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The key to wealth: Stop acting rich

Back in 1998, Thomas Stanley wrote a book called The Millionaire Next DoorWhat he discovered was fascinating.  The folks you think are millionaires probably aren’t.  The guy driving the tricked out black Escalade and living in the McMansion?  Odds are that he has a negative net worth and is in debt up to his eyeballs. The plumber on the other hand, who lives in the modest house and drives the old pickup truck?  Good chance he’s a millionaire.

I was so blown away by his book that I tracked him down at his home in North Carolina one day in 2004 and called him out of the blue.  There are probably only a handful of weird stalkers of non-fiction finance authors in the world, and I’m sure he thought I was one of them.

But he was gracious with his time and we talked for about an hour about wealth.  The insights he shared were dynamite.  Even back then, Stanley understood something from his research that most of us are just now coming to terms with.  Debt destroys and savings liberates.

Those 5 words changed my life and have become my personal mantra ever since.  Simply put, living below your means is the key to wealth.

But how do you liberate yourself when the entire financial system is geared towards keeping you enslaved in debt?  How do you repudiate a culture of consumption that destroys wealth?  How do you save, when today saving is penalized?

First: Downsize… Relentlessly

The ostentatious headquarters of Resilient Family Latin America

I own 4 pairs of shorts.  They are all fraying.  I have about 5 t-shirts (Trey gives me shit about this all the time).  These are the “work” clothes I wear to my world headquarters each day (photo to the left… Fancy huh?)  I have a couple pairs of shoes, but most of the time I walk around barefoot… Even at the office.  I no longer even own a suit and I haven’t put on a tie in over 5 years.

Why?  I’m glad you asked. We downsized from a 4000 square foot house in the U.S. to a much smaller and much cheaper 2000 square foot condo in Panama 5 years ago.  We’re a family of five (now) and a dog, so there’s not much room and even less closet space… I simply don’t have the room for many clothes anymore, nor – living in a tropical climate – do I need them.

Curiously, we humans are “nesters” and tend to fill whatever size space we live in to the rafters with junk… So, less space equals less junk. If you want to start cutting back on consumption, downsize – your car, your house, your possessions.

Incidentally, for us, there’s an added benefit to the smaller, cheaper condo. Sure, our enclosed living space is much smaller, but now this is our living room.

Second: Acquire experiences, not things…

Back in 2003 before reading Stanley’s book I financed a really expensive Acura TL sedan.  Leather interior, temperature-controlled seats, XM-Sirius radio, cool-aqua-blue backlit dashboard.  The car was bad-to-the-bone… And it totally stressed me out.

I worried about getting in a wreck, someone dinging it with the car door, the car being stolen, the monthly payment.  I finally said “screw it”, sold it and just went back to driving my junky old Ford F150. Mental state improved immediately.

Acquiring things clutters the mind and empties the wallet. Experiences free the mind, can be done on the cheap, and are longer lasting.  Ask yourself this: When you’re in diapers at the Trembling Hills Retirement Home years from now, will you tear up with bittersweet memories about that 60 inch high-def, wall-mounted TV?  Will you spin yarns to the grandkids about the wonderful times you had with your iPad 3?

One of life’s truths is that wealth is achieved with those things money can’t buy; swimming under waterfalls with the kids; learning to surf; a morning run on an empty beach; swinging in a hammock; mountain biking in the middle of a majestic rain forest; planting a garden at the kids’ school; watching just-hatched baby sea turtles make a run for it.

If you are going to spend money, make it count.  Don’t buy some cheap-ass doohickey at the Wal Mart that’s going to end up in a landfill 6 months from now, invest in experiences.  They pay way higher dividends.

Third: Think of debt and hyper-consumption as slavery, and possessions as your personal prison

Excessive consumerism is detrimental to your net worth. The culture of false wealth (consumerism) in pursuit of a prestige lifestyle will most definitely enslave you.

Michael Mihalik, the author of Debt is Slavery puts it best.  Debt is bad because it restricts your freedom.  Borrowers are put in financial servitude to lenders.

Likewise, as Tyler Durden said in Fight Club, “the things you own end up owning you.”  First, the things you buy are paid for by lost experiences (see above). Second, the things you buy cause mental stress and worry (see above).

So, the next time you get the urge to charge something big on your credit card or finance some large purchase, keep this handy and watch it first:

The debt you take on will further enrich folks like Dick Fuld, Hank Paulson, John Thain, Tim Geithner, Ben Bernanke, Lloyd Blankfein, Jamie Dimon and the rest…while further enslaving you.

When you think about it that way, it should be a no-brainer.

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16 Responses to "The key to wealth: Stop acting rich"

  1. Trey Morrison says:

    Great post! I just took a picture of my office and car but I can’t put them in the comments I guess.

  2. contrarian says:

    [BUMP]

    Amen

  3. kaye says:

    Coley,
    Great article….TONS of food for thought. Thank you!!!
    Kaye

  4. Tyler says:

    Here’s a great website that’s been around since 1995 dedicated to saving money and doing exactly what this page talks about. Zero ads too.

