Displays of wealth that disguise indebtedness

Thomas Stanley and William Danko’s excellent personal finance book The Millionaire Next Door is a book many readers turn to regularly for ideas and inspiration.

One of the most interesting themes in The Millionaire Next Door is the idea that you really can’t judge a book by its cover when it comes to personal wealth.

In fact, quite often, public displays of affluence disguise a debt-ridden under-accumulator of wealth, while many exceptional accumulators of wealth possess ordinary, often seemingly outdated things.

The under-accumulators of wealth focused on appearance, while the exceptional accumulators of wealth focused on how things functioned.

Thomas Stanley expands upon that single idea here in his new book Stop Acting Rich.

The premise of the book is simple: lasting wealth and happiness is rarely found through buying expensive things.

Throughout the book, Stanley relies on extensive research of people who have acquired financial security — much the same group as in The Millionaire Next Door — to illustrate and reinforce his points, painting a pretty convincing case of the actual buying habits one should adopt if one is seeking lasting personal wealth.

Stanley opens Stop Acting Rich by defining a group of people he calls “aspirationals” — people who choose to act like the super-rich, but don’t have the financial resources to truly back it up.

Truly exorbitant wealth

The “aspirationals” and the truly rich (people with truly exorbitant wealth) tend to spend a lot of money.

Stanley reviews these spending habits in detail here — think yachts, country clubs, cases of vintage wines, private jets, BMWs and the like.

To put it simply, “aspirationals” often have to sacrifice every dime they have to appear rich, leaving them incredibly vulnerable to losing everything.

What’s interesting is that this “aspirational” and “truly rich” phenomenon continues all the way down the money scale.

In many neighbourhoods, there are “aspirationals” — people who are pushing themselves into financial ruin to keep up appearances — and people who can actually afford to live there.

The solution to financial success is pretty simple – stop being an “aspirational.”

When you step back and look at “aspirationals” from an outsider’s perspective, an interesting phenomenon occurs.

Aspirationals are more common than the truly rich by far, so our “pop” idea of what it means to be rich actually comes from people who are financially poor and are making reckless decisions for their future.

Those aspirationals are seeking respect from the wrong group of people.

In truth, it doesn’t matter at all what the random person on the street thinks of you, yet it’s the respect of the random person on the street that aspirationals desperately seek.

“But what about dressing for success and the like?”

The only people who you should focus on impressing and winning the support of is your professional peer group and community.

Their respect is what will actually impact your life.

In many — if not most — professional communities, the watch you wear or the car you drive doesn’t matter one little iota.

One interesting chapter is titled Do the shoes make the man?

Many people argue that by doing things like dressing for success, they’re creating the groundwork for success.

People will trust and respect them and money will flow their way.

So they focus on the material elements — they focus on the perfect shoes, the perfect suit, the perfect handbag, the perfect car, and so on.

Yet, while that person is focusing their energies and resources on appearing rich, others are focusing their energy on building the skills that will pay the bills.

While one person is buying expensive shoes and keeping up appearances at the country club, the other person is practicing their speeches and coming up with a better business plan.

In the end, one of these two people will find lasting wealth.

Will it be the glossy suit with nothing underneath, or the person who put in the time to prepare?

Don’t put the appearance of success before success, or else someone who is actually putting in the footwork will grab that brass ring away from you, leaving you with nothing but a mountain of debt.

Focus on the skills that pay the bills, not on the bills that bring more bills.

In the Keeping Up with Your Spirits chapter, Stanley focuses specifically on one type of product — spirits — to make a greater point about purchasing habits.

People who buy high-end wines and spirits do so because they believe that having a particular brand — a brand that’s been built up with a lot of careful marketing — of liquor will somehow enhance their satisfaction with their lives.

Expensive brand

In truth, an expensive brand is often of debatable quality as compared to the “bang for the buck” choice.

The premium paid for a luxury brand may offer a bit more quality, but the minute increase in quality is rarely worth the extra price.

What people pay for is the “cachet” — the idea that this particular brand will contribute more to the quality of their life than the other brand.

Stanley relates a tale in which a person thought they were showing off high class and sophistication by turning up their nose at the $12 wine offered to them and brandishing their own expensive vintage, but in the eyes of the wine offerer, the person was being downright rude and his actions cut off a potentially useful relationship.

To put it simply, trying too hard to appear affluent can cut off relationships.

Among millionaires, what automobile manufacturer has the highest loyalty rate?

The highest percentage of ownership? The most recent buys?

One might expect to hear names like Mercedes-Benz and BMW here, but in truth, the answers are Chevrolet, Ford, and Toyota, respectively.

In other words, millionaires aren’t the ones buying the expensive cars. Who is?

The aspirationals — the broke people pretending to be their idea of what a millionaire is.

You can actually judge people by their cars.

If you see a shiny new Mercedes rolling your way, it’s likely that the person inside isn’t rich, they’re just pretending to be rich.

The simple dollar