The media likes to paint a certain picture of what it means to be rich — huge mansions, expensive cars and exclusive country clubs. But what’s behind those obvious displays of wealth, isn’t very sexy at all. And with wealth building, there’s a tendency for some to ignore the unsexy. But people who do ignore wealth building techniques that aren’t flashy, usually don’t ending up building the riches they desire. Nope.
You see, the secret to getting rich is as powerful as it is unexciting – living below your means.
It’s easy to see how the consequences of living below your means is important when you’re just starting out. Without doing so, you’ll never build funds to buy a house, or a car or start a family. And you’ll certainly never build investment capital by spending more than you make.
What’s less obvious however, is how this mental habit remains crucial to your investment success even after your net worth has soared into the millions.
Very simply, without having this attitude about money pervade your life, you won’t keep what you’ve earned. Spending money is brain dead simple. In fact, anyone can do it and some have even mastered it. But making money, and more importantly keeping money, is not so simple. That’s why living below your means is the very philosophy that underlies the foundation of every wealthy person’s success: preservation of capital.
Many people want to be rich for the high life that it brings – flying first class, living it up on the French Riviera, drinking champagne and feasting on caviar, and to go shopping on Rodeo Drive without a second thought as to the costs.
Before we go any further, let me state this – there’s nothing wrong with enjoying the finer things in life if you can truly afford them. I have and continually do. In fact, I personally think minimalism is a disease. After all, why would you want to experience the least that life has to offer? Like Mae West said, “More of a good thing is a good thing.”
So, if living it up is not the problem, what is? It’s this…
Which Comes First, Riches Are Pretend Riches?
Many people who have the live-it-up attitude to money don’t wait until their rich before they start indulging their fantasies, even if on a small scale. As a result, they never accumulate any significant capital, or worse they go into debt so that they can live beyond their means, which cements their status in the poor or middle class.
Let me be clear here – When it comes to building wealth, how much money you make is important but it’s not the most important thing. What matters most is how much you get to keep at the end of the day. There are hundreds of thousands of people who make a lot of money and then proceed to spend every cent they make and more. They drive fancy cars, go to the fancy clubs and live a “millionaire’s lifestyle”, only they’re not millionaires. They’re known as $100K millionaires. They make $100,000 a year but live like they make a million. These people will never be rich.
Look, I realize that living within your means is the least sexy concept in personal finance. But of all the principles I teach about building wealth like investing and compound interest, none of them adds up to a bean if more money goes out the door than you have coming in.
And that’s true regardless of the size of your monthly income. Spending less than you earn is as important when you’re rich as it is when you’re trying to get there – assuming you want to stay that way. Think I’m wrong?
Just think of all the sports stars who’ve gone bankrupt, or the lottery winners who end up with nothing. Spending less than you make is not a way for now, it’s the way for life.
There are a million ways to go broke, but persistently living beyond your means is the one that never fails. Even reckless investments occasionally pay off. But if your outgoings exceed your income it is guaranteed to leave you with nothing.
“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” – David Copperfield, by Charles Dickens.
Know this – The joy of spending less than you earn is it always leaves you with something. A seed. A beginning. A bit of sand in the oyster that you can grow into a pearl.
Little Things Make Big Things Happen
And that leftover money you have every month holds the key to your future financial freedom. As John Wooden said, “Little things make big things happen.” What does a penny doubled every day turn into after 30 days? The answer is $5,368,709.12.
Too boring? I have people contact me all the time that want my advice on how to start a business, invest in the stock market or to build their own property empire All sexy things indeed.
My advice to them? Spend less than you earn. Take the difference and start an investment capital fund. Then invest. Yes, it’s boring. But yes, it absolutely works. Always has. Always will.
In summary, wealth is foremost a state of the mind. In the words of Charlie Munger: “I had a considerable passion to get rich, not because I wanted Ferraris – I wanted the independence. I desperately wanted it.” If you share this same philosophy to become financially free, the last thing you’ll do is jeopardize it by blowing all your money.
And if you’re still not convinced that living below your means is the very key to financial freedom, there is an alternative – the debt-laden life of the middle class, a life characterized by being jolted awake by an alarm clock at an obscene hour, so that you can commute an hour and a half in traffic hell, just to get to a job that you literally hate, in order to spend your day amongst idiots and deal with an insane boss.
That’s not a life friends.
What is a life? Spending less than you make. Investing the difference. Becoming rich. Living free. That’s a life.
Be free. Nothing else is worth it.
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P.S.S. What’s this got to do with you? If you don’t take action, absolutely nothing. But remember this – most people fail to achieve what they want in life simply because they never start. There’s nothing for sale on this blog or in my newsletter. I just provide actionable advice for free. Lastly, if your definition of achieving success cannot tolerate even the slightest inconvenience, then you are not cut-out for success. What do you have to lose? Subscribe today.
Ready for more tips on how to achieve the free life? Check-out more articles from the blog archives below: