By Brad Thomason, CPA
What do Warren Buffett and Arnold Schwarzenegger have in common?
Not a lot, most likely. But at least one thing, which is sort of interesting.
Both were effectively “rich” before doing the thing that we know them for.
Schwarzenegger, as you know, spent a lot of time as a young man lifting weights. But in the off hours between sessions at the gym, he and his workout partners did construction work. As many of them were immigrants from Europe, they billed themselves as “old world craftsmen.” The well-to-do of the Los Angeles area apparently liked the idea of that, and he and his crew had all the work they could do. In time, Schwarzenegger started using the money he made doing construction to purchase properties which needed fixing up. More and more, he was both contractor and project owner. Such that by the time he got his first movie role, he was already a millionaire, by virtue of the value of his real estate holdings.
Warren Buffett bought his first share of Berkshire Hathaway in 1962. This would be the start of a long series of transactions which would eventually end in the control of the company, and its transition to the flagship for his ever-growing financial realm. But long before that, in 1956, at the age of 35, Buffett gave some serious thought to retiring. As recounted in the biography Snowball, Buffett had already amassed $174,000 by that point, and was living comfortably on $1,000 per month. You can multiply those amounts by 11 to get something approaching today’s dollars. Now, conventional wisdom would say that retiring at 35 is a silly idea, and to do so with only 15x what you spent each year would be risky. At least for the average investor. Which of course, Buffett was not. It’s a moot point, since as we know, he certainly did not retire back then – nor at any point since. But the facts are noteworthy.
What’s interesting about both of these cases is that they highlight the separation between having and growing wealth, versus earning a living and paying the bills.
There are a couple of useful interpretations here. If we come at it from the income angle, in both cases it appears in retrospect that neither had to spend too much time or effort checking that box. It’s almost as if they took for granted that covering the monthly budget needed to be gotten out of the way with as little attention as possible, so that the focus could be placed on growing the wealth base. Not that the income was unimportant; just that it wasn’t the only important thing.
Second, it really illustrates the idea that we all have two ledgers running at once, so to speak. Ledger number one deals with taking care of this year’s requirements with this year’s earnings, while ledger number two deals with the ever-accumulating (we hope) pool of assets which will someday be called upon to do the job when the effort-based income stops.
It’s not necessary to become a movie star or an investing god in order to benefit from these examples. Simply realize that a couple of very successful guys had basic needs squared away early so they could focus time and energy on building wealth. Certainly it helped that neither seems to have spent too lavishly along the way. But preserving and growing wealth requires that you have some to begin with. It is quite clear in both cases that having wealth was very much an intended consequence of the respective efforts; nor did either fellow let up on the gas once he had some.
In the moment, engaged in the weekly cycle of going to work, and the monthly cycle of paying bills, it is easy to get focused on the inflows and outflows. Just remember that the financial job has two pieces: today’s money and tomorrow’s money. It’s is well to remember to give some attention to both. It is even better to make it easy to do so by getting the first part squared away as soon as you can, so that you have plenty of time and attention span to devote to the second.
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