Stop Eating Your Cake!
What does “being wealthy” mean to you? According to pop culture, we associate the wealthy with images of consumption:
Having the latest, hottest technological devices
The trendiest, brand-name clothes and shoes
A big house in an exclusive neighborhood
Taking vacations to exotic places
A country club membership
A new boat
A new car
That is, after all, how the richest people in America live, right?
Studies show that the people who CONSUME the most are actually WORTH the least. That’s right: the people who put large amounts of money into their possessions are the most likely to be in debt and have a negative net worth. That means that even if they sold their house and all their gadgets, they still wouldn’t have enough to pay off what they owe on everything!
The authors and researchers of the book, “The Millionaire Next Door,” discovered this truth when they studied the habits of our nation’s wealthiest individuals: The people who HAVE the most money are the ones who spend the LEAST, and naturally these folks don’t stand out in society. They don’t shop at the most expensive stores, frequent the nicest restaurants, put all their children in the most expensive private schools, or even drive new luxury cars!
There are many reasons for these practices, and one major one is TAXES! Wealthy people know that you can delay or avoid being taxed on money that you immediately put away for retirement and other long-term goals. Therefore, they live their day-to-day lives on a comparably low percentage of their income and put the rest away for things such as their children’s college funds and their own retirement. They believe—and rightly so—that their income is their biggest wealth-building tool, and that the most insidious enemy to building wealth is consumption! The best way to avoid consumption is to put money where it’s accruing interest so that it overcomes the rate of inflation, and is more difficult and costly to liquidate for impulsive spending.
The truly wealthy people are those who have money and assets worth more than what they owe on their cars, credit cards, or homes. But even more commonly, the wealthiest people avoid all forms of debt like the plague in the first place, paying cash for their cars and paying off their mortgages early. This allows them to avoid paying exorbitant amounts of interest, just as their common practice of buying used cars helps them avoid the moment of greatest depreciation in value of a car’s life: the moment a new one is driven off the lot!
It is the sum of these practices and mentalities that will enable you, too, to begin establishing wealth-building habits to last a life time. Instead of drooling over the latest smart phone or going gaga over the hottest set of wheels, remind yourself of your long-term goals. Choose to see all non-essential consumption items as the enemy to true financial security and real wealth. As the old adage goes, “You can’t have your cake and eat it, too.” If you save the party for later, you get to have much, much bigger one!
Investing is recommended only after getting out of consumer debt and establishing an emergency fund. For more information on how to accomplish this, see the articles titled, Paper or Plastic? and You, Inc.
What is the next step you can take towards a life of true wealth building?