Are you wealthy if you own a big house and a nice car?

In short, the answer is no. More than 90% of high consumption households are not actually wealthy. Take away their debt on their home, car and credit cards, take a look at their retirement nest egg and the answer is appallingly, the reverse. Let’s call them High Consumers’. They may seem wealthy from the outside looking in but in reality they are not.

In this article we will look at;

1. What being wealthy really is,

2. How to get it easily with low risk,

3. Where this is different to 90% of those you see every day.

The overwhelming factual evidence says all ‘high consumers’ have is a fragile illusion of wealth. Enough income to spend and service debts today, but for only as long as that income is around. For most income is reliant on an employer or a small business. As an employee or small business owner, most so called “wealthy” people are just one bad economic downturn or decision by a company CEO from their own economic ruin.

As job security becomes increasingly rare and fleeting, the risk of ruin is silently increasing in our suburbs. Today there are now two adult generations that haven’t experienced economic recession and wholesale job losses. This will situation will hit these generations particularly hard next time around.

Just 3 weeks of money: Two years ago an insurance company surveyed a large cross section of the country and discovered a startlingly worrisome fact. More than ¾ of respondents had only enough cash and cashable investments to last no longer than 3 weeks. Yes just 3 weeks.

It’s not just lower income earners: Whilst you may naturally assume this relates to those living day by day on lower incomes in unskilled work, it also covers those on high incomes. A high income does NOT mean rich or secure. Having a big home in a nice suburb, nice cars, dining out, foreign holidays, new gadgets and shiny BBQs, does not mean wealthy. They’re just ‘big consumers’. Consumption supported by perilously risky income. Being in a profession or holding tertiary qualifications has no positive impact on this situation as you will see.

Some, especially those in the Gen X and Baby Boomer generations may have an amount of equity in their homes, but this has not been accumulated by skill or wisdom- just dumb luck. This equity is often used to support their consumption and is rarely put to wise use. Of course, the only way to gain access to this cash if their income stops is by selling the house! Last year our nation also surpassed 100 billion dollars in credit card debt as well as record amounts of housing debt as people accelerated the trading of houses between one another. All this causes its own problems for future generations too but that is another story…..

This mirage of consumption labelled as wealth is a western world ailment: By example a recent survey of 7,000 people on their saving habits illustrates the lack of wealth that most people could have quite easily. Here are some highlights;

• For those on incomes of less than $25,000, 38% had $0 saved, and 35% had less than $1,000.

People who earned more fared only slightly better, reporting low amounts of savings.

• Of those with incomes of $100,000 to $149,999, 18% had $0 saved

• 26% had less than $1,000,

• Earners of $150,000 annually or more, these numbers fell to 6% and 23%, respectively.

Those who are considered “wealthy”, (earning $100,000+ a year), save nearly as little as those who make $25,000. From this and other observations it can be concluded that having a high income does not equate to being wealthy for most people on high incomes.

Earning more wont mean you get wealthier: Indeed a recent scientific experiment gave and extra 10% income to a broad cross section of income earners across our society. Less than 5% of people in the study after one year had any additional savings/wealth to show for it. Very large windfalls produce even worse results; examples include athletes, actors and lotto winners whom had profoundly high amounts of cash pass through their hands with very little remaining after just a few years. The causes are many and varied, and some are deeply rooted in the inner working of our brain, as well as the lure of consumption focused marketing.

The reason most people aren’t truly wealthy is that they haven’t yet discovered how to make money work for them. They are poor when it comes to financial knowhow (unless you were part of the lucky few that grew up in households where this knowhow was handed down to them by their family). Certainly our education system has almost zero teachings in the use of money. Educators are also amongst those that are not skilled or financially aware in this regard. Only generous tax payer-funded superannuation benefits /jobs for life shield them from poverty.

What may surprise you it is not really about saving: This is what people do that enacts the strategy of ‘deprivation’ to create wealth. Can this be right? Heresy I hear? There is another way for most small business and wage earners to create lasting enjoyable wealth and the life that goes with it.

Great news…. Happily, acquiring the knowhow is not hard, lengthy to learn or acquire or laborious. The really good news is that you don’t require a high income to be truly wealthy either!

