Wealth and Status Are False Gods

Wealth and Status Are False GodsWhile it’s certainly one thing to know that money is a way to fulfill your requirements in life, it’s quite another when money becomes your primary motivation and measure of success, or when you come to equate happiness or worthiness with your wealth.

While there nothing characteristically wrong with material wealth or its pursuit, it’s easy to expect too much from money.

The New Testament (1 Timothy 6:10) reminds you to be aware of the difference between need and greed, “love of money is the root of all kinds of evil.” Money can push you to take on or keep you in unhealthy relationships and unsatisfying careers. It can lead you to neglect your social life and undervalue the importance of relationships. Besides, money can adulterate your soul, germinate dishonorable conduct, and make you unworthy regardless of the wealth you accumulate.

Status Is the Enemy of Passion

Prestige, cachet, status, wealth, and approval as dominant extrinsic motivators are appropriate and can be life-affirming in the short term, but they eventually confuse and undermine you from the things that do offer deeper rewards for a life well led. The British-American venture capitalist and essayist Paul Graham wrote in his stimulating 2006 article “How to Do What You Love” discussed the hollowness of pursuing “prestige”:

What you should not do, I think, is worry about the opinion of anyone beyond your friends. You shouldn’t worry about prestige. Prestige is the opinion of the rest of the world.

….

Prestige is like a powerful magnet that warps even your beliefs about what you enjoy. It causes you to work not on what you like, but what you’d like to like.

….

Prestige is just fossilized inspiration. If you do anything well enough, you’ll make it prestigious. Plenty of things we now consider prestigious were anything but at first. Jazz comes to mind—though almost any established art form would do. So just do what you like, and let prestige take care of itself.

Prestige is especially dangerous to the ambitious. If you want to make ambitious people waste their time on errands, the way to do it is to bait the hook with prestige. That’s the recipe for getting people to give talks, write forewords, serve on committees, be department heads, and so on. It might be a good rule simply to avoid any prestigious task. If it didn’t suck, they wouldn’t have had to make it prestigious.

Materialism is Shallow

Modern society is remarkably driven by statusAs a modern society, we are remarkably driven by status—because we regard ourselves more worthy of others’ respect if we possess a home in a status neighborhood, a vacation property, brand-name or even designer-label clothes, luxury watches, expensive jewelry, and so on. But the pursuit of a materialistic lifestyle comes at a high cost.

Writing about the shallowness of materialism, the Christian apologist Ravi Zacharias wrote in Recapture the Wonder (2003),

In a culture where the possibility of wealth and the acquisition of things is so defining of success, we end up pursuing things that, even if we are successful, can never deliver what we envisioned they would. The reason riches become such a snare is because we end up evaluating life in mercenary terms and being seen by others in such terms, and life is just not so.

Money can buy lots of things that make us feel good and important. However, people preoccupied with money and status are never satisfied. Often, their desires and debts grow faster than their means. The more they have, the more they think they need. Discouraging gluttony and lavish spending habits, the great Roman Stoic philosopher Seneca wrote (per Dialogues and Essays,)

Shun luxury, shun good fortune that makes men weak and causes their minds to grow sodden, and, unless something happens to remind them of their human lot, they waste away, lulled to sleep, as it were, in a drunkenness that has no end…. Although all things in excess bring harm, the greatest danger comes from excessive good fortune: it stirs the brain, invites the mind to entertain idle fancies, and shrouds in thick fog the distinction between falsehood and truth.

Idea for Impact: You are rich if you think you have enough

Put the value of money and the pursuit of wealth in perspectivePut the value of money and the pursuit of wealth in perspective. Feel rich and have a soft spot for certain indulgences. But, don’t get trapped in the spectacle of riches.

Being rich and seeking status can cost a fortune—the things that you may have to do to flaunt your wealth can cost almost as much as your wealth itself. As the French philosopher Jean-Jacques Rousseau once said, “The money you have can give you freedom, but the money you pursue enslaves you.”

You are Rich If You Think You Have Enough

You are Rich If You Think You Have EnoughMoney isn’t the most important thing in life, except when you truly don’t have enough of it. Nevertheless, virtually everyone at every income level seems to place too much importance on it.

The relationship between money and happiness is well established: money can buy happiness, but it can only buy less than most people think. Beyond a humble middle-class living, study after study shows that people with more money are no happier.

