January is the month of resolution. Perhaps this year you’ve resolved to do something about your finances. At long last, you’ve decided to take real action so that instead of falling behind each year, for once you can actually start down the road of getting ahead.
If this is your resolve, congratulations are in order. Toast yourself with some cheap champagne.
But as you merge onto the freeway that leads to financial success, you’re going to reach an early realization: either you or everyone else around you seems to have everything backwards. Most of the traffic on this highway to the future seems to be speeding away in another direction. So either you’re the one that’s crazy or all the others are.
In the mindset of the mainstream consumer—which is the mindset you’re moving away from—getting ahead and getting happy means getting more stuff.
For mainstreamers, whenever it’s time to buy or rent a home, the clear path to happiness is to buy or rent the largest place possible. So they move into the biggest space that banks or landlords say they can afford. Anything less, of course, would cramp their lifestyles.
For mainstreamers, whenever a new technology appears, the clear path to happiness is to buy it as soon as possible so they don’t deprive themselves of a single minute of the new marvel’s magic. After all, those who snooze inevitably lose. Those who lead must spend with speed.
For mainstreamers, whenever a new dollar appears, the clear path to happiness is to convert that dollar as fast as possible into something that provides pleasure in the present. The world is cruel and life is uncertain. Those who prosper most are those who are best at living in the moment. Those who hoard dollars are saving for a future they may never get to see—and what a precious waste of time that is.
For mainstreamers, whenever an acquaintance buys something shiny, new, and conspicuous, the clear path to happiness is to buy one too. Superior possessions denote superior status. Those who die with the most toys win.
Of course, these mainstream attitudes are nothing but backwards bunk. Nevertheless, those who splurge are loud and demonstrative. Their extravagance is hard to counter.
To stay on the frugal course you’ve got to come up with a few mindsets of your own—a way of understanding financial reality that will compete against mainstream wisdoms and, if not block them out completely, at least provide a different place towards which you can drive and strive.
There’s one key idea that helped my wife and I reach the destination of financial freedom. It’s not my own idea, but I’d like to share it with you anyway. This idea is fundamentally true yet entirely counterintuitive:
the best way to get ahead in this world is to lag behind everyone else.
When you believe in this idea and arrange your life accordingly, the contrarian road you follow diverges far from the mainstream.
While others buy spacious McMansions, you choose more modest digs. Ask a mainstreamer this basic math question: what’s the difference between living for three decades in 5600 or 1600 square feet? The mainstreamer’s answer: 4000 square feet. That’s dead wrong. Over three decades, the difference between 5600 or 1600 square feet is well over a million dollars. Money the mainstreamer squanders in interest, insurance, taxes, utilities, furniture, repairs and remodels is money that you save and grow. When you lag behind in the square footage you choose to occupy, in this world you end up getting more ahead.
While others buy new technology as soon as it hits the market and perhaps even stand in line for the privilege, you instead play a waiting game. As you wait many small miracles occur. Prices drop, rebates appear, new models provide better features, or maybe you decide this new technology is something you can live without. When you lag behind in adopting new electronic marvels, in this world you end up getting more ahead.
While others live in the moment and spend what they make as soon as they make it (or even before they make it), you live simply and spend less. Blessed with a frugal mindset, you understand that your household’s annual “burn rate”—the total dollars it spends each year—is a key determinate of financial success. The heads of mainstream households would never waste their time sweating over details about electricity, natural gas (or heating oil or propane), water, discarded food, gasoline, or overpaid taxes, but these are details you revel in sweating over. When you lag behind in what gets wasted, you end up getting more ahead.
While others practice conspicuous consumption, you’re secure enough to practice extravagant displays of modesty. With your growing stash of cash, you easily could afford to flash around a Rolex, but you choose instead to flash around a Timex. When entering a room you could signal your importance by wearing Ralph Lauren, but you choose to wear Costco. You could afford to drive a BMW, but you know each mile logged in your Prius adds inexorably to your growing portfolio—and unlike vehicles stocks tend to appreciate over time. When you lag behind in displays of status, you get ahead of those who obsess about outward appearances.
After years have passed, the mainstreamers will reach their destination and you’ll reach yours. At that point, each dollar saved will represent a well-earned unit of freedom. As someone who has spent years lagging behind, you’ll face a wealth of choices. As for the many mainstreamers who set off in a different direction, well, let’s just say that their prospects will be a bit more limited.
When it’s all said and done, it boils down to this: McMansion-dwelling, tech-adopting, wasteful-spending, status-striving mainstreamers spend their allotted years as “wealth showers.” All along the road, they exchange their precious liberty for material possessions. On the other hand, you, my frugal compatriot, have resolved to spend your years as a freedom-loving “wealth grower”—and the open road you’ve chosen will take you wherever you want to go.
May your 2015 be both modest and prosperous!
Photo by Jeremy Bronson