A true story……. A personal example that illustrates this well was within my own family. An older family member whom retired in the mid 1990’s with his last salary amounting to just $37,000 (His current income is many multiples above this by the way). He lives an active and social life with his wife, whom also worked part time in a local shop. Raising two children, educating them into university they had a typical suburban life. Their background is that of WWII refugees, without an education, or a family to inherit from. He remained in the same small business he shared with his brother since the 1960’s that never grew into anything large or valuable. After 5 years in retirement there was more income than they could spend. Indeed 20 years on and this grew to a multiple of times over this requirement and is still growing today. What is to be garnered from this is that it’s very achievable to live a happy and secure life without great sacrifice.

It is not spending perse, but when and how this spending occurs and where this spending is funded from is essential to get right.

One exercise I ask clients of ‘Changing Life and Wealth.com” to do is list out every expense they have in one column and then jot down their income in another. I then ask them to cover the income column. “How long,” I ask, “Would you survive without your salary?” For most people this is a moment of truth…and panic. It’s their first insight into the precarious situation they are in. Remember this has nothing to do with how much income earned or how big a ‘lifestyle’ and home you have.

Is being frugal required? Many will suggest that to be wealthy requires great effort, saving and many years of sacrifice; in other words to live frugally. No, becoming the next Dali Lama is not required. Unfortunately most people’s initial reaction is to cut expenses. This works for a time, but the reality is within a while the misery of deprivation tends to nudge one back to where you were. And let’s face it; cutting the fun things out of your life is a miserable thing to have to do.

Cutting expenses is what the poor do. Truly wealthy people do not cut expenses. Rather, they ask, “How can I afford it?” Instead of cutting expenses, our way at Changing Life and Wealth.com has you increasing them. Yes… increase your spending! The key is that you increase a certain type of expense that will make your wealthier.

Wealthy people too also have the nice things in life. Make no mistake wealthy people also choose to enjoy a great lifestyle. The key difference is they have choices and should their ‘active income’ stop or drop, they don’t have to lose their lifestyle! Active income is the cash earned by personal exertion (salary and earnings from operating a small business).

So what is it that they do differently and with much more security? It’s as easy as 1,2,3. Wealthy people;

1. Utilise ‘passive income assets’ that generate income without much effort. Not a job or work that you have to do to earn an income. They also use all the rules and tools available to them. It is this income that is then used to fund lifestyle, toys and trophies.

2. Have the desire to exercise periods of self-control. Delayed gratification- not frugality.

3. Understand how to easily manage the cash that passes through their hands in ways that create ‘passive income assets’ and removes expense items that would keep them poor.

In the last item there are 2 simple and easy to employ no-cost actions that deliver incredible results for those that want to be wealthy. At Changing Life and Wealth we show what and how to do this.

The unexpected dividend of true wealth: Ask people who enjoy real wealth and they will often tell you how their entire perspective in life has changed; how much happier, relaxed, open and secure things now are. Loved ones will also attest at how nice they are to be around too!

The wise path to wealth is not via the stories peddled in the media. You know the ones….. Fortunes being made inside a few years, or decades building a large business then selling it, becoming a superstar at something, the inside run on investing that made a squillion etc. Think about it; most highly wealthy entrepreneurs have sacrificed almost everything else in their life to get it. A one-dimensional life that is often at the expense of all else life offers. Studies show that the process of achieving all that ‘wealth’ in this way had an unintended side effect. It enslaved them to the process and it became a habit, knowing nothing else than a narrow and continual never ending path of work in what they have always done before. Trophies won without the enjoyment, time or mindset to enjoy it and then to seek out other things in life to enjoy. At Changing Life and Wealth.com we don’t recommend this pathway. The good news for those that are in this situation is that they too can also apply the same three principles to lead a different life.

Parting words.

Wealth should equal a life of choice, enjoyment and security. To be able to live a whole and useful life. This does not need to preclude enjoying the toys and trophies many of us covet. The pathway to achieve it is subtly and importantly different to the pathway most have inadvertently taken however. It is not hard or expensive, complex or higher risk. All it takes is a desire to have it.

Grant Pearson

www.changinglifeandwealth.com