#15 The Value of Discreet Wealth đ€«
What's more important, being wealthy or appearing wealthy?
Happy Saturday everyone, and a warm welcome to all you new people who have subscribed over the last week! đ
As we progress on this journey together, itâs my hope that you will pick up some useful pieces of information, some different ways of doing things, and come across new ideas about how to manage and grow your wealth, all helpfully emphasised by some simple visuals.
One of the tempting things to do once you start growing your wealth is to start spending it on what Mr Money Mustache would call a âFancyPants Lifestyleâ, splurging on high ticket items to show off your newfound wealth.
This newsletter edition is hopefully the antidote to that, to show that keeping your growing wealth hidden and out of sight is perhaps the best thing that you could do for it.
Letâs jump in!
Fake it Until you Make it (Or Go Broke Trying!)
In his book The Psychology of Money (essential reading by the way!), Morgan Housel writes that âSpending money to show people how much money you have is the fastest way to have less moneyâ.
This phrase stopped me dead in my tracks when I read it.
We see people above us in the âsocial hierarchyâ who eat at certain restaurants, who wear expensive time pieces and drive cars that cost more than a house and we think that we should to be like them.
We try to copy what they do, even if we cannot necessarily afford to do so ourselves.
We want the status that we confer on that person for owning that item to be bestowed upon us.
So what do we do?
We go and buy it, irrespective of whether we can really afford it or not, so that other people look at us, precisely how we look at the people who influenced us. We respect and admire those people because of the things that they have, without actually pausing to consider whether we admire the person themselves.
The paradox is that what we want from people is respect and admiration, but the things that we buy to get there only serve to continue the perpetual loop of admiring the possessions of others.
All the while, you are spending large portions of your wealth, or even going into debt to afford this high ticket lifestyle.
But itâs all vaporware. A smoke curtain if you will, giving the appearance of wealth when in fact there is really very little (owning a Ferrari and a Rolex and being up to your neck in debt is not wealth)
Consider this the next time you consider doing something that the âwealthyâ do, in order to appear more like them.
Are you doing this because you genuinely want to?
Or are you simply spending money that you donât have on things that you donât need to impress people whose opinions that you donât care about?
Wealth is What You Donât Spend
This goes without saying, but while you are spending your wealth on things that are not assets, not only is your net worth decreasing, but the effect is being dramatically increased by the fact that youâre missing out on the compound interest of keeping that money invested.
Now, this isnât to say that you shouldnât eat there or buy those shoes.
But you should also understand the effect that this is having on your future net worth.
As we established in one of the previous editions, being wealthy is about holding on to your money. Itâs about what you donât spend.
Because true wealth is about being able to do what you want with your life. The possibility to live where you want to, and work on what you want, and spend time with those who you care about.
Money is the tool to get you to that point, and the more of it that you use towards achieving that, the faster you will get there.
Are you willing to sacrifice years of extra financial freedom simply because you want to appear wealthy to others?
The Pressure of Expectation
Being wealthy can also bring itâs own problems.
If you are loud with your money, and you try to show everyone that you have a lot, then people will expect things of you.
You will be expected to pay, to help out in case of financial situations amongst friends and family. People will look to you with these expectations because, after all, youâre the âwealthy oneâ.
Now, Iâm not for one moment suggesting that you shouldnât do those things. Being able to give and to help is one of the most (if not THE most) rewarding thing that you can do with your money.
But isnât it so much nicer when the expectation isnât there?
When you can do something to help someone else without having been asked first. When you can surprise the other person with your generosity.
Because then it becomes something that you want to do, rather than something that youâre obliged to do.
By removing the societal expectation of what you should do, you can focus on doing what you want to do.
And your inner peace will thank you indefinitely for it.
Your personal finance and wealth is personal.
Nobody else needs to know about it, and by being discreet about it, youâll actually become wealthier, faster.
Nothing is more liberating that when society and those around do not impose their expectations on you.
Because apart from the tranquility that gives you, itâs certainly nice to be able to surprise people once in a while with your generosity.
Have a great weekend!
Felix