Psychology Archives - Page 5 of 5

Stop Acting Rich: Don’t Allow Displays Of Wealth To Substitute For Real Wealth

We all have friends that love to buy the finer things in life. They drive nice cars, live in a big house, and when they dine out they always go to the expensive places with the trendy eats. In short, they live a high dollar lifestyle where they love to display their wealth for everyone around them to see.

The thing is, quite often those same people who are living the high-consumption lifestyle are the same ones who are struggling to get by with huge mortgages, large car payments and home equity loans. Even if they've got relatively high incomes far too often they live beyond their means.

Time To Stop Acting Rich

In his book “Stop Acting Rich“, Thomas J. Stanley talks about how far too often we are substituting a life of actual wealth creation, for one where wealth is only an illusion.

Ours is a culture of hyperconsumerism. Not only can and do we buy nearly anything (except for the truly outrageously expensive), but we seem to have come to believe that we can and should have it all and that who we are is dependent on the ability to live in the right neighborhoods, with appropriately sized homes filled with brand-name appliances, with prestige cars parked in the driveway with expensive golf bags and clubs in the trunk and so on. And so we spend.

We spend to excess, and attempt to display a persona to those around us that says “I'm successful”. The problem is, most of the world's millionaires aren't living a high consumption lifestyle with all the expensive trappings. In fact, most of them have become wealthy because they are able to live below their means, and live less “flashy” lives.

You can act rich or actually become rich. Few of us will ever be able to do both, and we certainly won't bet rich by acting the part before we have the financial resources with which to pay for la dolce vita.

We live in a time when it has never been easier to act rich than to actually become rich, even with the devastation of the financial crisis. At the end of the day, not only are we bad actors because it is simply impossible for us to keep up with the glittering rich (if we buy one expensive, prestige car, they buy 20), but we are terribly misguided and ill informed about how millionaires really spend and what they actually buy. Instead of focusing on millionaires generally, we are enamored with the few glitteringly rich people.

Know first who you are, then adorn yourself accordingly – Euripides

We fool ourselves, and think that we can emulate the glittering rich lifestyles of the rich and famous – before we have the income to match – and afford the lifestyle.

If we truly want to be wealthy, we have to life below our means, and live a lifestyle that allows us to build wealth.

How Do Millionaires Spend?

When Stanley actually surveyed millionaires in his studies he found that they as a group were much more frugal than most people might think.

Let's look at how real millionaires spend their money and what they pay for goods and services. Real millionaires pay about $16 for a haircut at a traditional barbershop… Only 5.7 percent of millionaires surveyed nationally paid $1000 or more for their most recently acquired suit… The watch he wears every day was purchased at a Wal-Mart store for $15..

Real millionaires don't mind spending money, but they also know about buying things that give you good value. They don't splurge on things they don't want or need, and instead they save their money, invest, save and give. They also find greater pleasure in enjoying things that don't cost money. Spending time with family, enjoying the outdoors, and working hard at their chosen profession.

Conclusion

So what's the conclusion that we can draw from how real millionaires live? That the truly wealthy in this country aren't the ones we see around us driving the expensive cars, or living in the 10,000 square foot homes. Those people are more than likely over-extended and in a hole. The truly wealthy are those that don't have to flaunt it. They drive cars that have good value, and homes that are in the 300,000 dollar range. They became wealthy by living frugally, saving and investing the income that they created. They're the ones I hope to emulate as I go on my own journey towards wealth.

Do you know people who live beyond their means and appear wealthy on the surface? Do you know someone who is truly wealthy? What do you think about the ideas of appearing wealthy vs. actually being wealthy? Tell us your thoughts in the comments!

When You Make Financial Mistakes, Don’t Allow It To Snowball

By Mr. Money 3 Comments

I was thinking earlier this week about why sometimes people will find themselves in dire financial straights – situations where they can't seem to get out, even when they seem to have the resources or the smarts to be able to. After thinking about it, I realized that a lot of the problems we get ourselves into, and the reasons why we can't get out of them, are really just psychological battles. We allow ourselves to believe negative things about ourselves or our situations that keep us in trouble. We end up not having the discipline to get ourselves out.

