She was a nice looking lady. Gray hair. Antique dress. Maybe 80 years old.

She asked me to autograph my book for her two sons. “Soon they’ll be managing the family estate,” she said proudly. “I thought they could get some ideas from ‘Automatic Wealth.'”

“I’m sure they could,” I said. I asked her what she was doing at the investment conference.

“Oh, I want to get some ideas for safeguarding and enhancing my estate.”

So the family estate was her personal wealth, I realized. This was another old person with money whose only interest was in giving it to her children. She was smart enough to understand that a pile of money has a way of diminishing, even disappearing, if you are not careful with it. But she was also interested in “enhancing” it.

Safeguarding and enhancing. Seems that’s what all the older people I meet want to do with their money. It’s actually a contradictory goal. Maybe even an impossible one. To grow your money, you have to take some risk with it. To safeguard it, you have to be willing to settle for just preserving it when bonds and cash accounts aren’t doing any better than inflation.

Financial planning is about tipping the balance toward growth. When you have 20, 30, or 40 years to get wealthier, that’s a fair position to take. But for an 80-year-old lady?

“Do you mind telling me what size estate we’re talking about?”

It was about three million dollars.

“Well, if you really want to safeguard it,” I said, “you don’t need any fancy investment schemes. Just put it in cash or bonds and forget about it.”

She wasn’t happy with that advice. The investment experts she was reading in magazines and the pundits she was listening to on the radio were talking about stocks – buying them, trading them, even leveraging them with options.

“I’d like to make it work a little harder,” she said, smiling demurely.

I wondered how much of that $3 million would be left for her kids by the time she died.

“I can’t tell you what to do,” I told her. “I’m just a businessman who has spent his business life wondering about money. I’ve been involved in the world you are talking about, but as an observer. And the sum of my observations is a gut feeling that at your age and considering the wealth you’ve acquired, you are much better off focusing on keeping your money than on growing it.”

She looked dismayed.

“You are not happy with my advice, are you?”

“Not entirely,” she admitted.

“You want to have some fun with your money, don’t you?”

She brightened up.

“Okay, then. I’ve got an idea. Why don’t you start spending it?”

“Spending it?”

“What are you living on now?”

“I’ve got a pension. And there’s Social Security.”

“Don’t tell me any more. You are living in a small apartment, keeping to a budget, struggling to make ends meet.”

“It’s not that bad. I’m comfortable.”

“I’ll bet you are. But you are not having enough fun. So this is what I suggest. I recommend you set yourself a goal of spending $100,000 a year beyond what you are spending now.”

She looked horrified.

“I’m serious,” I told her. “Forget about leaving all this money to your children and grandchildren. It will only spoil them and cause them to fight with each other. If you spend $100,000 a year, it will take you about 30 years to get rid of all that money. You don’t plan to live more than 30 more years, do you?”

She laughed.

“Well then … that’s my recommendation.”

She laughed again. And then she seemed to be considering it. “Gee,” she said. “A hundred thousand dollars a year. I don’t think I’d know what to do with it.”

“Well,” I suggested, “you could start by getting yourself a new car. What kind of car are you driving right now?”

“A 1991 Toyota Tercel,” she told me.

“Get rid of it!” I shouted. “Buy yourself a Beamer!”

“A BMW? Oh, my!”

This was getting to be fun. “That will set you back about $35,000. And how about some new furniture?”

“I could use a new sofa.”

“Hire yourself a decorator! Redo the entire apartment! Give her a budget of $25,000!”

“Oh my goodness …” Her eyes had a dreamy look.

The line behind her was getting long. People were getting antsy. I told her not to worry about holding them up. We were talking about something important here. I wanted to give it my full attention.

“You’ve got $40,000 more to spend. So I want you to budget a night out once a week. Treat a friend to a movie and a nice restaurant. You’ll have to spend at least $180.”

“Oh, I couldn’t do that!”

“You’ll have to try,” I told her. “That will bring you up to about $70,000. So what are we going to do with the extra $30,000?”

“Gee, I don’t know. I’m feeling kind of guilty.”

“Okay, fine. So you’ll spend the extra $30,000 on gifts to whichever of your offspring you happen to favor for the moment. Don’t worry about being fair or evenhanded. Just spoil those who are spoiling you.”

“You are positively evil,” she told me.

“And you are going to have some fun,” I replied.

Investing in stocks can be a lot of fun. But when you are 80 years old and you’ve got $3 million in the bank, it’s not a good idea to seek your thrills by putting your nest egg at risk in the market.

Giving your money to your children is probably a bad thing to do. Chances are it will rob them of the motivation they need to make their own money.

This little old lady will not have to worry about whether I’m right or wrong on that issue. If she follows my advice, she’ll have plenty of money left for her kids when she dies. In the meantime, she can have loads of fun enjoying the material goods that she thinks she wants her kids to have. She may discover that a new Beamer isn’t any better than an old Toyota – but if she doesn’t buy the Beamer, she’ll never know.

If she had more than money, she could do more. If she had the knowledge of how to start and run a business, for example, she could spend $50,000 or $100,000 a year helping her most productive and earnest offspring get into their own businesses.

Passing on money without knowledge is both dangerous and foolish. If you don’t have the knowledge but you have the money, you’re better off spending it on yourself. Whatever fun money can bring (and it can’t bring the best things – we all know that) will be had by you and under your control. That’s the responsible way to deal with it.

[Ed. Note.  Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]

Mark Morgan Ford

Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Wealth Builders Club. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.

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