One of my favorite parts of Kiplinger's Personal Finance magazine is always the column written by Knight Kiplinger. he and I just seem to see eye-to-eye and, as such, I look forward to reading his thoughts each month.
This past October, he wrote a piece titled The Invisible Rich that gives several of the same thoughts found in the book The Millionaire Next Door -- that you often can't tell if a person's wealthy by looking at him. In fact, looks are deceiving in more cases than not -- the millionaire next door drives a 10-year-old Chevy while the zero-net-worth, hot-shot executive cruises in a high-end BMW.
There were three parts of this article that I really liked and wanted to share with you. Here's the first:
The biggest barrier to becoming rich is living like you're rich before you are. Why? Because all that discretionary spending -- the chic apartment, frequent travel and restaurant meals, consumer electronics, fancy clothes and cars -- crowds out the saving that will enable you to be rich someday.
In other words, if you spend more than you earn, you'll never be rich. Said in a positive way, if you do spend less than you earn, you're on the path to becoming wealthy. After all, wealth is what you save, not what you spend. And, unfortunately, there's a small difference between financial success and financial disaster. I'm in 100% agreement with Knight.
In the next paragraph, he details how this over-spending often plays out in people's lives:
I often hear complaints from young adults, twentysomethings to those in their early thirties, that they'll never be able to buy a home because they can't afford the down payment. But when I probe them about their budgets, I find that they earn enough to make a down payment in just three or four years -- if they cut back on their spending, and if their starter-home expectations are reasonable.
But no one wants to cuts back their spending? Why? Because that requires discipline -- something very few people want to apply to their personal finances.
In the last paragraph of the piece, he shares the opposite point of view. The view from those who spend less than they make:
They will remain proud members of the Invisible Rich -- a growing army of super savers whose net worth is more impressive than their income. They'd rather live within their means, sleep well and forgo the covetous attention of their fellow citizens. Not a bad way to live at all.
This is the lifestyle that I support and recommend (and one that I live myself.) I spend less than I earn, and have done so for years, that's why my net worth is way ahead of those in my age range.
I didn't mean for this post to be a rant or a bragging session (though it does sound like both upon re-reading it.) I just want those of you who want a better net worth to get more from your money than just dreaming of becoming wealthy. Growing your net worth is really rather easy and if you're committed to making progress this year, keep reading Free Money Finance. I promise to keep writing about issues that will save you money, earn you money, and help you grow your net worth. And if you apply them, your net worth will be much higher at the end of 2007 than it is now.