The Social Status Trap and Why You Should Avoid It!

What I mean with this is Social Status = Financial Status.

This is one of the leading causes of poverty in the country. So many people have the belief that if you increase your social status, by the things you have and the things you do, by improving your image, and how people think of you, then it means you are progressing financially. Now as I said, this is very dangerous. Because the reality is…

Increasing your social status usually means decreasing your financial status

The Real Measures of Financial Status
The financial status of a person can be measured by two factors:

Excess Cashflow – How much do you earn in excess of expenses?
Earning Assets – How much of your money is earning more money for you?

In the given example below is the best way to measure of which financial status are you fit in.

Example no. 1:
Pedro has an income of P50000 per month
P15000 is go his to expenses (Pedro rarely spend his money in buying new things like gadget and clothes)
The remaining 35000 is his excess cash flow (Pedro savings)

As you can see Pedro can save up to P350K in just 10 months
Or in just 5 years he can have P2,100,000.

Example no. 2:
Peter income is also P50000 per month the same as Pedro. But Peter always want to spend his money in buying new clothes and gadgets.
P45000 is go to his expenses
The remaining 5000 is his excess cash flow (Peter savings)

In his 10 months of working Peter can only save P50000
Or let's assume that he consistently save 5000 in 5 years. He can only save P300000

Who is Wealthier? Pedro or Peter?

Let’s be clear. Peter and Pedro are both earning P50,000 each month.

So when it comes to social image it's very clear that Peter is the winner or looks like rich due to his branded clothes and new gadgets. But when it comes to excess cash flow Pedro has the edge.

Let’s analyze several situations…

1. Let’s say both of them got into a terrible accident. And the medical bills reached up to 500,000.

Pedro – has saved P2.1 Million. So after paying the bills he still has 1.6 Million left!
Peter on the other hand only has P300,000 so he has to borrow the P200,000. He borrows the money from his company, and his friends as well.

2. Let’s say both of them already want to get married to their girlfriend. They have to buy the engagement ring, and save up for the wedding.

Pedro who has P2.1 Million can immediately buy an engagement ring and get married at the soonest time possible.
Peter who only has 300,000, can also buy an engagement ring, BUT he and his girlfriend would have to delay the wedding because they still need to save money. They want to have a bigger wedding, but they don’t have the money for it yet.
So here I’m not saying that weddings have to cost a lot. But when it comes to the big-things in life… would you want to be able to say: “Okay let’s do it! Or be limited to saying… “we can’t afford it yet.” Which would you prefer?

3. Let’s say now that Pedro and Peter now want to quit their jobs and go into business. They are looking for franchises they want to buy.

Pedro again who has P2.1 Million, can look at small service establishments and restaurants like Bayad Center’s, Andoks, a couple of salons, laundromats and many others…
Meanwhile, Peter who only has P300,000 is limited to small foodcarts, siomai or drink stands…

The Consequences of the Social Status Trap

You can end up not being prepared for emergencies.
You can end up not having funds for the bigger things in life.
You can end up being limited with the business opportunities you can take.

Be aware of the social status trap and avoid it at all costs.

With this I leave you with the following reminder:

Invest in things that will make you rich,
not on things that only make you look
or feel rich.

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