Some of us believe that rich people know something that the rest of us don’t; that at some point in their lives they were let in on a little known secret. And they’ve used that knowledge to gain immense wealth. At least that’s what it must be right, a secret or trick the financial elite picked up along the way.
When you or I imagine a wealthy person we tend to view them as “dripping in diamonds” or showing off their wealth at every point possible. We imagine we can tell the rich from the rest of us by the clothes they wear; impeccably tailored outfits made with the finest of materials some of which display the luxury brand from which they come (Yves St Laurent, Chanel). It’s also thought that you can tell by where they live; in mega mansions that dot the oceans, lakes and most prestigious streets in upscale communities. You can easily spot wealth by the cars they drive; Bentley’s and Roll’s Royce’s are the vehicle du jour for these financial elite. Plus they tend to acquire luxury accessories like Rolex watches and designer handbags.
But what if I told you that the image most of have in our head of millionaires is wrong? That most don’t drive Bentley’s, wear brand name clothing, live in expensive mansions, or spend much money on luxury accessories.
Is this the secret to real wealth? Perhaps, but probably not.
So then who is buying all those Armani suits, bottles of Grey Goose vodka, Gucci handbags, and BMW’s? According to Dr. Thomas J. Stanley, who studied the habits and buying patterns of America’s financial elite for his bestselling book The Millionaire Next Door, it’s a type of person who he terms “aspirationals.”
In his book Dr. Stanley describes “aspirationals” as people who want to be rich and therefore act like the stereotype they have in their mind of a rich person. They buy expensive trappings of wealth to fill a material void created by a faulty perception. This hyper-consumerism leads people to buy items that they can afford, but at a detriment to their financial well-being. It leads to a drain on savings and increased credit card debt.
In truth millionaire’s live an entirely different way than most of us perceive. In fact most of the people who have more than a million dollars or more in assets after liabilities:
- Live in a house that costs $400,000 or less.
- Do not own more than one primary residence.
- Do not own a boat.
- Generally pay less than $15 for a bottle of wine.
- Are more likely to drive a Toyota than a BMW.
- Have never paid more than $400 for a suit.
- Spend very little on prestige brands and other luxury items.
That’s probably not the idea you had in your head of a rich person is it? Perception is a funny thing. It colors the way we view the world, the people in it, influences the things we buy and choices we make. We perceive wealth through the display of prestigious brands and luxury items. When we perceive something we think we know something. The downside to this line of thinking is that our perceptions are usually off and that leads to poor decision making.
When we buy these brands we perceive as exclusive to the financial elite we do ourselves no good. $600 handbags…$200 bottles of alcohol…$75,000 cars…$7,000 watches…$200 cell phones…after these kinds of expensive purchases it makes it really hard to save money. Even those of us who make good money, over $100,000 a year, would find it hard to purchase these goods and save a lot of money. In fact regular purchases of these kinds of trappings will actually prevent you from becoming wealthy.
This is the real secret of the wealthy elite in our nation.
Rich people aren’t necessarily smarter than us and they don’t know anything we don’t know either. But what they do that sets them apart from the middle class is to spend far less than what they earn, save the difference and invest it to make them even more money.
The people who are actually wealthy in this country don’t spend nearly as much of their income as the rest of us do, at least not percentage wise. They don’t get caught up in the trappings of wealth. Rather they recognize that true wealth comes from experiences; time spent with family and friends. They realize that a night sitting on the back porch, eating off paper plates with their loved ones is just as enjoyable as a night out at Morton’s Steak House with a $150 bottle of wine.
Income has a lot less to do with wealth than you might think. Sure you can make $250,000 a year, but how wealthy are you becoming if you spend $275,000 each year. Plus if your salary goes down you still have the bills to go along with it.
It’s much better to make $100,000 a year and save $25,000. This way you’re actually building wealth by living within your means.
The rich also realize that living rich isn’t about owning powerboats or vacation homes on the lake. They aren’t working their fingers to the bone chasing things that will inevitably become out of date, obsolete, thrown away and forgotten, instead they are living within their means and enjoying the freedom and peace of mind that comes from that.
Another secret of the real rich is that they hate debt. If you can’t afford to buy it in cash you probably shouldn’t. You become rich by collecting interest on your money, not paying interest to own cars, TV’s, boats, and other toys.
The rich know that those that flaunt their wealth aren’t truly rich. That’s probably why they don’t display their wealth as prominently as the rest of us do. To them it’s more important to have freedom. To be able to do what they want, when they want, with who they want.
So the next time someone asks, “What’s the secret to being rich?” You can turn to them with confidence and say that it’s not some trick or secret passed on to only a select few. And no the rich aren’t smarter than the rest of us. The knowledge on how to live rich and be successful is available to us all.
Tell yourself and everyone who will listen that financial freedom is the most powerful secret of all. You become wealthy one dollar at a time. Buying expensive luxury items just makes you poorer.
So live within your means and over time you can be sitting on a million dollar bank account too.
Keeping Money in Your Pocket,