The Definition of Rich

Lou Pai was the CEO of Enron Energy Services when he cashed out everything and resigned from Enron in 2001 before the company imploded into the biggest corporate scandal of the decade. His resignation was abrupt, and he is called a "lucky guy" and a "mysterious figure." The reality is that he liked strip clubs and had a stripper girlfriend who he later married. His wife was not pleased with this. Pai left Enron with approximately $300 million.

Did Pai know what was coming? I don't think so. He was never charged with criminal wrongdoing, and the stock sale seemed to coincide with the divorce settlement with his wife. But such a thing did not necessitate his resignation nor the sale of all his holdings. I have a better idea of why he did it. Pai knew he was rich. At that moment, he took his chips off the table.

"Rich" is a relative concept. Compared to Queen Victoria, we are all rich. My current lifestyle is the envy of 96% of the rest of the world, and I am a nobody. Or look at Bill Gates, his wealth is so large that he could own a small country. That is pretty damn rich. Or is it?

For me, rich is related to that cash out point. The reason a guy like Lou Pai raises our suspicions is because we think people cash out of the game the moment the risk becomes too much. But the Pai story is really about those strippers. The guy had a weakness for women, and he knew what made him happy. Enron was just the means to an end. Once the end was achieved, he cashed out. But when do you know when you are rich? What is the definition of rich?

You are rich the moment you have all the material means necessary for your happiness, and you are secure in those means. This will be person relative. A surf bum living in Costa Rica will be rich on far less. The rest of us require a bit more. And when asked how much money was enough, John D. Rockefeller famously replied, "A little bit more."

Being rich is tied intrinsically to being happy. Happiness is the goal of every life on this planet. Everyone wants to be happy. As someone who understands happiness, I can tell you that you can't be happy apart from some material means. Even our surf bum requires a board and a wetsuit. Plus, he has to eat.

I don't think you have to be rich to be happy despite needing material means to achieve happiness. Being rich is less about the amount needed so much as being secure in those means. Give me a happy person, and I can calculate what that person's "rich point" is. For Lou Pai, it was $300 million. Whether he was happy or not is another debate, but he clearly knew how much he needed.

To become rich, you need to decide what constitutes happiness for you. Without this, it is a waste of time. You will never be rich no matter how much you earn and acquire. Most people substitute status as a proxy for happiness, but this is really dumb. I don't see Lou Pai ever doing this. If he did, he would have stayed at Enron. No, Pai was a guy who didn't give a shit what other people thought. The fucker had stripper parties in his office.

Once you have decided on what makes you happy, all you have to do is extrapolate from there how much money it would cost to maintain that lifestyle. I tell people not to go for a Spartan existence because this is cheating. Living like Diogenes and calling it "rich" is not rich. With that rough figure in hand, you know what it will take to attain material security in your life. For most people, this will not require becoming a millionaire.

I can only speak for myself, but I know where my rich point is. I need enough cash to cover at least 6 months of living expenses. That is it. This would be about $12,000 to $15,000 give or take the inflation rate. The reason why my rich point is so low is because I live to work. For me, happiness will always revolve around my work. I will always have a day job. I will never retire. My avocations of writing and voracious reading cost very little, and I can only do this for a couple of hours per day. I have no interest in golf or yachts or fine wines. Even if I won the lottery, I would never quit my job though I might take two days off each week to go back to school to explore other careers. The six months salary is what I think would weather me through the worst thing that can happen to me--unemployment. I've been sick. I've been homeless. I've been cheated on, dumped, robbed from, and what have you. But nothing in my life has ever felt worse than not having a job.

I never play the lottery, and this is because I have better things to do with a dollar than dream of winning a jackpot. The appeal of the lottery comes from the fact that it frees you from having to work, and for a nation of shitheaded slackers, this is a grand thing. Their lives are miserable every fucking day, and they dream of the day they can sit at home on their asses drinking beer, smoking dope, and watching Jerry Springer. I am someone who lets his paid vacation time lapse unused. I don't like having a day off.

I realize that not everyone is going to be like me. For them, the job is the means to doing something they really want to do. This would be the surfer who tends bar at night, so he can catch waves during the day. Winning the lottery would allow him to quit that job and get some sleep. But the surfing remains. As I said, it is person relative.

So, we have an idea of the amount we need. For me, it is $12K. For you, it might be $12 million. It is different for everyone. But we must also consider the idea of security. You must have some relative security in what you have to be considered rich. Let's use an illustration.

A black jack player has amassed $1 million in chips at the table. It has been a really good night for him. Invested in treasury bonds, the coupons from those bonds will give him a yearly salary of $40K. But until he takes those chips off the table, he isn't rich. Because he has no clue what his rich point is, he will keep playing and lose it all back. This is a very important concept and explains why Rockefeller was never rich.

An entrepreneur can never be rich. The goal is capital accumulation which requires risk. The entrepreneur leaves a state of security for a state of risk in order to gain more capital which he hopes to reinvest in more of the same. He can hedge his bets by buying gold or index funds or whatnot. But if his happiness requires that business he is in, he can never be rich. He can be quite happy but security in the material means for happiness will always be questionable. To give an example, Mark Cuban cashed out of his internet venture to buy a basketball team and start some other businesses. This guy is not rich. He is a billionaire, but he will never be rich. He lives for these risks, and they are substantial.

At this point, people confuse their survival needs with their happiness needs. Someone will take me to task by saying that Cuban could set aside some cash to cover his living needs for the rest of his life quite easily, and I am sure he has done this. Bill Gates has done the same thing. He sold off some Microsoft stock to diversify his portfolio. But take away their respective businesses, and they would be crushed. This is why a fall from a great height feels so much worse than always being a nobody. This is also why superstar athletes are so miserable when the game is over for them. This is why Brett Favre will be playing this season.

Life is not about surviving. This is what animals and white trash do. They survive. They eat, shit, sleep, and fuck. This is not happiness. With this definition, we can say that prison inmates are happy give or take the fucking part. But this will have to be covered in an essay on the definition of happiness.

People envy rich entrepreneurs but only because those people have a ton of money. That wealth will meet our needs easily, but they don't meet the needs of the ones with the money. I'm not saying these people are avaricious and greedy. But they lack security. The archetype of so many stories is the rise and the inevitable fall. We see these people much like the black jack player at the casino. The lesson comes from the fact that for gamblers, it isn't about the money. It is about the thrill of the risk. Playing it safe is not what it is about for them. But such a need requires an infinite amount of money. This does not exist.

This point was brought home to me by Taleb's talking about the "fuck you" money in The Black Swan. Taleb got this money in 1987 when he hedged his company against the stock market crash that year. It set him for life. He continued to work because this brings him happiness, and Taleb strikes me as Aristotelian in this endeavor. But it also afforded him the freedom to work where he liked, pursue his studies, write books, and hit the gym each day. By Taleb's own admission, he could have tried to become the next Soros or Buffett, but his interests are far ranging. He knew his rich point. Taleb knows his life changed in a permanent way in 1987.

I try and balance the issue of money between the extremes of the ascetics and avaricious. Money serves a purpose, so it is important. But unlike others, I acknowledge an endpoint in the endeavor. Taleb did the same thing. Trading was his day job. He likes the job, but his life is diverse in the style of the Renaissance Man. The working stiff wants to be a millionaire, and the millionaire wants to be a billionaire. But for the wise, they just want to be happy. They know when they can cash in their chips.

You are rich when you have all the money you need to be happy and will always be that way until the day you die. Find out what makes you happy. Find out what it costs. Acquire that amount. Secure that amount. This is being rich.

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