Want to know the secrets of the rich?
Want to know how the 1% became the 1%?
Want to know how you can go from drowning in debt to getting “the man” to pay you extra every single month?
Here it is.
Spend less than you make.
Yep. That’s it.
Raise your hand if you’re disappointed. Hmmm…that appears to be most of you.
The problem is “spend less than you make” is not a message most of us want to hear. It doesn’t sound magical. It doesn’t sound financially sophisticated. It doesn’t sound like something Bill Gates or Warren Buffet or Mark Zuckerberg or Jeff Bezos or Elon Musk would do. (What’s up with the lack of women on this list?)
But the cold hard truth is that “spend less than you make” is the most efficient way to build wealth.
So why don’t we do that?
Likely because it means changing the way we’ve been living. Changing how we shop for groceries. Changing how often we eat out at restaurants, kicking cable TV to the curb, skipping that next shopping trip, packing peanut butter and jelly sandwiches for work, selling our gas guzzling car, or any number of other changes that totally sound awful.
But you know what else is completely awful?
Working for 20, 30 or 40 years only to end up broke and dependent on the government.
And if we don’t change, that’s exactly the plan we’re choosing whether we mean to or not.
Wealth Is Invisible
Did you read that headline? Go read it again. I’ll wait.
Now say it out loud.
Wealth is invisible.
You and I cannot see wealth. But we think we can, and that screws up our perception, making us spend our hard earned money like we have no clue how money works.
Don’t believe me?
Look at this quick example.
Mike has a take home pay of $100,000 a year.
- Mike drives a very nice car that he financed.
- Mike lives in a nice house in a nice neighborhood with a mortgage that he feels like he can afford.
- Mike financed the furniture that fills his house.
- Mike uses his credit cards to buy nice clothes and the latest technology gadgets.
- Mike has a wonderfully large TV with an amazing cable TV package.
- Mike works hard, and often late, so he ends up eating out 4 to 5 times a week, using his credit cards.
- Mike’s last washer and dryer were 7 years old, and he didn’t think his dryer was getting the job done to his satisfaction, so he bought the best new washer and dryer combo he could find and got a “great deal” by financing it.
Now, at the end of the year, it turns out that Mike spent $110,000. That’s $10,000 more than he made this year.
And he likely never even realized it because it’s just buried in all those credit card purchases.
Now let’s look at Dana.
Dana has a take home pay of $35,000 a year.
- Dana makes a shopping list and eats at home a lot.
- Dana has some nice clothes, but only buys new clothes once or twice a year.
- Dana drives an older paid-for car.
- She rents a nice apartment in a lower middle class neighborhood.
- Her furniture is outdated, but it does the job.
- Her TV is older. She doesn’t have cable, but watches shows and movies on Netflix.
- Her cell phone is 4 years old, but works just fine for her.
- She only owns 6 pairs of shoes that she rotates generously.
- She doesn’t even have any credit cards.
At the end of the year Dana has spent $30,000. That’s $5,000 less than she made.
Now let’s look into the future. Assuming nothing changes in Mike and Dana’s finances, in 5 years…
- Mike will be $50,000 in debt
- Dana will have $25,000 in savings.
But here’s the ugly truth.
If you and I saw Mike and Dana around town – seeing the car they drive, seeing the clothes they wear, perhaps seeing which neighborhood they drove out of – we would automatically assume Mike is doing better financially.
And we would be completely wrong.
All we can see with our eyes are material possessions.
We can’t see wealth.
- We can’t see how much they have in their savings account.
- We can’t see how much debt they have.
- We can’t see if their car is paid off.
- We can’t see if they’re carrying a massive debt load on credit cards.
- We can’t see how much they have invested in a 401k or Roth IRA or brokerage account.
Basically, we can’t see anything that really matters financially, and yet most of us would secretly wish to be more like Mike and less like Dana.
And that’s exactly how we get this money thing so screwed up.
We have to understand that in our consumer-centric culture, an abundance of material possessions is more likely a sign of debt, not wealth.
It’s more likely a sign of crisis living, not financial security.
It’s more likely a sign of people owned by their possessions, not people owning their possessions.
So if we’re going to get serious about saving money, destroying debt, and building wealth, we have to get serious about letting go of material possessions.
Not forever, but for a season while we buckle down, get gazelle intense and start taking control of our money using the power of the budget.
We have to start getting comfortable looking and acting different than those around us.
We have to list our debts, smallest to largest, and start killing them off like target practice.
We have to discover that there are some really great used clothes on the rack at the local thrift shop.
We have to shop smarter, and shop less.
We have to say no to ourselves on a daily basis, so one day we can say yes to things we’ve always wanted without any guilt.
And, if we’re married, we have to show our spouse that we’re in this together, and start making hard sacrifices for the sake of our shared future.
And we have to do these things because 5 years is going to pass, and 10 years, and 15, and we don’t want to look back and regret that we didn’t get started right now!
Our families and our communities are desperate for us to get our act together.
Stop trying to look wealthy and realize true wealth is invisible.
Have you ever fallen into the trap of thinking your stuff made you rich? (Haven’t we all?) What’s one thing that you bought that you just loved at the time but now you realize was a complete waste of money? Please share in the comments below.