We All Make Mistakes

We all make financial mistakes in our lives. Some of us make big ones. We do things like buying expensive homes that we can't afford because we've fallen in love with the house – and we imagine ourselves living there. Or we buy an expensive car because we can imagine ourselves living a glamorous lifestyle while driving that car. Others make small mistakes like forgetting to pay a bill, or spending too much while on vacation.

It's fine to make mistakes – we all do it. What sets the successful apart from those who can't seem to find their way out of debt is that they learn from their mistakes, and they move on.

Poor Decisions Can Lead To More Poor Decisions

Far too often I've seen friends who have made poor financial decisions take a mistake that they've made, and turn it into an even bigger mistake. Instead of admitting they've made a mistake, they double down and continue the poor decision making.

I remember one friend in college who made some poor spending decisions, and found that he was going to be short on his rent payment that month. If he had made a wise decision he probably could have admitted his mistake, and tried finding ways to make up his shortage. He could have sold some of his video games, or got a quickie part time job to help make up the difference.

Instead, he allowed it to get him down, and he decided instead to go on a week long spring break trip – all paid for on his credit card. Because he allowed his poor decision to get in his head and depress him, he tried to make himself feel better by spending even more money that he didn't have. In the end he was only able to get out of trouble by begging his parents for a loan – which I'm pretty sure he never paid back.

Learn From Your Mistakes

Instead of allowing your mistakes to get the best of you, and before the snowball gets rolling down that hill, nip it in the bud. Don't let your mistake get in the way of your future. Don't allow one mistake to beget another.

Instead, admit the gaffe, and do what you can to turn things around. Make a plan for change and think about ways you can ensure that the problems don't arise again. Forgive yourself and move on. Don't be destroyed by guilt, and don't allow your guilt to consume you to the degree that you give up.

If you bought a house you can't afford, cut your losses while you still can and sell the house. If you've bought a car that is out of your price range, return it or sell it! And if the mistake can't be remedied – at least don't compound it by making new mistakes!

Have you ever made a financial mistake, and then compounded the problem by allowing it to consume you – and pushing you to do something else stupid? What are you thoughts on how problems can snowball out of control?

Keep It Simple Stupid: Sometimes We Make Things Too Complex

By Mr. Money 3 Comments

One thing I've realized over the past few weeks is just how complex we as human beings like to make things, even when they could be so simple. We love to take things that really are pretty basic and easy to understand, dissect them and turn them into something more complex, and harder to understand. The thing is – things don't need to be complex – and are often easier if you just get down to the basics.

Simple Things Made Complex

Here's an example. My wife and I just had a baby 2 weeks ago (That's him up above!). For the previous 9 months we had been reading everything we could get our hands on on raising children, what to expect when the babies arrive, how to properly put them to sleep, how and how often to feed them, what things you need to buy for your child before they arrive – and so on. With all of the information out there things can start to get extremely complex really fast. I can understand how many new parents feel overwhelmed with all of the decisions that they have to make – it ends up being paralysis by over analysis.

What I've realized over the past 2 weeks, however, is that having a baby and fulfilling their needs – while it can be very complex – is actually very simple. All the baby needs you to do is feed it, change it's diapers and allow it to sleep. As long as you do those things the baby will thrive! Yes, there is a lot more to it, but as long as you do those things – and you just focus on the basics – you'll do just fine!

Personal Finance Made Simple

Like having children – personal finance can also be made much more complex than it needs to be. People feel overwhelmed with the amazing amount of choices when it comes to different budgets to follow, what types of investments to make, how to get rid of debt, which investment guru to follow, paying for college educations and more. The thing is – it really isn't that complex. It really comes down to a few simple principles that you can follow:

Spend less than you earn – and live below your means.
Stick to a budget.
Plan ahead for emergencies.
Save for the future.
Give!

Everything else is just an offshoot of those basic principles (although your basic principles may be a bit different than mine).

It's Easy To Get Overwhelmed. Instead – Simplify!

So next time you start feeling overwhelmed when it comes to your finances, take a step back, and try to look at things simplified. Look at the basic concepts of the subject you're examining, and work out from there. It will help you to stay focused, and remind you of what's important when it comes to money. Sometimes the most complex solutions aren't as helpful as the most basic of concepts.

What do you think? Do you have a suggestion for ways to keep from being overwhelmed? Has simplifying a concept ever helped it to make more sense to you? Tell us your thoughts in the comments.

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