1. You Cannot Personal Finance Your Way Out Of Poverty
The best selling secret to doing well financially is “cut on your expenses and live below your means. Only spend on the essentials and save everything else.”
That’s the secret that financial gurus sell to people as the only secret to getting rich. They expect everyone regardless of their levels of income to be able to have a high savings rate.
What they do not tell you is that it is easier to save money when you have a high income and studies have proven this. People with higher incomes tend to have higher saving rates than people with lower incomes.
In his book, Just Keep Buying, Nick Maggiulli writes,
“The “secret” is the thing in personal finance that no one wants to talk about: it’s easy to save money when you have a high income.
In all seriousness, you can talk about cutting expenses all you want but it’s income that builds wealth.Nick Maggiuli
This is why the personal finance industry loves the “cut your lattes and get rich” style of advice. They love it because it opens a new door in a world where the other door(high income) is closed for most people.”
Low income earners don’t even manage to meet their essential needs. Yet we expect them to put money aside and save. Remember you cannot reduce your expenses to zero. You still have to eat and meet other basic needs.
Yes, cutting your expenses works, but often the problem is low-incomes. You can talk about cutting your expenses all you want, but you cannot personal finance out of poverty.
2. Conscious Spending vs Frugality
For most people, personal finance means living below your means, never spending on things you love because you only spend money on your necessities. This means never eating out at fancy restaurants, you don’t fly first class, you don’t go for expensive holidays.
We want to deprive ourselves of all the good things that money can help us achieve.
Everyone is shouting how we should try to cut down on unnecessary expenses and save as much as we can. No one ever talks about how we should spend money to improve our lives.
In his book, “I will Teach You How To Be Rich,” Ramit Sethi writes,
“My friend Jim once called me to tell me that he’d gotten a raise at work. On the same day, he moved into a smaller apartment. Why? Because he doesn’t care much about where he lives, but he loves spending money on camping and biking.Ramit Sethi
That’s called conscious spending. Conscious spending isn’t about cutting your expenses on everything. That approach wouldn’t last two days. It is quite simply, about choosing the things you love enough to spend extravagantly on – and then cutting costs mercilessly on the things you don’t love.”
Imagine what your rich life would be like. What are some of the things that you would want to never worry about in your life? What would you like your money to do for you?
Enjoying money and using it to improve your life is not as bad as financial gurus make it seem. If you do it right, it helps you improve the quality of your life.
3. The True Definition of Being A Millionaire
When most people think of acquiring wealth, they think of buying luxurious cars, houses, expensive holidays, eating at fancy restaurants. They falsely think that being rich is all about spending huge amounts of money.
In the Psychology of Money, Morgan Housel writes.
When most people say they want to be millionaires, what they usually mean is that they want to spend a million dollars. And that is the literal opposite of being a millionaire.”Morgan Housel
Being wealthy isn’t about spending a lot of money, it’s about saving and investing a lot of money. It’s about having a high income, accompanied by a high savings rate and wise investing. More importantly is about learning to be satisfied with less. That’s the price that you have to pay before you are able to spend huge chunks of money on luxurious items without going broke.
4. Contentment is a Result of Managed Expectations
When most people say that money doesn’t buy happiness, what they mean is that money doesn’t buy values that matter in life. Money can buy the fanciest of cars, the biggest of mansions, the vastest of land, but money will never buy you contentment. Money will never buy you the knowledge that you’ve got enough. Money will never buy you a manual on how to count your blessings and appreciate how far you’ve come in life.
In his new book, Same as Ever, Morgan Housel wrote,
“Yet the point stands: we might have higher incomes, more wealth, and bigger homes – but it’s all so quickly smothered by inflated expectations.
We spend so much effort trying to improve our income, skills and ability to forecast the future – all good stuff worthy of our attention. But on the other side there’s an almost complete ignorance of expectations, especially managing them with as much effort as we put into changing our circumstances.Morgan Housel
Imagine a life where almost everything gets better but you never appreciate it because your expectations rise as fast as your circumstances. It’s terrifying, and almost as bad as a world where nothing gets better.”