Key lifestyle factors to consider when you set financial goals

“How much do you cost?” is one of the most important questions I ask my clients when advising them on the structure and planning of their wealth. 

As I explain in my book, Wealth Actually, you may have $10 million in the bank but still not feel it will enable your happiness. The amount of your wealth is irrelevant if you don’t understand your costs. 

When you think about wealth decisions through the lens of your costs, you’ll be better equipped to avoid the kind of spending that dilutes your resources and decreases the chances you’ll be able to accomplish your long-term financial goals. 

Here are 10 factors to consider when determining what you cost:

1. Real estate

Real estate can become your largest unnecessary cost because wealthy people often buy properties as a way of benchmarking themselves against others. 

It’s true that a home is an investment that will gain value, but you won’t see that benefit until you sell the property. Excessive personal real estate spending should be viewed as a form of consumption that can punch a hole in your wealth, not as an investment. 

As you climb the ladder of real estate consumption, properties and expenses begin to multiply. The flat in London leads to a house in Southampton or an apartment in New York, each of which carries a tax bill, utility costs, and maintenance expenses.

2. Education

Education expenses begin well before college. Nanny or childcare expenses come first, followed by lessons in a variety of skills, sports and vocations. 

In most major cities, private day schools run in the $30,000–$40,000 range each year. At the high school level, boarding schools are at least $50,000 annually. 

Private college today costs as much as $70,000 a year for undergraduate studies. 

It’s perfectly fine for wealthy individuals to bankroll their children or grandchildren’s education, so long as they remember it’s an immense financial commitment. 

To help their children develop good financial habits for their children, I know some wealthy people who require their kids to assume responsibility for part of tuition.

3. Health care

As a person ages, medical expenses may be needed to lead an active lifestyle: hip and knee replacements, pacemakers, eye surgeries and hair transplants are common.

Lifesaving expenses such as cancer treatments aren’t usually budgeted for, but they should be, especially since second opinions from the Mayo Clinic aren’t cheap.

Insurance can be useful in navigating medical expenses, but if you have a deep pocket, the medical community and the government will want to stick their hands in it. 

Long-term care insurance can also help in mitigating future financial risk, but be wary of policies containing carve-outs that won’t help your individual situation.

4. Personal care & fitness

Many people see personal care expenses as part and parcel of their professions, especially those in glamour industries such as athletics, music, or acting. 

I have a friend in New York who pays for $80 hair blowouts every other day. Seriously. 

When it comes to body image, the pressure is intense. 

Wallis Simpson is credited with saying that you can never be too rich or too thin, and judging by what is popular on television and Instagram, that’s 100 percent true. 

Americans invest millions every year into gyms with the hope of getting fit. 

If looking and feeling good is important to you, account for it in your spending.

5. Nutrition & organic, healthy eating

The wellness obsession extends into nutrition and eating. Many companies have figured out that people are willing to make good nutrition a cornerstone of their lives. 

I’m a strong believer in fresh food, but look at the price tags. 

From organic products to $10 superfood smoothies, the daily food bill is increasing. 

Additionally, there is a feel-good philanthropic aspect to the modern marketing of health foods. You feel you’re doing good by buying at the local farmers’ market instead of the nearby supermarket, and you pay a premium for that decision. 

Compounded over time, that additional expense adds up.

6. Entertainment

Entertainment can have escalating levels of expenditure. This can include tickets to Broadway shows, luxury suites at stadiums and country club memberships. 

There’s nothing wrong with spending money on enjoyable activities, unless those activities are accompanied by addictive behaviors that destroy wealth. 

Gambling is a particularly dangerous form of entertainment because many people cannot control their gambling behaviors and habits. 

Collectibles are another form of entertainment that can carry a hefty price tag. It’s fine to collect things you enjoy, from rifles to cars to comic books. Some collections may have investment attributes, but they’re typically nothing more than expensive fads.

7. Clothing

Clothing may not seem like a significant expenditure, but it can bust budgets. 

Case in point: I have come across people who earmark $50,000 a month for wardrobe acquisitions to project their status and wealth. That goes quick when women buy a $7,000 dress to wear once, or men stockpile $5,000 Savile Row suits. 

Celebrities and professional athletes, for example, feel they must project an image that enhances their careers and brands. Clothing expenses are rationalized as necessary. 

That’s fine when money is plentiful, but what happens if the income dries up? 

To look good without creating obsessive and destructive long-term spending habits, a measure of self-control and management is vital.

8. Dining

If you are wealthy and want to experience different cuisines, that can be one of the great joys of life, so long as every meal isn’t of the high-end variety. 

Dining is also a social event, but not every meal needs to end with you picking up the entire tab. True friends do not need you to try to impress them in that way. 

Some foodies and wine aficionados let their hobbies turn into business ventures by purchasing a restaurant or vineyard they have no business owning. 

You may think the intelligence and savvy that already brought you success and wealth can be applied to a restaurant or a winery, but that is often a fallacy.

9. Travel

Wealth can open the door to exceptional vacations and remarkable travel experiences.

Travel can be educational or provide much-needed relaxation, but like many expenses, globetrotting becomes problematic if it becomes excessive. 

People who overindulge in luxurious travel lifestyles are often indulging in escapism as much as anything else, but that escape is eating up their resources. 

However, if you do plan to travel, it makes sense to do it while you’re healthy. Traveling with health challenges is less enjoyable and can be an expensive proposition. As people age, there’s typically a decline in their energy level, curiosity, and tolerance for inconvenience. Travel experiences may not be as rewarding in later years.

10. Jets, cars & boats

As people graduate to higher levels of wealth, upgraded forms of transportation can be among their most pleasurable and destructive expenditures. 

Private air travel is the billionaire’s crack. I think many wealthy people would send their kids to a public school before they’d give up flying private. 

Cars represent far more than transportation, and this is especially the case with the wealthy, where they’re a collectible or serve as a status symbol. 

Boats are fun and enjoyable, but remember this adage: the two best days for a boat owner are the day they buy the boat and the day they sell it.

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