I received a phone call the other night from a friend who had just read The Old Money Book. She’s in her mid-20s and doing very well career-wise. She’s also living the life: nice new car, nice new clothes, out for drinks a couple of nights a week, and a long weekend to somewhere out of state about once a month.
I’m not criticizing her at all: she works hard. And I don’t begrudge anyone’s success. I’m happy for her.
She enjoyed the book, but couldn’t get her head around changing her lifestyle. “Why would I spend less money? I’ve got my 401k happening. I’ve got a good job. Why do I want to live like an old person? I’ve got another 30 years of earning potential.”
She had a good point: why live like Old Money now? How exactly does ‘spending less’ result in ‘living better’? Why shouldn’t she enjoy herself?
So let me address her concerns, and perhaps yours, and articulate the reasoning behind living below your means while adopting the values, priorities, and habits of Old Money.
First of all, everybody should enjoy themselves. That’s the biggest part of life. I never suggest otherwise. Second, living like Old Money is not living like an Old Person. It’s living like a Smart Person.
You don’t develop good financial habits for good economic times; you develop good financial habits for bad economic times, because it’s those good habits that are going to get you through those bad times.
More specifically, when you spend less, you have money in your pocket. If you aspire to be Old Money, you take that surplus money and you invest it in assets (real estate, bonds, stocks, or whatever) that will pay you money every month and/or increase in value over time.
You do this until you are financially independent, which means you can work at a job or profession, or not work, and still maintain your desired lifestyle without worry. You have the option because your investments pay enough monthly dividends to support you without any physical work on your part.
This is the reason that some members of the Old Money culture live ‘like old people’: they are living on dividend or passive income, usually from conservative investments that increase in value over the long term. They don’t touch the principle that’s invested and generating income. (Audible gasp!) They don’t spend their monthly income on things when they can travel or do some other life-enriching activity. They don’t have anyone to impress because they aren’t keeping up with anyone. They have the ultimate status: they’re free.
We’ve all heard the saying that poor people buy junk, middle class people buy things, and rich people buy assets. That pretty much sums it up. If you take your monthly salary, live on less, and invest the rest, you’re on your way to being financially stable, possibly financially independent, and maybe rich, depending on how much you earn, how much you invest, and how well your investments pay off.
There’s no mystery to it, but there is a logic behind it. So follow my advice: