In Morgan Housel’s best-selling personal finance book, The Psychology of Money, he aptly states that most people don’t want to be wealthy — they want to be rich.
Housel writes:
“When most people say they want to be a millionaire, what they might actually mean is “I’d like to spend a million dollars.” and that is literally the opposite of being a millionaire.”
He says that people often confuse fancy cars, nice homes, luxurious vacations, and fine dining with being wealthy when:
“Wealth is the nice cars not purchased. The diamonds not bought. The watches not worn, the clothes forgone and the first-class upgrade declined. Wealth is financial assets that haven’t been converted into the stuff you see.”
True wealth is hidden on balance sheets.
Sure, someone with a fancy car is likely rich since it takes a certain level of income to cover the monthly payment — but the only tangible thing you know about this person’s financial situation is they spent $100k on a car, so they have $100k less than they did before.
Housel writes:
“Rich is a current income. It’s not hard to spot rich people. They often go out of their way to make themselves known.”
However, visible wealth is not wealth at all — it is simply an indicator of someone’s propensity to spend, along with a certain level of income.
Sure, they may be rich, but they may be far from wealthy.
I don’t give a damn about being rich.
For me — driving fancy cars and living high on the hog in the nicest home on the block doesn’t do it. I want real wealth that’s tucked away on my balance sheet, appreciating in the background day after day.
On wealth, Housel goes on to write:
“..wealth is hidden. It’s income not spent. Wealth is an option not yet taken to buy something later. Its value lies in offering you options, flexibility, and growth to one day purchase more stuff than you could right now.”
I want a small army of dollar bills working relentlessly on my behalf to achieve financial independence.
I want the ability to do what I want when I want with the people I want for as long as I want, which Housel goes on to write is the “highest paying dividend that money can offer” and the “grandmother of all financial goals.”
I want wealth.
So how can I build wealth?
I can build wealth by consistently saving and investing over long periods, living like the millionaire next door, and avoiding the Instagram-worthy keeping up with the Joneses lifestyle trap of consumption, consumption, consumption.
I can build wealth by continuously pushing myself to re-evaluate whether my spending aligns with my core values of family, freedom, and flexibility and making adjustments when it’s out of whack.
I can build wealth by focusing my attention on the security and freedom that wealth can provide while seeing that to be wealthy, I must spend less than I earn, invest the difference, and stay committed for decades.
I can build wealth by recognizing role models like Ronald Read, “an American philanthropist, investor, janitor, and gas station attendant” who donated millions to charity after he died. Millions that he built through consistent saving and investing over long periods while keeping his lifestyle in check.
I can build wealth by understanding the true relationship between my time and money. My time can be used to earn money, and each dollar I spend is a direct commitment of my life energy (time). Conversely, each dollar I earn passively is a small gift of time back to me — offering freedom and flexibility. Understanding this relationship makes it essential to continue aligning my spending with my values since it’s my time we are talking about in the end.
I can build wealth by continuing to coast to financial independence, allowing my investments to put in work behind the scenes, growing untouched and undisturbed.
I can build wealth by recognizing that those who appear to be rich have simply done an excellent job at showing how they spent their money, which is the exact opposite of being wealthy.
I can build wealth by continuing to live in a modest home, in a modest neighborhood, despite being “qualified” to buy a much more expensive home in a much more expensive neighborhood.
I can build wealth by continuing to drive the same paid-off car that I have — avoiding the desire to upgrade to a newer, fancier model with a car payment attached.
While there are undoubtedly many more ways to build wealth, this is a great start. In the end, the key to building wealth is deciding to forego spending today in exchange for higher future spending or freedom. By avoiding the need to show your richness, you can begin building real wealth, tucked away on your balance sheet, working to provide you freedom over your time — the real status symbol of the 21st century.