When you think about the richest people you know, you likely imagine those living in huge homes, driving expensive new cars, and spending big money on vacations/entertainment. Isn’t it funny how we associate spending money with having money? But how else are you supposed to know the wealthy from the broke from the outside looking in? You can’t!
Perception vs Reality
In high school, a friend told me his parents never spent more than $1,000 for a car. His house looked vacant from the street, because you could never see lights on and the yard was overgrown. His dad didn’t deem those things worth spending on. The family owned their own airplane. They were doing fine. Clearly what you drive doesn’t matter.
I’m friends with a couple that makes good money, and has rented the same small place for over 10 years for under $1000/month. They are savers. If they wanted to, they probably have enough saved to buy the place they rent with cash. Their landlord has begged them more than once to pay their rent early, so he could afford the cost of needed house repairs. The landlord owns at least 2 other homes. One is in an affluent neighborhood. Most would assume the landlord is the rich one. Clearly renting vs owning doesn’t matter.
I bought a townhome last July in a new community. It consists of about 200 smaller single family homes, 300 townhomes, and 300 condos. A few weeks ago, a neighbor told me they can’t afford their mortgage payment, have spent all their savings, and need to sell. If needed, I could pay off my whole mortgage right now. Clearly where you live doesn’t mean anything.
A few years ago, a local company closed its doors and sued its former CEO in the process. However, the former CEO had just declared personal bankruptcy, where he cited $500 mil in debts and just $50,000 in assets. Clearly your job title and spending patterns don’t matter.
The point of these stories is that it’s nearly impossible to spot a rich person based off what you see. There are many paths to getting rich or going broke. So it’s best not to assume anything.
Keeping up with the Joneses
In 2014, Rihanna sued her former accountant/money manager for nearly driving her broke. The accountant fired back criticizing Rihanna’s frivolous spending habits. He said, “was it really necessary to tell her that if you spend money for things you will end up with the things, and not the money?” Apparently it was necessary. She loved living the high life on cars, houses, shopping, and parties, then she was shocked when the money dwindled.
I like that line… if you spend money for things you will end up with the things, and not the money.
Keeping up with the Joneses will most certainly not make you rich, even if it makes you appear rich. If you’re longing for new and shiny things, it’s easy to end up with things and no money.
As a Realtor, I see way too many think that getting a $10k raise, means they can now afford a much larger house. Others first find out the maximum they can get approved for, then look for something near their limit. Some tell me they are ready and wanting to buy a house with less than $3,000 in savings and a stack of consumer debt, yet they have a $700/month car payment.
It’s probably not healthy (financially or otherwise) to seek out shiny possessions because you’re wanting to keep up your appearances with your friends/neighbors. Don’t get me wrong, there is nothing wrong with having nice things. I own two newer luxury vehicles and a ridiculous amount of electronics. I get a lot of satisfaction out of these things. The cars are fun to drive, they are comfortable, I enjoy all the added safety and convenience features, and they provide lots of utility. They are also all paid for. Make sure your luxuries give you personal satisfaction. Don’t be concerned about how others will perceive them. Don’t let these purchases limit your flexibility. Spend where it matters. Save where it doesn’t.
It’s difficult to put absolute criteria on what it means to be rich. Bill Gates is so rich, he’d pay $5 for Rice-A-Roni and $20 for Pizza Rolls. There are are a whole lot of tiers of rich below Bill Gates.
One definition I like is: “abundantly supplied with resources, means or funds.”
Abundant can mean different things for everyone. I know families that make $200k+/year that I wouldn’t call rich. They don’t have a lot to show for it, and they are dependent on that money coming in every 2 weeks just to pay their bills. Regardless of how much they make, they may always be living paycheck to paycheck. Their expenses will always match their income. For others, a sudden increase to $200k/year would quickly create enough abundance for them to live off for years to come.
For me, being rich means having some form of financial independence. If you’re in your early 30s and could quit your job, and feel financially secure for the next year, I think that is rich. That means you have enough to take a break and pursue what you want to do. As you get older that 1 year cushion needs to extend much further out.
If you really want a big house or to travel lavishly, that’s fine. Along with it, I’d encourage you to consider what that house means to you. Does it mean spending the next 20 years in a soul-sucking job just so you can pay the bills? If so, the house may not be worth it. Would you rather have half the house payment and be able to change jobs or dial it back? That sounds more fun/rich to me.
Also consider that some things are strictly a means to an end. At times, I feel like I’m running ragged with work and agitated with the minutia. But I’m ok with it, because I know that the hard work now, will translate to financial independence in the foreseeable future. I’m willing to deal with some of the 💩now to get the prize.
Find out what “rich” means to you. Don’t let others define it for you. Spend on what matters to you. Work hard to get it.