From the moment we start earning a living, and even before, we set certain spending parameters for ourselves. Usually, these parameters are based on our income. If we make this much money, we decide we can pay this much rent and drive this kind of car. We can shop at these stores and dress this way.
And when our income increases, we move into a nicer apartment and pay more rent, or buy a house. We can drive a nicer car, spending more money on that, and we can shop at nicer stores and spend more on our clothes. And so it goes.
The problem with this–the rising tide lifting all boats–is that it rarely offers an opportunity to be financially independent.
Old Money avoids this trap by living a lifestyle based on values, not income. I talk about the Core Values of Old Money in the first section of The Old Money Book. None of them relate to spending money. None of them are contingent upon a certain income level.
In the second section of the book, I talk about How Old Money Does It. This section relates to Avoiding the Trap, i.e. spending your money in a way that reflects Old Money values and priorities, not in a way that reflects a level of income or net worth.
You Avoid the Trap by dressing the same way when you make $50,000 a year as when you make $500,000 per year. You drive a well-maintained used car that’s reliable. You do not increase your monthly outlay on rent or a mortgage every time your income increases.
And most importantly, you save a percentage of what you earn each month as opposed to a fixed amount. When your income increases, you maintain, or preferably increase, the percentage of what you save. If you make $3000 per month, you save at least $300 per month (10%). When your income goes up to $4000 per month, you save at least $400 per month ($400), but a larger percentage if you can.
You must also reward yourself as your income and accomplishments increase. The key here is to do it with things that only cost money to buy and do not cost money to own. A vacation on a cruise ship costs money only when you buy it. A yacht costs money to buy (acquisition), as well as to own (maintenance). A nice watch, like a used stainless steel Rolex, costs money to buy, but its service costs are minimal (but they do require servicing). A new car will require money to buy, and money to own.
Also note the difference in how long your reward will last. A bottle of champagne will last an evening. A well-made jacket will last decades. Choose your rewards wisely and enjoy them fully.
Avoid the Trap by liberating yourself from peer pressure. Peer pressure is usually coming more from us than from others. Get to the bottom of it with some objective self-analysis. Then let it go.
While we all care what others think of us to a certain degree, be true to yourself to a larger degree. Regarding others, understand this: friends who subtly or overtly pressure you to spend more money than you’re comfortable spending are not real friends. They either don’t know you or don’t respect you.
Colleagues or coworkers who pressure you to spend money are trying to sabotage your career in the short term or your financial future in the long term. (Credit report checks are now a routine part of many job applications, like it or not. Keep yours clean in order to maximize your opportunities.)
You can develop your own techniques for Avoiding the Trap, but first you must define your values and evaluate your priorities. Know your philosophy. Know the code you live by. Material possession will not permanently or effectively compensate for self-esteem issues. Trust me on this one thing: they will betray you.
No material possession feels as good as financial independence. Avoid the Trap. Get that Old Money feeling.