It’s a sunny Sunday morning and you’re out for a walk to your local coffee shop for your weekend latte. As you approach an intersection, you see someone drive past in their new luxury SUV. What is your first thought?
Wow that person must have a lot of money!
There is a common misperception that having nice flashy things equates to having a lot of money or being wealthy. While these two things are not unrelated, they are loosely correlated at best. In fact, the opposite is often true when we try to keep up with the Joneses through conspicuous consumption.
Spending your hard earned money on depreciating assets is a necessity in life. After all, we all need clothes to wear, a car to drive, and some basic household electronics and appliances. But spending more than you need to on luxury brands or a flashy new car is what will set you back on the path to your financial goals.
Building wealth is about saving and investing money.
Saving money is boring. Your money gets socked away in a retirement or investment account and really does not provide you an immediate benefit. If you spend that money on a new TV, you receive the immediate enjoyment of your new TV. But this enjoyment today is at the cost of tomorrow. If you can delay the gratification of spending that money, you can grow that money over the years and harvest a much larger sum later in life.
Wealth is not as flashy as we expect it to be.
You won’t receive a special t-shirt in the mail once you’ve saved your first $10,000, and you won’t receive a celebratory bottle of champagne at $100,000. Building wealth takes place “behind the scenes” and is not outwardly visible. While your neighbor is cruising around town in his new luxury car that he financed with a bank loan, you are driving your ten-year-old Corolla into the ground and investing that money for retirement.
Hollywood and reality television have convinced us that we need to drive a new Range Rover and go shopping at the mall every weekend in order to be wealthy. The fact is, you cannot spend your way to wealth. Buy what you need in order to live comfortably, but take the time and think about what are your wants and what are your needs. Reject conspicuous consumption. The more you save and invest today, the faster and larger you will grow your wealth.
We spend money we don’t have on things we don’t need. George Carlin said it best:
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