The key to wealth: Stop acting rich

Back in 1998, Thomas Stanley wrote a book called The Millionaire Next Door.  What 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.