What Money Gets You

Wealth can actually give you three essential things.

Firstly, money can help establish a financial foundation. Money can reduce or eliminate the despair caused by poverty and debt. Once you amass a sufficient amount of wealth, financial troubles will not weigh on you so heavily. Money allows you to not only live a longer and healthier life, but also defend yourself against worry and harm. Further, a sizable wealth can give you independence from the entrapment of having to make money just to make money. Berkshire Hathaway vice-chairman and Warren Buffet’s business partner Charlie Munger once said, “Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris—I wanted the independence. I desperately wanted it.”

Secondly, wealth can allow you to have vacations, gatherings, and spend meaningful time with family and friends. Many studies have shown that the tenor of your social life is one of the most significant influences on your emotional wellbeing. Folks with many deep social connections are less likely to experience loneliness, sadness, low self-esteem, and problems with eating, sleeping, and relaxing.

Thirdly, wealth can allow you to invest your time absorbed in activities that you’re passionate about. Happiness research is clear: people are often happier when they spend their money on life experiences rather than on purchasing material goods. We humans seek meaning. Therefore, life experiences—especially those involving other people—make us happy primarily because events often generate vivid memories that we can later recall with pleasure. In contrast, we quickly adapt to material goods we purchase. Harvard Psychologist Daniel Gilbert, author of the bestselling Stumbling on Happiness (2006,) explained the pleasure from buying experiences as opposed to material goods in a 2011 paper in the Journal of Consumer Psychology:

After devoting days to selecting the perfect hardwood floor to install in a new condo, homebuyers find their once beloved Brazilian cherry floors quickly become nothing more than the unnoticed ground beneath their feet. In contrast, their memory of seeing a baby cheetah at dawn on an African safari continues to provide delight. Over time, {people exhibit} slower adaptation to experiential purchases than to material purchases. One reason why this happens is that people adapt most quickly to that which doesn’t change. Whereas cherry floorboards generally have the same size, shape, and color on the last day of the year as they did on the first, each session of a year-long cooking class is different from the one before.

Another reason why people seem to get more happiness from experiences than things is that they anticipate and remember the former more often than the latter. … Things bring us happiness when we use them, but not so much when we merely think about them. Experiences bring happiness in both cases …. We are more likely to mentally revisit our experiences than our things in part because our experiences are more centrally connected to our identities.

A final reason why experiences make us happier than things is that experiences are more likely to be shared with other people, and other people … are our greatest source of happiness.

Experiential Purchases Make People Happier Than Material Purchases.

Idea for Impact: You are Rich If You Think You Have Enough

Put the value of money and the pursuit of wealth in perspective.

Money is an opportunity for happiness. Money allows you to do what you please. But don’t fall into the trap of thinking that more money and more material goods will unavoidably make you more happy. A certain amount of money will surely make life easier and satisfied, but more money and more material goods bring more problems.

Feel rich, have a soft spot for certain indulgences, and invest in memorable experiences rather than in material objects.

Don’t get trapped in the spectacle of riches.

Don’t let money own you.

When Getting a Great Deal Might Not Be Worth Your Time

Life Spent Searching for Deals

Most consumers love a deal. Some spend untold time searching for the best possible bargains.

If you’re one of these obsessive bargain-hunters, unless you derive some hedonistic pleasure in snatching deals, you may not have considered the possibility that you’re putting too low a value on your time.

Perhaps you could benefit from some perspective: the time you spend hunting for deals and trying to save that last penny may not be worth it. While you can quantify how much money you save by shopping around, you may not realize the opportunity costs of deal-hunting: it often comes at the cost of your time.

You may have a vague sense of the fact that “time is money,” but this might not be telling enough. You can find the approximate value of an hour of your time by dividing your annual income by 2,000 (or, more easily, by disregarding the last three digits of your annual income and dividing the result by 2.)

Obsessive Bargain-Hunters, Coupon Craziness Based on your “hour’s worth of money” or some fraction thereof, set a cost threshold, say $15, for the cost per hour you could spend bargain-hunting. Unless you’re saving as much as this cost threshold, deal-hunting is quite simply a waste of your time and money. So, don’t poke around the internet for a better deal or follow an auction on eBay if you’re saving less than $15 per hour spent deal-hunting. Similarly, don’t run to the Costco at the other end of town just to save a dime a gallon on 20 gallons of gas.

I’ve written previously that life is all about values and the priorities you assign to those values. Therefore, decide which choices in your life really matter and focus your time and energy there. Let numerous other opportunities pass you by.

Another part of leading a wise and meaningful life is not always seeking the best but instead making good-enough choices about the things that matter and not concerning yourself too much about the things that don’t.

Idea for Impact: Don’t spend more time on a task unless it really warrants this in terms of “time-is-money.” As the American Philosopher Henry David Thoreau said, “The price of anything is the amount of life you exchange for it.”

Clever Marketing Exploits the Anchoring Bias

Clever Marketing Exploits the Anchoring Bias

In the ’70s, psychologists Amos Tversky and Daniel Kahneman were the first to study a cognitive phenomenon called “anchoring” and its influence on decision-making. Over the decades, extensive research on anchoring has explained that the way and context in which we receive information profoundly influence how we synthesize it.

The effects of anchoring are very visible in marketing, sales, merchandising, and product pricing as it profoundly influences consumer behavior. By offering clever price contrasts, marketers can shape customers’ purchasing decisions. For example,

  • By offering lower prices and promotional sales, department stores induce customers to compare the sale price against the original price—the “anchor”—and think they’re getting a bargain.
  • By displaying shiny, expensive new cars in the showroom, car dealerships encourage customers to accept the prices displayed on their used cars or less flashy models.
  • Patrons at restaurants tend to order the second least-expensive bottle of wine in an attempt to avoid looking cheap. Therefore, restaurants tend to put the highest markup on that very bottle.

The Case of the $429 Breadmaker

Anchoring Bias: Williams-Sonoma $429 Breadmaker Customers are usually more likely to purchase a product when competing alternatives are included, as opposed to having only one product option.

Consider a classic example of this “single-option aversion” phenomenon. A few years ago, Williams-Sonoma couldn’t get customers to buy their $279 breadmaker. They cleverly added a spiffier-and-slicker deluxe breadmaker model to their product line for $429. While Williams-Sonoma didn’t sell many of the new and expensive breadmaker, they doubled sales of the original and less-expensive model.

When the $279 breadmaker was the only model available for sale, customers couldn’t tell whether the price was competitive because there was nothing to compare it to. By introducing a better product for a higher price, Williams-Sonoma provided an anchor upon which its customers could compare the two models; they naturally sided with the $279 model as an attractive alternative.

The Case of the $69 Hot Dog and the $1000 Chocolate Sundae

Anchoring Bias: Serendipity 3's $69 Hot Dog Usually, absurdly expensive premium goods are less of publicity stunts and more of strategic marketing tactics.

Consider the case of Serendipity 3’s menu anchors. In 2010, the popular New York eatery introduced a $69 hot dog called “Foot-Long Haute Dog” with dressings as exotic as medallions of duck liver, ketchup made from heirloom tomatoes, Dijon mustard with truffle shavings, and caramelized Vidalia onions to justify the high price. Of course, Serendipity 3 gained plenty of publicity when The Guinness Book of World Records certified this hot dog as the most expensive wiener of all time.

The true purpose of these ridiculously priced premium items is to make the next most expensive item seem cheaper. Customers who were drawn by the Haute Dog’s publicity gladly ordered the menu’s $17.95 cheeseburger. Even if $17.95 was too pricey elsewhere, Serendipity 3 customers deemed it reasonable in comparison to the $69 hot dog.

A few years previous, Serendipity 3 similarly offered a $1000 “Golden Opulence Sundae” that was only available with a 48 hour-notice. They sold only one Sundae per month. Nevertheless, this was just a shrewd marketing ploy to convince customers to spend more on high-profit margin desserts such as the $15.50 “fruit and fudge” confection or the $22.50 “Cheese Cake Vesuvius.”

Unsuspecting customers ended up paying too much for other meals at Serendipity 3 while believing they were getting a great deal.

Idea for Impact: Be Sensitive of Anchoring Bias

In both the above case studies, even if the companies sold almost none of their highest-priced models despite the publicity they generated, the companies reaped enormous benefits by exploiting the anchoring bias to induce customers to buy cheaper-than-most-expensive high-profit products.

In summary, anchoring exploits our tendency to seek out comparison and our reliance on context. The anchoring bias describes our subconscious tendency to make decisions by relying heavily on a single piece of information.

Call to Action: Sensitize yourself to how anchoring and anchoring bias may subconsciously affect your decision-making. If you’re in marketing or sales, investigate how you could use anchoring bias to influence your customers.

For more on cognitive biases and behavioral economics, read 2002 Nobel Laureate Daniel Kahneman’s bestselling Thinking, Fast and Slow. Also read Nir Eyal’s Hooked: How to Build Habit-Forming Products on how to influence customer behaviors and build products and offer services that people love.

Lessons from Sam Walton: Cost and Price as a Competitive Advantage

I recently finished reading “Made in America”, the bestseller autobiography of Sam Walton (1918–1992.) The book is very educational, insightful, and stimulating.

Walton, the iconic founder of Walmart and Sam’s Club, was arguably the most successful entrepreneur of his generation. From 1985 until his death, he was the richest man in the world. On the 2015 list of the world’s richest individuals, his descendants ranked at #8, #9, #11, and #12.

Despite his immense fortune, Walton lived a humble life right up until his death. He as an enthusiastic outdoorsman and lived in a modest home in Bentonville, Arkansas, for 33 years. On quail hunting trips, he slept in smelly, old beat-up trailers and ate peanut butter sandwiches for breakfast, lunch, and dinner. He even drove a red 1985 Ford pickup and famously said, “What am I supposed to haul my dogs around in, a Rolls-Royce?”

Sam Walton's Red 1985 Ford Pickup Truck

Cost and Price Control

One of the book’s key takeaways is to “control your expenses better than your competition.” Walton says that this focus on cost-efficiency contributed more to Walmart’s enormous success than did any other aspect of his business model:

This is where you can always find the competitive advantage. For twenty-five years running—long before Wal-Mart was known as the nation’s largest retailer—we’ve ranked No. 1 in our industry for the lowest ratio of expenses to sales. You can make a lot of different mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you’re too inefficient.

A Child of the Great Depression Takes to Retail

Walton was a child of the Great Depression. The poverty he experienced while growing up in a rural Missouri farming community taught him the value of money, hard work, and perseverance.

Walton learned the value of a dollar early from his parents, who financially struggled to raise their family. The two squabbled constantly, except on one topic. “One thing my mom and dad shared completely was their approach to money: they just didn’t spend it.”

Walton was just plain cheap. His devotion to bargain became Walmart’s underpinning. He lived by a simple formula: pile it high, sell it cheap. “Say I bought an item for 80 cents. I found that by pricing it at $1.00, I could sell three times more of it than by pricing it at $1.20.” He refused to increase profit margins at the expense of price: “I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater. Simple enough.”

The Lasting Impact of Sam Walton

'Sam Walton: Made In America' by Sam Walton (ISBN 0553562835) In 1962, Walton decided that the future of retailing lay in discounting. He studied his competitors and borrowed liberally. His strategy was to buy low, sell at a discount, and make up for low margins by moving vast amounts of inventory. Over the decades, Walmart has relentlessly squeezed as much value as possible from its supply chain and passed those savings on to consumers.

Walton’s passion to serve as the “agent” for consumers has changed retailing forever. It’s hard not to overestimate Walmart’s influence on local communities and economics. Walmart’s obsessive focus on low prices changed the way Americans shop. Its bargaining power, superlative size, and logistical efficiency not only dampened inflation, but also brought about productivity gains throughout retailing and manufacturing. Its dominance has attracted backlash from labor unions, anti-sweatshop campaigners, and anti-sprawl activists. Critics also blamed Walmart for contributing to the movement toward overseas production jobs, and for destroying small-town merchants.

However, Walmart’s business model has struggled overseas, especially with profitability in countries where it operates three fourths of its international stores.

Sam Walton’s Influence on Entrepreneurs

Walton inspired legions of other entrepreneurs who thrive on managing costs and prices to gain competitive advantage. Prominently,

  • Dell’s Michael Dell kept costs low by using direct sales as his primary sales channel and orchestrating Dell’s supply chain with that of its suppliers.
  • Ryanair’s Michael O’Leary used absurdly low fares to generate demand from fare-conscious travelers who would have otherwise used alternative means of transportation or would have not traveled at all. O’Leary’s operating costs (aircraft, equipment, personnel, customer service, airport access, and handling) are one of the lowest in the airline industry.
  • Amazon’s Jeff Bezos used innovative sales-discounting methods and a strong emphasis on customer service to grab market share from traditional retailers. Without the burden of operating physical stores, Amazon’s efficiency has played a key role in the structural shift away from brick-and-mortar retail.

The “wheel of retailing” theory in corporate strategy posits that a lower-cost innovator eventually undercuts every dominant merchant. To combat the risk of cost-leadership from Amazon and other online retailers, Walmart has made major investments in e-commerce, even at the risk of cannibalizing its in-store sales.

Burt, Bees, and Simple Happiness / The Curious Case of Burt Shavitz


Narratives of entrepreneurial success and great wealth are fascinating

Today’s high-achieving culture adores people like Elon Musk who dream big, set ambitious goals, stubbornly get things done, and build wealth for themselves.

This scale of purpose, however, is not for everyone. A surprising number of people find their purpose by going the other way—by rejecting the trappings of wealth and pursuing humble, unpretentious, contended lives.

Consider the case of Burt Shavitz, the namesake and co-founder of Burt’s Bees, a prominent beauty-products company. Burt, whose bearded face and scruffy hat grace the tins of the company’s hand salve and ointment, died this summer at age 80.

Burt Shavitz of Burt's Bees and Simple Happiness

The small, simple, happy life

Burt Shavitz’s extraordinary reclusive life exemplifies what Marcus Aurelius wrote in Meditations, “Very little is needed to make a happy life; it is all within yourself, in your way of thinking.”

As a young professional photographer in the sixties, Burt grew increasingly disenchanted with city life in his native New York City. He was particularly distressed by the loneliness of an old woman whom he photographed at a home across his apartment—she always looked out sorrowfully from behind dingy curtains and never left her room. “As soon as I took this shot, I knew that that would be me, ninety years old and unable to go outside, if I didn’t get the hell out. I borrowed a van from a former girlfriend, packed up everything I needed—my bed, what clothes I had, an orange crate of books—and disappeared into the declining sun,” Burt recalled in 2014.

Burt left his city life for the backwoods in Maine and started living in a camper van. He led a hippie lifestyle; he had no ambitions and very little money. He took to beekeeping after unintentionally stumbling upon a swarm of bees at a fencepost. One day, while peddling beeswax by the side of the road, he met Roxanne Quimby, a single mother who was hitchhiking to work. Roxanne and Burt soon got romantically involved.

Roxanne had an entrepreneurial mindset: she made candles, lip balm, and hand lotion from a 200lb stash of unsold beeswax and started selling personal care products to tourists and at fairs. Over time, when their business thrived enough, Burt and Roxanne moved to North Carolina to establish a factory. However, Burt missed Maine very much. After a falling out with Roxanne, Burt sold his one-third stake in the company to her for a measly $130,000 and returned to Maine. (In 2007, Roxanne and her associates sold the company to Clorox for $913 million; she claims to have given him $4 million of the proceeds. Burt’s Bees/Clorox continued to pay him an unrevealed amount for continued use of his likeness and his name on its products.)

Burt's Bees Hand Salve

Idea for Impact: Happiness is mostly a matter of perspective

After returning to Maine, Burt no longer kept bees to make a living. He just enjoyed life—doing what he wanted, when he wanted. He told Flare magazine in 2013, “I’ve always had enough. I never starved to death, and I never went without a meal. I served in the army and went to Germany and slept in snowbanks, and walked 100 miles in the day carrying an 80-pound pack. What was it that I needed? My beekeeping produced enough cash that I could maintain my vehicles and pay my land taxes. What do I need? Nothing. No wife, no children, no TV set, no washing machine. All the pins sort of fell into place my entire life.”

During his later years, Burt lived in a cluttered country home in Maine that had no hot water and liked to watch nature pass by. A 2013 documentary called “Burt’s Buzz” captures his long and unconventional life. This highly recommended documentary (entirely on YouTube) juxtaposes Burt’s ideal day—“when no one shows up and you don’t have to go anywhere”—with the rock star adoration that he received from fans during a visit to Taiwan as the ‘brand ambassador’ of Burt’s Bees products.

In interviews—as in “Burt’s Buzz”—Burt denounced the emptiness of consumerism and extoled the virtues of simple, reclusive living. Evidently, he never regretted missing out on millions, but felt hurt by a three-decade-old business deal with Roxanne gone bad. “I’ve got everything I need: a nice piece of land with hawks and owls and incredible sunsets, and the good will of my neighbors,” he once said. An obituary in The Economist observed,

Settling back in his rocking chair, feet spread to feel the heat of the stove, Burt Shavitz liked to reflect that he had everything he needed. A piece of land first: 40 acres of it, fields and woods, on which he could watch hawks and pine martens but not be bothered, with luck, by any human soul. Three golden retrievers for company. A fine wooden house, 20 feet wide by 20 feet deep, once a turkey coop but plenty spacious enough for him. From the upper storey he could see glorious sunsets, fire off his rifle at tin cans hanging in a tree, and in winter piss a fine yellow circle down onto the snow, and no one would care. … He would wander into the woods or lie on his lawn to watch the baby foxes play, murmuring “Golly dang!” with simple happiness.

The seventeenth century French writer Francois de La Rochefoucauld once wrote, “Happiness does not consist in things themselves but in the relish we have of them; and a man has attained it when he enjoys what he loves and desires himself, and not what other people think lovely and desirable.” If, indeed, contentment consists of liking of what one has and having what one likes, Burt’s humble life illustrates how happiness arises from the harmony between oneself and the life one leads in one’s simple corner of the world.

Man Who Retired at 30 is Ridiculously Happy

Financial Independence “What’s money? A man is a success if he gets up in the morning and gets to bed at night and in between does what he wants to do.”
Bob Dylan, American Musician

Early in my professional life, I pursued an ambition to attain wealth—not because I sought after luxury, but because I wanted to realize a financial foothold that could help me become financially independent and invest in a meaningful life. I’ve been “retired” for two years now, work very hard on my true pursuits, and live life on my own terms. I might fancy a change in the future; for now, I am living the dreams and I couldn’t be happier.

Money is a False God

Most people spend the better part of their adult lives chasing the almighty dollar in an ostensible pursuit of success and happiness. Wealth, characteristically manifested in the acquisition of things, becomes so defining of their success that it becomes their primary measure of accomplishment. Later in life, they wake up to the distressing fact that everything they’ve earned isn’t bringing them the wonderful life it was supposed to.

Pursuit of riches becomes such a trap because many people easily appraise life in terms that are defined by others.

Enjoy a Life of True Wealth

I admire anyone who is self-disciplined and is willing to live their life on their own terms. Last year, The Washington Post carried an interesting interview with a man who had retired at the age of 30, not caused by extreme wealth but by living with less. Mister Money Mustache realized early that the pursuit of material things could lead to a persistent sense of emptiness. Rather than being unfulfilled, his family’s live-with-less way of life has made them “ridiculously happy.” Here is an excerpt of the interview.

Mister Money Mustache Q: You describe the typical middle-class life as an “exploding volcano of wastefulness.” Seems like lots of personal finance folks obsess about lattes. Are you just talking about the lattes here?

A: The latte is just the foamy figurehead of an entire spectrum of sloppy “I deserve it” luxury spending that consumes most of our gross domestic product these days. Among my favorite targets: commuting to an office job in an F-150 pickup truck, anything involving a drive-through, paying $100 per month for the privilege of wasting four hours a night watching cable TV and the whole yoga industry. There are better, and free, ways to meet these needs, but everyone always chooses the expensive ones and then complains that life is hard these days.

With Needs, Without Wants

Contentment is worth more than riches. Having few desires and feeling satisfied with what you have is vital for happiness.

Be Happy with What You Have

In a This I Believe essay, Marianne Bachleder of San Francisco reminisces about consumerism and about being conscious of how much she already has:

We forget to be happy with what we have and in our forgetfulness we spread the infection of discontent. It’s a mistake easily made in a world where everyone is expected to pursue every want—the newest gadget, the latest update.

I may want shiny things, but I don’t need them. What I do desperately need is the peace of mind found in moments of contentment and gratitude. I need to identify each of my wildcat urges to purchase or possess as either “want” or “need.” My needs are basic, predictable, manageable. My wants are chaotic changelings, disturbers of the peace that can never be satisfied.

I will tend my needs, I will whittle my wants, and I will say often, “I’m happy with what I have.”

