Smarter Spending

There’s a really simple formula to achieving financial security: spend less than you earn.

Isn’t that what everyone says?

Yes, people may say it – but in reality few actually practice it.  Instead studies show that 55% of American’s either spend more than they make each year, or break even.

Strangely, spending less than we earn is not a hard thing to do.  It doesn’t require much effort, but it does require one thing:  Discipline.  Fortunately we can make it far easier by learning a few tricks, which you’ll learn in this section.

Yes!  Believe it or not, that same simple formula describes how most millionaires were created. While it’s easy to think wealthy people inherited their money or had huge income or lucky breaks, the facts show that most American millionaires are self-made.

Thomas Stanley, PhD, made a career of studying “rich” people in America—the ones who built their wealth themselves. So these are the people who became millionaires without big inheritances or really high-paying jobs. And here’s what he found: America’s self-made millionaires don’t live like we often think.

From television and the movies, you’d think wealthy people spend all their time driving supercars, living in mansions, and eating in only the finest restaurants. But that’s totally wrong. Actually, they live the opposite way: They are frugal.

So that’s the secret, simply model their behavior.  And once you start making changes, you’ll see that it’s easier than you think to reach your financial goals.

That’s what TV and the media shows us, but that’s not what the vast majority of wealthy people do.  Just a very small percentage and it’s most likely those who inherited their wealth or have abnormally high incomes (rock stars?).

And what about the rest of the people driving expensive cars?   Believe it or not, research shows the vast majority are not millionaires.  Hmm…wonder why.

Check it out: Guess which car brand is most popular among millionaires?

Mercedes?  BMW?  Bentley?

Nope.  Toyota is their favorite brand. What’s more: they prefer to buy it used.

What about houses? Surely, the rich reward themselves there?

Sorry. Millionaires are three times more likely to live in a home valued under $300,000 than in one valued at $1 million or more.

It’s not that the wealthy don’t spend; they just spend very carefully. They don’t spend on status items that have a certain label. Instead, they buy what they need, whether it’s a quality used car, a nice but not over-the-top home, or everyday inexpensive bottles of wine they found at Costco.

If they suddenly feel an urge to buy something like a new shirt, they think twice to see if it is just a want brought on by advertising or if they truly need it. If they do really need it, they look around to see the best way to buy it, which just means the way that involves the least amount of their own dollars.

And, they are not usually those who shop for therapy.  Or sport.

Put another way, the rich keep their money working for them. Not for someone else.

Per Mr. Stanley, the problem is that many people spend all or most of their income on things that have no lasting value.

That’s easy to do when we’re busy. We spend on auto-pilot.

The good news is it’s not hard to change these behaviors. You just need a strategy. Really, you need to practice some financial self-defense. But how do you do that without feeling overly deprived? Life’s too short if you can’t have fun or if you need to feel like you are always saying no to yourself.

Exactly! What’s the point of being rich if you can’t enjoy it?

The trick is to work with your psychology, not against it. Instead of saying no to ourselves, use awareness techniques to help determine if you really need something. Then if you do, you’ll find savings wherever you can. Check out our easy steps to get started.