Tag Archives: wealth

It’s Expensive to Pretend to Be Rich

 

In broad terms, the most common goal for most people is to save money and get out of debt. It costs a lot more money to pretend to be rich, than to actually become rich. There isn’t a difference between a $40 pair of jeans and one that costs $400. Except one thing. When you know what that is, and how important that difference is to you, I can predict your financial destiny.

Pretend wealth means the latest, greatest whatever. Whether it’s fashions or the newest gadget, cars, shoes, or sports gear. It also means these things need to be replaced every season, or with every new model. That gets very expensive. My iPhone 4 works fine – but there are millions of people who had a four, then a five, now a six, and can’t wait for the iPhone 7 to come out soon.

That’s money spent that can’t be saved in just keeping up. No, you won’t take every dollar you save on skipping one season’s fashions and put it into investments. You’ll read that from some people, but it isn’t real life. But saving $200 to $400 a month builds wealth. It’s not flashy, nobody knows it, nobody can actually see it, but it’s real and it’ll grow and grow.

You’ve heard and read the sentiment of pretty much resenting the “top 10 percent,” or that the top one percent keep getting richer. Well, it’s kind of unfair. Most of those people skipped the “gotta impress people” stage and started saving. Years later, their investments grew to hundreds of thousands of dollars. THAT is how they keep getting richer while the image-people keep spending and going broke.

Yes, the top 10% have it made. A $50,000 investment that took years to build will grow $5,000 or so every single year on auto-pilot. The image people spend that a year on credit card payments. It’s not a fair fight or comparison..

Someone on Facebook with me lives in a winter city. He started Facebook posts in September when he bought a super-expensive exotic sports car. Hundreds of likes and comments every month or so. I bet those people are really envious. Well, it turns out it’s a three-year lease at $1,300 a month. He’s still re-posting pictures of it every few months to keep getting the bang for the impressing-you buck…even the six months he can’t drive it..

In three years, he has to return the lease, or pay the lease buyout with another loan. He’s out $50,000 or so in payments..but has hundreds of FB likes and people who are super impressed…versus the $50,000 in investment…There’s a difference – a big difference.

What’s The Definition Of Rich?

On the flipside of most people being broke and deep in payment debt, there are rich people out there – a lot of them. They don’t have debts or monthly payments. That’s the only way to build wealth: Pay yourself, instead of paying everyone else.

But what’s the actually definition of being rich? Start by asking your kids or grandkids. When you’re out for a drive or a walk, ask them if they’d think that someone living in that huge, beautiful house would be rich? Would it be the person in that super-huge, new SUV that probably cost over $100,000? I’ll guarantee you that every kid will vote that those are the rich people. The bad news: That’ll likely be their attitude for a lifetime of how society measures them. That’s a recipe for debts and being broke and it’s set before they become teenagers. The good news: It’s a great teaching opportunity if you ask a bunch of follow-up questions such as: how do you know they don’t have $700 payments on that vehicle? How do you know how much they owe on their house? How can you tell by walking by the house if they have a huge savings account? If nothing else, it gets them thinking.

What makes a person rich, financially, is just as hard for us adults to define. I’ll always remember an email SOS from a California doctor who had eight rental houses when the US housing market crashed. He lost all eight as well as his primary residence. But you’d surely have thought he was rich. Well, it was all borrowed money and leveraged to the hit – he was never rich – he was living an illusion.

Wealth, real wealth, isn’t something you can ever see. Nobody posts their RRSP statements, or the free and clear title to their home on the front door. The majority of the time, what you see isn’t wealth – it’s consumption and toys. Warren Buffett drives a four-year old vehicle and lives in the same house he bought decades ago for under $40,000. He’s worth billions, but you can’t see any of it by walking by his house.

Unfortunately, your kids, probably as much as us adults, judge the definition by the cars, toys, clothes, gadgets and homes. But, behind the facade, there’s usually a ton of debts, a huge mortgage, the credit card balances and that line of credit which has been around so long it’s treated like a family member.