Thrift to Wealth

'The Little Book of Main Street Money' by Jonathan Clements (ISBN 0470473231) Jonathan Clements, personal finance columnist at Wall Street Journal and author of ‘The Little Book of Main Street Money’ and the forthcoming ‘Money Guide 2015’, spoke of thrift and the wealthy in an interview with Vanguard:

Over the years, I have met thousands of everyday Americans who have amassed seven-figure portfolios—and the one attribute shared by almost all of them is that they’re extremely frugal. When I was at Citi, I used to joke to the bankers that they would know a couple was wealthy if they pulled up to the branch in a second-hand Civic, wore clothes from J.C. Penney, and asked to have their parking ticket validated.

Shop at Amazon & Support a Noble Cause

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With no additional cost to you, 100% of the referral fees earned by this blog from the international Amazon Associates program support the education of underprivileged kids in South India. Our philanthropy partner is Aapatsahaaya Foundation, Bangalore. In 2013, your purchases funded part of a science/field trip for tribal kids.

The Easier Way to Build Wealth

“Work a lot, spend a little, save the difference, invest it wisely, leave it alone. It’s not that hard. We just make it harder than it needs to be. Paying too much attention to the details of markets is a chief culprit.”
Morgan Housel in Motley Fool

The Easier Way to Build Wealth It is amazing that most people just do not seem to accumulate enough wealth despite making a comfortable living. Many live from paycheck to paycheck, even with steadily rising incomes. Borrowers often fall behind on their mortgage payments. Credit card and consumer debt is growing at an alarming pace. Employees in the prime of their lives are not setting aside anything significant for retirement. As a result, many baby boomers cannot stop working at the usual retirement age because they are not ready to fund the rest of their lives.

Every Dollar You Make Equals LESS than a Dollar for You to Spend

Building Wealth Are you sometimes disappointed at not realizing your dreams of building wealth or becoming financially secure? The overwhelming odds are that at the root of your feeling of financial insufficiency is how you tend to spend.

A common folly is to assume that every dollar you make equates to a dollar you can spend. In reality, you need to make much more than a dollar to spend each dollar. Apply the following some simple arithmetic to calculate the true purchasing power of your income.

  • Suppose that you are employed in the United States and you are in the 28% tax bracket. If you pay 6.2% in Social Security deductions, 1.45% in Medicare deductions, and your state income tax rate is 4%, then your total deductions are 39.65% of your income. On every $1 you earn, you pay $0.3965 in deductions. Therefore, for every $1 you make, your purchasing power is just $0.6035. In other words, you have to earn $1.65 (1.65 = 1/0.6035) to spend every $1. For instance, you would have to earn $3,811 to buy a 47″ flat screen TV that costs $2,300.
  • When you invest your money, you do not pay Social Security or Medicare deductions on dividends and capital gains. If the tax rate on long-term gains and dividends is 15% and your state income tax rate is 4%, you will retain $0.81 of every $1 you make in long-term gains and dividends. Even then, you have to earn $1.23 in dividends and capital gains to spend $1.

Harness Your Purchasing Power

“Anything you do to make yourself more valuable will pay off in real purchasing power.”
Warren Buffet

Harness Your Purchasing Power There are only two ways to get rich: make more money and spend less. The first method is relatively difficult: it is never easy to get a significant raise or a better job at a better place, win the lottery, take a second job, sustain a secondary source of income, or consistently make sizeable gains in the capital markets. It is easier to build some discipline in your spending habits.

  • Track all your expenses for a month. At the end of the month, analyze your cash flow. Scrutinize your expenses in terms of ‘wants’ and ‘needs.’ Happiness comes from matching your wants to your needs. Consider ideas for cutting costs and their consequences. Examine your discretionary spending. Scale down or dispose of unnecessary services or subscriptions, irrelevant utilities and features. Consider reprioritizing your expenditures with a medium- and long-term perspective.
  • Examine your spending instincts. Be mindful of the perils of consumerism and materialism. Do not let your rising income fuel increased spending. Simplify your life.
  • A one-time windfall, bonus, or tax refund is no excuse for indulgent spending. Be selective in your purchases without abandoning your plans for paying off debt, saving money or funding your retirement account.
  • Seek to be disciplined and prudent, not necessarily thrifty or frugal. Cultivate an appropriate financial discipline without hurting the quality of your life. Reward and treat yourself for your achievements. Invest in anything that makes you feel good, happy, or helps you realize your goals.