Despite the painfully obvious reality that what you buy does not accurately reflect how much you may or may not have in the bank, what you own will more often than not encourage people to come to certain conclusions about your wealth (or lack thereof).
People will frequently make guesses about your income and wealth based on:
- The home that you live in
- The car that you drive
- The clothes that you wear
- The vacations you take
and very often these guesses will be WRONG.
Our consumptive culture is so focused on money in the context of what it can buy that if you’re not buying the right thing or enough of it, people will assume you don’t have any money. This is grossly misleading, because obviously if you’ve managed to put away over $25,000 for retirement, it means you have not spent that $25,000 on a new car or a wedding. However, the absence of a new car or a lavish wedding communicates to outsiders that you don’t have $25,000. I wish we lived in a world that rewarded thrift and frugality, or at least one that didn’t immediately equate material possessions with financial success, but unfortunately, we don’t. Instead, it’s up to you to make peace with this:
Invisible wealth is more important than visible debt.
This occurred to me when someone commented on my 30 Financial Milestones You Need To Reach By Age 30 post, asking why owning a home wasn’t on the list. I thought it was painfully obvious:
financial responsibility can’t and shouldn’t be measured by possessions.
The error in equating homeownership with financial success deserves a post on its own, so I won’t address it in full here, but I will say that acquiring as huge of debt as a mortgage does not deserve a pat on the back the way saving for retirement or sticking to a budget does.
When someone purchases a house, all you see is the house. You don’t know if they paid with cash in full or barely scraped together the minimum 5% downpayment. It’s hard to see if their scrimping to meet mortgage payments or if the obligation is barely making a dent in their disposable income. We think the house communicates financial savvy, but it could be the opposite. All we see is the house, and make the potentially false assumption that if they successfully overcame the hurdles to acquire it, they must have their money under control.
Ever since I changed my attitude and focused on saving money instead of spending every cent that came in, I’ve been mistaken for having less money than I do. A year ago, when my student loan debt was just about gone and I was considering buying a car. I was considering some higher-end vehicles when one of my friends encouraged I get something “within my budget” like a Mazda 3. Not only are Mazdas the vehicles I hate most on earth, but I was grossing around $7,000 per month!
I had a big budget to accommodate almost any car I wanted, but no one could tell because I wasn’t an obvious spender. My biggest crimes were dining out and going on one vacation per year — and in a world where most people make spending decisions based on their credit card limits, my behaviour didn’t look excessive.
Sticking to an aggressive debt repayment and/or savings plan will be more challenging because you won’t receive any outside encouragement for your financial responsibility.
People will congratulate you for buying a home and they’ll ooh and ah over designer clothes, but no one is going to know if you have a $0 balance on your credit card statements or have managed to hit $100,000 in savings.
If you’re doing things wrong, your biggest financial milestones will be buying a house or a nice car, and everyone will see them.
But if you’re doing things right, your biggest financial achievements will be totally invisible to the outside world.
No one will know when you are debt-free or hit $1 million in retirement savings. So strive for invisible wealth and don’t worry about the fancy cars and houses, they don’t signify financial success, they might even just be very visible debt!