In his book The Psychology of Money, Morgan Housel writes about the difference between being rich and being wealthy.
He defines riches as an income you earn, because that allows you to take on the debt to buy that R800 000 car or R40 000 handbag. Wealth on the other hand is hidden. It is an income not spent.
We tend to judge wealth by what we see, because that’s the information we have in front of us. We can’t see people’s bank accounts or investment statements, or even their credit scores. So we rely on outward appearances to gauge financial success. We look at people’s cars, their homes, and their Instagram posts.
We think that people who have expensive stuff must be wealthy, yet as Housel points out, true wealth is what you do not see, because wealth is the nice cars, designer labels, and fancy watches you did not purchase, because you were investing instead.
Wealth is a financial asset that hasn’t been converted into buying the stuff you see.
When most people say that they want to be a millionaire, what they might actually mean is that they would like to spend a million rand. And that is the complete opposite of being a millionaire.
Think about how many sports stars and musicians we hear about every day who go bust because they spent their income to look rich rather than investing to be wealthy.
Ultimately most of us want to be wealthy, because we want the freedom and flexibility to make choices about how we live our lives – not to work because we have to pay off our credit cards, but because we want to do something with meaning.
We get our financial freedom from investments, not spending. We need to reset our idea of what wealthy looks like, and to realise that true financial freedom is achieved not by flashing the bling, but by the invisible accumulation of wealth by investing what you do not spend.
We can start creating wealth by not buying on credit, and making sure that the first debit order of every month goes into an investment.