Last night, I read this article from Kiplinger’s about “The Invisible Rich”. This article sums up everything I believe about money and how to become wealthy. We are programmed from an early age that money comes easy, wealth can be built quickly, and that having nice things is an indication of having a lot of money. It’s simply not true. Net worth is really the only indicator of someone’s wealth. You either have money or you don’t have money. Sure, you could have a lot of stuff that added up to a large sum of money, but those assets are depreciating, so every year your net worth is decreasing because of depreciation. Here’s my favorite line:
The message in all this: The biggest barrier to becoming rich is living like you’re rich before you are. Why? Because all that discretionary spending — the chic apartment, frequent travel and restaurant meals, consumer electronics, fancy clothes and cars — crowds out the saving that will enable you to be rich someday.
If you never learn anything else about personal finance, learn this one thing. You can never build wealth if you’re constantly trying to act like you’re wealthy. Our culture is so obsessed with stuff. We want nice cars, a nice house, a nice TV, a nice laptop, and nice clothes. This starts as soon as we get that first job and we’re making decent money. The hardest thing to overcome as a young person is to transition from a broke college student to a broke professional with a monthly income. The first thing many young people do is go and buy a car on credit with a hefty car payment. Then, they buy brand-name business clothes at retail prices, and then they buy some new furniture from Rooms-To-Go at sticker price. Isn’t it true?
If you can master the art of supressing your wants and pay cash for big-ticket items at a young age, it will set you up for a much easier path to wealth. Be invisible at a young age. Don’t draw attention to yourself. If you buy a house, make it a modest one. If you buy a car, buy a used one. If you buy a suit, buy it from JC Penney. Thomas Stanley’s famous book, “The Millionaire Next Door” is all about the average millionaire, and Stanley’s findingers were remarkable. Most millionaires drove used cars, wore suits off the rack, and they lived in modest homes. But, they had a HUGE net worth. Will this be you?