Do you think that you look rich? Do you think that the person who drives a brand-new car looks rich? What about the person who lives in the most expensive house in their neighborhood? Just because someone “looks” rich doesn’t mean that they are. In fact, someone who “looks rich” because of the car that they drive, the house that they own, or the vacations that they take is probably actually not wealthy.
This isn’t always the case, and it may seem counter-intuitive to some, but spending money on brand new things on a frequent basis is usually a good indicator that someone has a consumer mindset as opposed to a saver mindset. This means that they aren’t able to save much money, which is what actually leads to monetary wealth. The more someone spends the less money they have to accumulate assets and generate wealth.
It Doesn’t Matter How Much You Make
I’m not sure where I heard it, but I love the saying, “It doesn’t matter how much you make, it matters how much you keep.” If you earn $1,000,000 per year but every single dollar either goes towards taxes or is spent, then are you rich? Are you wealthy?
Sure, you may have a brand-new luxury car and a house in the most exclusive neighborhood, but you’re not wealthy if you haven’t saved a dime and don’t have any underlying wealth in investments or anything else outside of your home, which probably has a mortgage on it. The person who spends all of their money on brand new things and traveling may be extremely wealthy in experience, but that sort of wealth doesn’t help you through the hard times or allow you to retire.
Even worse – if looking rich is funded by running up credit card balances. That’s a whole different story.
The Millionaire Next Door
The book The Millionaire Next Door teaches us that most millionaires live simple, modest lives and never drive brand new cars or buy an “impressive” house. That’s exactly how they become millionaires. I’m not saying that becoming a millionaire is the penultimate goal that you need to set for your financial life, but the book sheds some light on the true way to become wealthy.
The authors of The Millionaire Next Door followed millionaires and studied their habits to create a general profile of what the typical American millionaire looks like. Their findings may be a surprise to some as the most common themes among American millionaires is that they live in middle-class and blue-collar neighborhoods, then spend less than they earn, they don’t purchase status symbols, and they invest their money in the stock market and their businesses.
There’s nothing life-changing there.
In fact, those who you may expect would be millionaires (doctors, dentists, lawyers) are twice as likely to be what the authors call “Under Accumulators of Wealth”. Those nice jobs come with lifestyles that individuals in those professions often feel they need to portray.
A high income does not necessarily correlate to a high level of wealth.
Find A Balance
Just because your neighbor leases a brand-new car every 3 years and takes 3 vacations to countries outside of the US every year doesn’t mean that they’re wealthy. Not at all. It just means that they’re good at spending the money that they earn and that, in fact, they may be monetarily poor. They may be wealthy in experiences and income, but lack any sort of meaningful wealth (especially when compared to the income they earn).
There’s a fine line that needs to be struck between being wealthy in experiences and being monetarily wealthy. I think it’s very important to be confident in spending money on things that you want and that make you happy. You don’t want to miss out on experiences that would provide you with a lot of happiness now, but you also don’t want to be faced with an impossible retirement situation because you spent all of your money along the way and didn’t save any. This is why it’s so important to have a good idea of your budget, your expenses, and your lifestyle.
Quit comparing yourself to others and focus on your own goals, no matter what they are. Compare yourself to where you were yesterday and if you’re making progress.
Anyone can become both experientally and monetarily wealthy through a few simple steps and not trying to impress anyone else with their lifestyle. However, although the steps are simple, that doesn’t mean that they’re always going to be easy.
