Live a rich life AND build wealth

Live a rich life AND build wealth
hazelw90 / Pixabay

Most people think living a “rich” life means having the most expensive cars, houses and clothes you can buy… while enjoying meals at the top-rated restaurants and stays at the best hotels. But as Mark Ford shares this week, there is only a marginal relationship between how much you spend on housing, transportation and toys and the enjoyment you can derive from them. And there’s a much easier – and cheaper – way to have a rich life.

I grew up relatively poor, the second of eight children. My father earned US$12,000 a year as a college professor. As a teenager, I was ashamed of our small house, my hand-me-down clothes and my peanut-butter-and-jelly sandwiches.

I dreamed, literally dreamed, of living like a rich man.

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And so, when I got my first job at age nine as a paperboy –and then at 12 as a lackey at the local carwash –I would spend my money on luxuries, like a pair of brand-new shoes.

I worked every chance I got through high school, and then worked two or three jobs during college and graduate school. I spent 80 percent of my money on necessities: food, clothes and tuition. But I always spent a bit on little niceties. Even back then, I had the notion that I didn’t need to deprive myself now for some better life later.

I tell you this to emphasize a key part of the simple money-management system I’ve used to generate millions in wealth…

I don’t believe in scrimping severely to optimize savings. I believe you can live a rich life while you grow rich, so long as you are willing to work hard and you are smart about your spending.

Think of the typical earning/spending/saving pattern of most wealth-seekers…

During their 20s, they spend every nickel of their modest income to make ends meet. At that age, it is nearly impossible to put aside money for the future.

During their 30s, their income increases. But this is also when they start a family. Expenses soar. There are more mouths to feed, a “family” car to buy and the dreaded down payment on a first house. They manage to keep a little during these years, but not nearly as much as they thought they would.

If they work hard and make good career decisions, their income climbs much higher in their 40s and early 50s. They have more money to put aside for the future, but they are also tempted into buying newer cars, nicer clothes, more exotic vacations and –the biggest wealth-stealer of them all – that dream house.

In their later 50s and 60s, their income plateaus or even dips… and they may have to start shelling out for college tuition. Aware that their retirement funds are being depleted rather than enhanced, they invest aggressively to try to make up the difference.

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Finally, sometime in their mid- to late 60s, they realize that they don’t have enough money to retire. They have spent almost 40 years working hard and chasing wealth, but they never managed to attain it.

It’s sad, but it’s the reality for most people. And it is just as true for high-income earners (doctors, lawyers, etc.) as it is for working-class folks.

There are two lessons to be drawn from this:

First, it is very difficult to acquire wealth if you increase your spending every time your income goes up.

Second, setting unrealistic investing goals means taking greater risks. And taking more risks, contrary to what many pundits say, will almost always make you poorer… not richer.

The truth is, there is only a marginal relationship between how much you spend on housing, transportation, vacations and toys, and the enjoyment you can derive from them.

My spending strategy is simple: Discover your own, less expensive way to live a rich life. By a “rich life,” I mean a life without financial stress, but also filled with things that give you pleasure.

The fact is that you can own and enjoy the world’s finest things – the things that make life luxurious – for a tiny fraction of what a billionaire might pay. For example…

  • You don’t have to “pay up” for a US$175,000 Savoir Beds mattress. You’ll sleep just as well on a US$3,000 Stearns & Foster Silver Dream collection mattress – or on one you can make yourself for US$1,000.
  • A bottle of 1989 Château Haut-Brion wine will set you back US$1,700. But a Crozes-Hermitage White Petite Ruche 2012, which scored a 92 on Wine Spectator, will taste nearly as good and only cost you US$30.
  • You could cough up US$140,500 on a Maserati Quattroporte car. Or you could spend US$40,000 on a used BMW 760Li that, I think, is more beautiful, comfortable, functional and durable.
  • Everyone dreams of spending a few US$1,500 nights in the Hôtel Barrière Le Fouquet’s in Paris, France. But you’ll have a better, cozier, “richer” experience at a US$300 per night bed and breakfast.
  • Your family can be just as happy in a house that costs $100,000 or $200,000 as opposed to one that costs $10 million or $20 million.
  • Brand names are parasites that gobble up wealth. You could buy off-brand items that work just as well or better and keep tens of thousands of dollars while losing none of the prestige.

Make smart spending decisions. Stop thinking that because you’re earning more money, you should be spending more. Your future wealth depends on how much you keep and invest, not on how much you spend.

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