loves those damn cars.) My husband doesn’t feel guilt for having these things, but (if I’m being completely honest with myself) I do. Oddly enough, I majored in finance in college and am currently studying for the CFA exam, so the topic of “efficiency and equity” is really on my mind.
As I mentioned in the comments, I really dislike questions like this because I think they’re pointless as there is no real right or wrong answer and it comes down to an individual conscience. But what really bothers me is the focus on the price tag without taking anything else into consideration. I mean you’re judging this guy’s yacht but isn’t the homeless guy totally entitled to judge your designer bag/shoes/cell phone/car/etc?
So, to see if I was way off base with this feeling (I usually am and enjoy disproving myself) I did what I do best and I got on the net and started researching.
Do you know what Steven Spielberg’s net worth is?
He bought a yacht that cost two hundred million dollars ($200,000,000).
$200M is 6.67% of $3B.
If that’s still hard to relate to because those numbers are bigger than Monopoly, consider this: According to the Wall Street Journal, in 2009 the average American’s net worth was $182,000. They also admitted the average was pulled upwards by a very small group of the incredibly wealthy, but let’s use that number for right now.
Do you know what 6.67% of $182k is?
According to Motor Trend, the lowest base price on the reader’s aforementioned Range Rover is $59,645 . Are things starting to come into focus yet? Let’s look at an even lower net worth since the Journal admits that number is skewed thanks to those ultra-rich dudes.
A more relatable net worth for some might very well be $45,500. 6.67% of that amount is $3,034.85, the equivalent of a gorgeous huge new 3D LCD HDTV. If you’re a loyal GRS reader, you’ll know commenters have a huge thing for TV’s so I thought they’d enjoy that comparison in particular.
At this point in the number-crunching, I’m completely unconvinced his yacht purchase is a “crazy, immoral waste of money.” But maybe you’re not. Maybe you’re just not sure. Maybe 6% of anyone’s money going to a total and complete Want is hard to stomach.
On his website, JD talks a lot about this little thing called the Balanced Money Formula, as proposed by Elizabeth Warren and Amelia Tyagi. It’s very simple.
You take your net income and split it three ways: 50% to needs, 20% to savings, and 30% to wants. In case you’re curious, 30% of $3B is $900M. And yes, I’m aware this formula is intended for income but considering income builds worth, I think it’s applicable.
30% of the $182k average net worth is $54,600 (still less than the cheapest Range Rover). 30% of $45,500 is $13,650 which isn’t enough to buy you a new Honda Civic. And remember, this is assuming a net worth of some sort. With debt, I don’t have any net worth. Not even Adam Baker of Man vs Debt has achieved a positive net worth yet!
Are we starting to back off of Steven yet?
My answer to the reader is this: No, you’re not really better than Steven Spielberg, but that’s ok because there’s nothing wrong with Steven Spielberg. You’re saying he could do a lot of good with that money, but Spielberg has a history of doing good with his money and that’s just a snapshot of charity he’s actually assigned his name to.
We work very hard to earn our money. There is absolutely nothing wrong with indulging our wants if we are doing it responsibly and within reason. If you go by the Balanced Money Formula, that’s 30% you’re free to do with as you please!
$200M as a stand-alone figure is pretty shocking and seemingly unreasonable but when you take everything into account, it’s really not that big of a deal—definitely less so than justifying the purchase of a Range Rover with an average net worth (not that the reader has an average net worth– I have no idea what their net worth is).
By the way, in case the reader wants to be better than Spielberg, they should know that in order for that cheapest base price Range Rover to reflect 6.67% of your net worth, it needs to be $894,228. So to come in under 6.67%, you need more than that. A net worth of $950k will put your Range Rover at 5.75% if that helps.
We each have to find our own way with our finances. You may decide 20% of your Wants category is perfect for charity. You might not. The only wrong answer is that you’re making enough money to have a surplus and are doing absolutely nothing positive with it ever.
For me, it’s simple—Live below or within your means. Provide for a good future. Give.
What about you? Do you think Spielberg was out of line? When it comes to money, what do you do that lets you sleep at night?