I’d like to share my thoughts about why I feel that wealth depends entirely on one’s approach to lifestyle inflation or foundation. We are in extraordinary times right now and by no means does this apply under the current circumstances, but I urge people to look at the way they are living now and how they can spend less and save more for your own sake.
Keep in mind, everyone has their tastes, but then when we hit crisis moments like we're in now, what do we have to fall back on? This is completely from a place of empathy and wanted others to look at their habits to build their financial IQ, not from a place of judgment. Also, I am a financial minimalist, so maybe my views are extreme, you tell me. Also, I am in the lowest tax bracket of self-employed people to give you a rough idea of what I make in fiat, so I believe anyone can do this. Obviously, extreme cases are excluded, but the general concepts to grasp here are the key.
For example, the other day I was mentioning how foolish it is to have more than one car because wealthy people should simply double down on the processes that made them wealthy, like not having multiple cars. The idea is that because you originally didn’t have multiple cars, you could save and invest more enabling you to then have the second car if you wanted. The thing is, to continue growing that wealth, you’re not supposed to add more liabilities that depreciate (given you're not buying cars to collect that go up in value) you should instead acquire assets. Interestingly, I was fought on this by two of my friends. They enthusiastically argued the point that if you can afford it, you should buy it. It baffles me that people think this way. Lifestyle inflation seems ingrained in most of us and if you can rationalize bad financial management for the rich when you’re poor, then while trying to get rich, you'll only get poorer. This is realized in most gambling institutions very clearly.
You also have to recognize that few people can “afford it” and instead they can afford to pay the loan or the lease so they consider it reasonable if they only have to pay however much per month rather than all upfront. This may sound like I’m judging their financial approach and I’m not trying to be insulting, but I think this is a perfect example of the huge problem people have with personal finance today. Therefore, I think it doesn’t matter if you’re an accountant or what you studied in school. You could understand everything about accounting and auditing finance, but still have terrible spending habits and have no investing knowledge. People get it into their heads that their knowledge or experience is enough, but those same people might not keep a budget for their personal finance or make a lot of spontaneous purchases. I will update my budget every day and just look through it for things I could cut back on. Once I started doing that, my expenses started dropping rapidly and this ambition to save and invest started impacting my want to earn more so that I could invest monthly with more money. I realized this quite quickly with cryptocurrency and fiat income.
Using the same example, we can look at a much more financially successful friend of mine who does have two cars and has very little money but almost double my income. This is the same mentality above being applied with a much higher income. This is lifestyle inflation. The simple fact that you could afford to do something doesn’t mean you should. Even if it’s going to be off of credit, you feel you deserve to because you’ve earned it, or just that you’ve tricked yourself into thinking you could afford it from what I explained earlier.
The simple fix here is to create a lifestyle foundation and build your budget around that. What I mean is, determine what is essential to your life and budget everything out around that. You can occasionally audit it to save more but build around that lifestyle. I have all my budget laid out for the month and the year too. This way I know how much I need to make to sustain it and the rest can be invested. That way when I have extra money, I don’t start looking at what I could buy with it, I look at what I could invest in with it. This is a pretty drastic change from my previous behavior for years where I was buying everything you could imagine on Amazon and rationalizing why I needed it.
The point being, given you have the basics covered, you can probably invest in your future. A lot of our perceptions of wealth are just that, a perception. You may look at someone and think with all their stuff, they must be a huge success so it’s normal and almost expected that when you get more money, you should have those things too, but really they’re drowning in debt or like my friend, have no extra money coming in to save or invest with.
I want to put out more content financial motivation style content that is less crypto-focused but since I don’t think that’s what my audience is as interested in hearing from me, I figured I’d just blog. If you all really enjoyed this though, please let me know and I will happily record them as videos.
The point I wanted to get across here was that looks can be deceiving and if you want to truly build your wealth, it takes persistence, consistency, flexibility, delayed gratification, and dedication.
Let me know what you think about personal finance. What’s your approach to personal finance? Do you budget? Have you heard of financial minimalism before?