It is easy to spend recklessly. Anyone can pretend to be rich by getting into debt in order to get that dream car, that flashy or home or going on five star holidays. People doing this are called 30k millionaires. They look like millionaires on the outside but this is just fuelled by debt.
Look at the following story by Andrew Hallam.
When he was living in Singapore in 2004, he was tutoring a boy in English. Every Saturday, the boys mum would drop him to Andrews house for a lesson.
The women drove a car worth at least $250,000, wore rolex watches and lived in a big house.
After a series of tutoring sessions the woman gave Andrew a cheque. Smiling, she gushed about her family’s latest overseas holiday, and expressed how happy she was that Andrew was helping her son. The check she wrote was for $150.
When Andrew to deposit the cheque i the bank, it bounced. And this occurrence happened regularly. How could this be, wasn’t she rich?
It dawned on Andrew that the lady might not have been rich at all. Just because someone collects a large paycheque and lives a lavish lifestyle doesn’t necessarily mean he or she is rich.
Just like the story by Andrew above, many people harm their finances by blowing money they don’t have. This story of living beyond one’s means is preached by personal finance gurus the world over and people still don’t get it. You can’t get rich if you spend more than your earn!
In this era of instant gratification, buying something after saving for it (instead of buying it using a credit card) is seen by many consumers the world over as being so 1930s. But this is the attitude that has led to people having mountains of debts today.
Apart from wanting instant gratification, many people in debt today have the common tendency to overextend themselves. Research conducted by Thomas J Stanley, author of the millionaire next door, found that most U.S. homes valued at a million dollars or more (as of 2009) were not owned by millionaires. Instead, the majority of million-dollar homes were owned by non-millionaires with large mortgages and very expensive tastes.3 In sharp contrast, 90 percent of those who met the defined criterion to be a millionaire—having a net worth of more than $1 million—lived in homes valued at less than a million dollars.
Just think about that for a second. If millionaires are not buying million dollar homes, why are you?
One of the rules to becoming wealthy is to spend wisely. I don’t mean that you should be a cheapskate, just be frugal. Many millionaires today are not the people you see who flash money on TV but rather people who live modestly and economically. Just read the story of Adam Khoo to see how millionaires are made today. The golden rule in personal finance is to always spend less than you earn and invest the difference.