100 is the New Million

Orange is the new black. Fifty is the new thirty. But how is one hundred better than one million? Billionaires may get all the press, but most of us stand a better chance of getting eaten by a shark that just got struck by lightning than tagging a ten-figure net worth. We’re probably okay with that, as billionaires in the headlines rarely model admirable lives. Thus, merely achieving a seven-figure net worth or becoming a millionaire remains a great aspiration and achievement. But guess what’s harder?

Bias First

There’s a selection bias to the battle station I currently man. Most families I work with have already crested the $1M net worth mark, or they’re on course, on glide path. Occasionally, I’ll meet a family whose inheritance is a big part of their balance sheet, but usually it’s their TSP, IRAs, home equity, and maybe some cash and 529 college savings plan balance. Most of those families ring the $1M bell in their forties, with some outliers in their 30s and 50s.

Universally, they realize that a yawning gap exists between being a millionaire and feeling like one. There are good reasons for this dissonance.

First, a 45-year-old has probably had 30+ laps around the sun since they formulated their ideas of what it would be like to be a millionaire. Thirty years ago, a million bucks bought a lot more. Today, it buys what $412K could back then, which is still a lot, but not baller money. That would be approximately $2.4 million in today’s dollars.

Second, we know that “it’s not what you make, but what you keep,” and importantly, the difference between those two numbers, spending, is what most of us imagine having a million dollars feels like. We want to spend a million dollars, not just have it.

Why We Don’t Have $100K in Cash

Families achieving a million-dollar net worth have become a bit more garden-variety. Much of this stems from the great democratization of financial knowledge and access brought on by the internet. We don’t need gatekeepers like stockbrokers to get compounding going.

Families that have $100K in cash seem far less common these days, and there are always good reasons.

“Cash is trash.” The mindset that holding onto cash forgoes the opportunity to invest it permeates investing culture, especially for cash-intensive investing like real estate.
Cash doesn’t pay. The past few years have seen interesting, if not relevant, rates of return on cash in CDs, Money Market Funds, and High Yield Savings Accounts, as well as government securities. But the same families looking for the highest, best use of each dollar remember the 2010s when their bank paid subatomic budget dust rates of interest. It’s certainly worth comparing cash returns to returns on other low and “no-risk” assets.
Retirement Priorities. On a military salary, there are only so many dollars to allocate. A dollar held in cash can’t compound in the TSP, an IRA, or a 529. Why hold cash if those accounts aren’t maxed out?
Secure Income. Military and veteran families get used to steady direct deposits from DFAS and the VA. It’s alluring to think that emergencies and opportunities will fit inside the monthly income from seemingly reliable sources.

Yet, having a cash cushion creates the ability to PCS without wondering where and when the money comes from. It enables starting a business. It pads the first year with the airlines. It almost always keeps (at least) one spouse calm about the family’s financial status. Cash, and a big chunk of it, feels like a moat with dragons guarding your castle.

The Hundred-Thousandaire Next Door

Admittedly, my observations lack the academic rigor of a study like The Millionaire Next Door. Yet, there are some prevalent habits and similarities between the families I see that accrue and hold six figures (or nearly that) in cash.

Order of Operations: Families that manage to build a cash war chest pay themselves first, both with TSP, 401(k), IRA, and 529 deferrals, but they also fund their near-term savings goals like emergency funds and house down payments, BEFORE spending what’s left each month.
Accounting Tricks: Families with plus-sized cash holdings “name” their accounts. It’s hard to buy happy trash when you must pull money from the account named “Forever Home Downpayment.”
Avoiding Creep: Lifestyle creep happens to all of us. Some of it is often what makes the memories that make a life. Too much of it outcompetes the ability to stockpile cash.
Stress: We all stress about money-related issues. It’s stressful not to have enough, and it’s stressful to know you might not be optimizing what you have. Families that retain plenty of cash have less stress about known unknowns such as appliance replacement, car purchases, rental home requirements, furloughs, and government shutdowns.

What if I have $1M in Net Worth, but not $100K in Cash?

In theory, having a million-dollar net worth should be superior to building up $100K in cash. In theory, theory is the same as practice. Most middle-aged millionaires have their million tied up where they can’t (and shouldn’t) touch it to live that “spending a million dollars” lifestyle—in the TSP, 401(k)s, IRAs, 529s, home equity, etc. They may earn nice six-figure salaries, but the available cash to play with each month buys very few Ferraris.

Thus, some common traits of million-dollar net-worth families with little-to-no cash on hand stand out too:

House Poverty: While not actual poverty, feeling “house poor” where the mortgage and upkeep costs leave little income for mashing on the fun button each month, is common when families don’t build a cash war chest. We use zero-down payment VA loans that don’t require a big pile of cash, but the tradeoff is a mortgage that gobbles up most of the paycheck. Twenty percent down on a house isn’t just about avoiding Private Mortgage Insurance (PMI), it helps prevent feeling house poor.

Credit Card Cycle: When there just isn’t cash to buy a new air conditioner, mattress, or pay for pricey car repairs (because expensive things have expensive things…), we whip out the plastic. A series of months like this runs up a nasty interest bill, further limiting both the ability to invest and build up cash.

Expensive Toys: I’m a car guy. Not in the sense of restoring my own 64 and a half Mustang with two other cars on blocks in the yard and a rusting engine carcass hanging from a tree in the front yard, but in the sense that new car smell is intoxicating to me and playing with new car tech feels like Christmas morning.

But the science is settled. Cars plummet in value despite the 2020s rush of inflation on their initial pricing. Cars have been incredibly safe for decades now, so new models don’t stave off the jaws of life better than gently-used and gently-depreciated models. And cars are vastly more reliable than they used to be.

Finally, my fellow Gen-X’ers will recall family road trips where the interstates looked like a post-apocalyptic scene from Mad Max with hulks of broken-down car carcasses lined up every mile or so. Cars routinely last 200K miles with proper maintenance these days. Of course, one needs cash to pay for proper maintenance.

Every dollar that goes to a car payment is a dollar that can’t create a cash cushion. Same for boats, RVs, and other toys with motors. It’s not that we shouldn’t have them, but moderating their price and saving up to pay cash helps keep cash.

Cleared to Rejoin

Compounding makes millionaires. Discipline creates a cash cushion. Cash, like external weapon hardpoints, creates performance drag if the only goal is gaining altitude and speed (net worth and faster growth). But without cash, we add stress and increase the risk of punishing debt. If you’re long-term goals are assured by the compounding engine in your retirement accounts, perhaps it’s time to focus on a war chest you may want to use sooner by becoming the hundred-thousandaire next door.

Fight’s On!

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