One of the biggest separations from reality between those with money and those without is an understanding of the size and value of money. Put simply, a rich person knows the difference between $1,000, $100,000 and $10,000,000. A poor person sees $10,000 the same as $10 billion. This is why so many lottery winners go bankrupt in 5 years. They win $10 million and think that the money will last forever.
Lets do the math: if you spend a million dollars a year, you’re broke in 10 years. But since the average poor person can’t see the difference between a large amount of money and a King’s ransom, they can easily burn through $10,000 because in their mind, the money will last forever.
This comes to mind because a year ago, one of my best friends asked me a question. He had seen that I had retired a year earlier and really had no means of income from a traditional source (like a 9 to 5 job). He asked me, out of the blue, “Do you have seven figures?” And like an idiot, I answered yes, and (feeling good about myself), I added, “Just in cash.”
The very next evening, when the bill came at the restaurant, he and his Wife looked away as though they were so poor and just expected me to pay. My buddy’s Wife and her Mother approached my Wife about a donation for some charity that they worked in.
In their eyes, I have a million bucks, the $ will last forever, so surely I can share some with them.
What most poor people don’t realize is that it takes 50 to 100 times longer to save money than to spend it. And once the spending begins, it is hard to stop. This is why most poor people are poor, they can’t save and just “have” to spend.
Some six months later, we were shopping for a new car for my Wife an I was working hard to find a good deal. I don’t believe in buying new cars as a year old car is a MUCH better value. And so, I was dealing and negotiating and my buddy asked about my progress and I told him. He, and then his wife began to chide me, “Don’t be so cheap, go and buy her a new car. You can afford it.”
What you can afford is relative. If I buy a new car, a new this and that, soon, you’ve spent a hundred thousand dollars. Do that a few years and you’ve burned through a million. But this is the difference between my buddy and I. This is why I have seven figures in the bank and he doesn’t. I used a large part of the money I saved (like buying a used car instead of a new) to afford a 6 bedroom apartment on the beach (see photo above). And in my buddy’s mind, now, more than ever, I can “afford” most anything. But in reality, I am able to live at this “million dollar house” because I didn’t have the blase attitude that I could afford anything.
Think about this: how much money can you save each month? For most people, it is only $500 or $1,000 per month. And so, $50,000 is TEN YEARS OF SAVINGS. If you get a large bonus at work or you win a lottery scratchier, if you blow through $50k, you didn’t just spend fifty thousand dollars, you spent TEN YEARS OF SAVINGS.
You will never accumulate a million dollars if you always have the attitude, “You can afford it.” If the goal in your mind is to save a million dollars or to have a house on the beach, YOU CAN’T AFFORD IT.
One of the biggest impediments to your financial success is family and friends. Family members don’t understand how money works and as soon as you have a few thousand dollars “extra,” they think it is the same as a billion dollars and won’t understand why you can/t/won’t share it with them. You have to be brutally firm with friends and family. Don’t ever give the idea that you’ll pick up the tab or pay their bill because you’re financially successful. Guard your money. Not only will they spend their money, they’ll freely spend yours too – if you let them.
Thanks for dropping in, I’d love to hear your comments on this topic!