    Great sections on gardening, fighting and defeating the system and other things of value to normal everyday folks.

    http://www.verdant.net

    Overcoming Consumerism

  5. NETCENTS says:

    This article is contradictory. The Millionaire next door, who -by definition- has saved a million dollars has forgone many experiences to save that money. The savings represents trips not taken and memories not made. The saver didn’t even have the luxury of having enjoyed driving the nicer more comfortable car. Don’t get me wrong, I agree with about 90% of this article, especially about liberating yourself from being a debt slave but there needs to be moderation in all things (except possibly with respect to debt). the less of that the better, and none is best of all. No debt, a reasonably sized yet comfortable house that you can afford to pay off early, as nice a car as you can afford without depleating too much savings and obviously without going into debt are all fine. Simply live (at least slightly) below your means, pay off debt and save the excess when debts are eliminated and this will eventually get you wealthy. In our day and time it’s absolutely essential that you practice a little “nesting” and buy (not on credit) some extra essentials to store up for a rainy day, such as food, soap, a couple firearms and some lead, etc.

    • Trey Morrison says:

      It is indeed hard to find the balance between living for the now and saving for the future. Personally I do not get enjoyment out of the “nicer” house or car. I drive a 1994 Chevy pickup truck, and Coley mentioned in his article about how his mental state improved when he sold the nice car (not paid for) and started driving an old truck (paid for). But I love to travel and to eat out and these can add up quickly. All in all I think one needs a plan. I have guns, ammo, food and silver stashed away just in case. I own foreign real estate. I have enough passive income to cover basic expenses. I do not save much money, but I have a lot of real estate, and I do not count on the value going up, but I do count on my tenants paying down my notes. That is my savings.

      Thanks for the insightful comment!

    • Coley Hudgins says:

      Yeah… I guess I could see the contradiction. The broader point I was trying to make is that “retail therapy” (consumerism) is a loser every time. Experiences can be free or very low cost — e.g. all of the examples I cited — and they do pay higher dividends.

      Incidentally, while I really admire Stanley and love his books, I think spend-thriftiness can be taken to the extreme. Acquiring a million bucks only to be able to enjoy it for the few years between retirement and death strikes me as delayed gratification to the extreme. Others may disagree, but I’m all for healthy balance.

      As for “nesting”, sure I’ll concede that there’s productive and unproductive nesting. Wily-nily buying stuff in a gluttonous Hoarders-like fashion at the Wal Mart would be the latter.

  6. Karyn says:

    Or hopping into the 6 seater and flying out to Punta Coco to experience Canadian Thanksgiving Breakfast aboard the Pacific Provider. Followed by an adventure hike that almost found us marooned on the island. All this in the company of my newlywed baby cousin and her awesome husband. Life is about walks on the beach with our dog or getting up to catch the surf at our favourite spot. Life is about organic markets and making my own perfume. Very awesome article Coley, both Allan and I thoroughly enjoyed the refreshing take on abundance and wealth. Now if I can only get Allan to downsize his golf shirt collection :)

  7. Steve says:

    Hi. Just came upon your blog via reddit.

    This is a great post and very much in line with how I live my life. As it happens, I also moved to Panama five years ago. What part of the country are you in?

    • Trey Morrison says:

      Coley and I both have homes on the pacific coast, I’m near San Carlos and Coley is near Rio Hato, or “The Toe” as he likes to say.

  8. Ben M says:

    Great post and site! I do have some “luxury” things, but I really pick and choose the things that I consider important enough to spend money on. Being minimalistic has been a HUGE help to our finances. Everything from our clothing purchases to home haircuts to paid off cars save us OODLES every year.

  9. B Metz says:

    At the age of 37. And moving overseas, I have finally (and hopefully permenantly) broken the stuff addiction.

    I had always been getting more and more stuff. A lot of it was due to moving for my work.

    Now that I have moved overseas, I don’t feel the pressure to keep up with the jonses. I realized that I am the Jones and it didn’t matter any more. We got rid of the financed new pickup truck, paid off the mortgage, and bought a $4000 Chevy Astro van. All this in a place that just havng at car is a status symbol. Yea I had the BMW but while it looked cool and all it wasn’t very fun to drive and cost a lot to maintain. I got rid of that too.

    In March we are having a big sale of all our unneeded stuff. Furniture, clothes, appliances, dishes, you name it will go. Even one of the 2 iPads we have. All going

    We actually own 2 houses, but one the wife has used for storing her useless junk for years. Stuff just goes there and gets moldy in the tropical climate.

    I am cleaning it all out, putting the junk on the curb, cleaning it up, furnishing it with the excess unsold stuff from the house we live in and renting it out.

    I guess I have reached that point in my life.

    The wife on the other hand I have to drag kicking and screaming into this mindset. She has her Gucci collection she doesn’t want to part with.

  10. Sam says:

    if i could only get the wife to help me achieve a cleansing of all the useless stuff in our life

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