Learn to Manage Your Money Like a Decamillionaire (Part 3 of 3)

In this post, we’ll talk about part 3 of 3 of learning to manage your money like a decamillionaire:

1. Yes, you are the problem.
2. The entire world is out to get your money, literally.
3. In America we’re conditioned to have a false concept of real wealth.

Part 3: Problem #3 – In America we’re conditioned to have a false concept of real wealth

I don’t want to be critical of people, or judgmental, or insensitive, or unkind. However, false flattery is unkind. Letting people live a lie is mean. The truth, on the other hand, will set you free!

Here is the false concept: high spending = wealthy person.

Recently, a wealthy client of ours (who drives a Honda) said to me upon returning from a trip to Southern California: “Everyone down there has so much money. We saw so many Mercedes, Porsches, and BMWs!”

I’ve learned a few things after working for 17 years as a financial advisor to high-net-worth people. First, it is EASY in America to give off the appearance of wealth. Easy! Second, most people you see are living paycheck to paycheck, although sometimes on big paychecks.

But here’s the truth: when you see someone driving a $100,000 car, the only thing you know for certain is that person no longer has $100,000 in the bank (or worse, has a loan for $100,000)!

Let me say this a different way. If you saw someone eating a bunch of cheeseburgers, you wouldn’t say, “wow, that person must have a six-pack to be able to afford to eat all those cheeseburgers!” Rather, if you saw the plate of cheeseburgers, you’d expect to look up and see Fat Albert!

Real wealth is freedom. And in financial terms, that means more money in the bank than you need. So, contrary to what we think we know about wealthy people, in general they don’t drive the fanciest car, live in the swankiest dream home, and take the most exotic vacations.

For more on this concept, check out Thomas Stanley’s classic book, “The Millionaire Next Door.” Or consider the opening credits to the Dave Ramsey Show: “Welcome to the Dave Ramsey show, where cash in king, debt is dumb, and the paid off home mortgage has replaced the BMW as the status symbol of choice.”

If you hid the 5 wealthiest PFG clients among a group of 10 typical American doctors and asked an average person to spot the five wealthiest by looking at their stuff, most Americans wouldn’t be able to identify even one of the five! They would look at their not fancy cars, their nice but very normal homes, and unimpressive clothes and skip over them.

Two other false indicators of wealth for dentists are the number of practices a doctor has and the size of his building. Most doctors are conditioned to think this:

• More practices => higher income => more wealth
• Bigger office => higher income => more wealth

Contrary to these cultural expectations, the reverse is more often true:

• More practices => higher overhead and therefore lower income => less wealth
• Bigger office => higher debt and expense => less wealth

Don’t be fooled. As you make decisions about what to do, what to buy, etc., be careful not to base your expectations on what you see from others because you rarely know the truth behind the scenes. But know this: in general, if you see someone with all the fanciest things, like the person with a plate full of cheeseburgers, you’re probably looking at someone who isn’t exactly financially fit.

So, the next time you see someone driving an $80,000 car, think to yourself, “I know how much money you no longer have…”