There was a TV show in the early nineties entitled “Lifestyles of the Rich and Famous” hosted by Robin Leach. It featured the extravagant lifestyles of affluent athletes, business tycoons and celebrities. It shows you some of the properties of these wealthy people i.e. mansions, resort and vacation houses, private islands, huge yachts, jets, sports cars, fine jewelries, etc.. I have no objection in buying “stuff” as long as you don’t find your identity in having them. Things don’t define the man, they are merely tools to fulfill his purpose and calling in life. If you feel you that you need 7 cars/ SUVs to get you from point A to point B, it’s up to you. The question is “Can you really afford it?” (aside from “Do you really need it?”)
Many people who are high-income earners may not end up to be rich because of the high lifestyle that they maintain. They fail to accumulate any lasting wealth. They are more concerned of the image that they have and continue to buy the symbols of the rich: $$$. Even the middle class people are not spared of this financial trap. They live hyper-consumer lifestyles that they spend their money faster than they earn it. They even incur a huge amount of debt and end up paying for it their entire life.
Prov. 13:7 One man pretends to be rich, yet has nothing; another pretends to be poor, yet has great wealth.
On the other hand, in the book Millionaire Next Door, the authors Stanley and Danko, made a study of America’s decamillionaires (net worth above $10MM) and have found some interesting facts common to them.
Most of these millionaires are first generation millionaires, which means that they did not inherit their wealth but have accumulated it through saving and investing.
They live well below their means (which means that income is greater than their expenses). They budget and plan their expenses. They practice the “pay yourself” or set aside approach i.e. taking 10-15% of earnings and set aside as “untouchable” for personal spending.
They believe that financial independence is more important than displaying a high social status. In other words, they don’t care about image. Many of them don’t own flashy sports cars. They drive pick up trucks and keep them for years. Some even buy used cars. They don’t buy expensive watches or jewelries. Many of them don’t buy signature brands of clothing like Armani suits or Prada bags. They go to regular department stores to buy what they need.
They are frugal. Instead of looking for things to buy, they look for opportunities to invest their money in. They believe that the more time someone spends buying things that “look good,” the less time they spend on planning their personal finance.
These are some of the things that the authors found common among the millionaires that they surveyed.
I am not saying that we live like a pauper. We can live comfortably and moderately and at the same time be aggressive in saving and investing. You need to find your balance. I have no problem in buying signature items (I own a pair of Chuck Taylors!). Make sure it’s part of your budget which is written down.
I realize that there are no shortcuts in building wealth. We all have a chance to accumulate money and have a nice and comfortable retirement. Don’t just live for the moment. Live with the future in mind.
Do you want to look rich or be rich?