Mikestrathdee’s Blog


Living like a rich person is different than you might think
January 21, 2011, 10:05 pm
Filed under: Debt, Financial Management, Investing

Living like a rich person is different than what you might think

As spring approaches, some people will start planning annual spring cleaning projects.

Spring is also a great time to re-examine habits and ways of thinking around money.

For anyone who is interested in building wealth for the future, Thomas J. Stanley’s new book Stop Acting Rich …And start living like a real millionaire is worth a read.

Stanley, a U.S. researcher known for his best-selling book The Millionaire Next Door, has a lot to say about spending.

He takes the old “a dollar saved is $2 earned” thinking several steps further, explaining how the truly wealthy free up money to invest by sticking to reasonably priced goods.

Acting rich is a major obstacle to becoming wealthy, he writes, detailing items that “aspirationals” (his term for wannabes) overspend on for the sake of perceived prestige: homes, cars, clothing, watches, food, beverages, vacations and entertainment.

“Eating off the appetizer menu is what many of us do. We buy select prestige brands, symbols from within product categories that we can barely afford.”

About 86 per cent of all luxury makes of cars are driven by non-millionaires, he discovered. As for the truly wealthy, think Toyota, not BMW. Stanley includes the story of a surgeon who was stopped by a hospital parking lot attendant who didn’t believe that someone in a beat up Honda Civic really worked there, and could be who he said he was.

From the many rich people he studies, Stanley found that ego products and brands are not common among the affluent population. Most rich people become wealthy and stay that way because they are frugal and are investment, not consumption, oriented.

The principles he outlines have wide application, whatever your income level. There is much better chance of becoming wealthy, he suggests, if you don’t imitate the consumption patterns of people who society tends to look up to. Often high status leads to big spending urges, apparently.

In many ways, it is not how much one earns annually that counts: It is how one lives each year. It is how much one saves and how much one invests annually that really matters, he writes.

If you want to become wealthy, the market value of the home you purchase should be less than three times your household’s total annual income, he says.  Nothing has a greater impact on your wealth and your consumption than your choice of house and neighbourhood.

And speaking of property, most millionaires do not own a vacation home.

Stanley found that while there is a strong relationship between income and satisfaction with life, spending the extra money doesn’t make people happier. There is some evidence that giving “enhances one’s level of happiness.’

Within groups of people with the same income level, people who save, invest and are frugal give more, and spenders give less.

Overall, the happiest people are those who live below their means.

Living below our means and giving as a route to happiness. What will they think of next?

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