Stop Acting Rich

Thomas Stanley, Ph. D. is back at it again with his newly released book “Stop Acting Rich.” His name should be familiar to you because he is the author of “The Millionaire Next Door” and “The Millionaire Mind.”

I loved his first two books and when I saw his new book, I couldn’t resist buying it. The message that permeates each book listed above is that  most people look rich because they live in big homes or drive expensive cars, but when examined closely, they have accumulated very low levels of wealth. In other words, they wear big hats but have no cattle.

For some reason, we seem to measure our success in life by how we compare to others. Is our house bigger than theirs? Is my car nicer than Jim’s down the street? To feel successful, many people fall into the trap of buying things simply to impress others.

A few years ago, I almost made this same mistake myself. My dream was to own a large lakefront home in North Carolina. My wife and I toured numerous homes and finally made an offer on a 8,000-square-foot home in an exclusive residential community. During negotiations my wife shared that she didn’t think she would feel comfortable in the neighborhood. Almost as if we didn’t fit in. As we talked about it more, I realized she was right. Everyone in this community belonged to the country club, drove high-end cars and took exotic vacations. We don’t belong to a country club. Hell, I don’t even golf. I’m too busy working! I drive a 6-year-old car. Nothing exotic about us.

We decided to let this home go and stay put in Cleveland. Turns out it was one of the smartest decisions we’ve ever made because, soon after, the real estate market crashed and the economy took a nosedive.

One of the main lessons Mr. Stanley makes throughout this book is that the amount of wealth you accumulate in your life correlates directly to the size and value of your home. Here’s a very telling quote from the book:

“If you examine homes by value from the lowest to the highest, you would find that as the value of the homes increases, so does the proportion of people who are living well above their means.”

The more expensive your home, the more you’ll be forced to spend on home repairs, maintenance and upkeep. This is hard enough, before you factor in what you’ll have to spend to keep up with your neighbors. If you buy a high-end home, you’ll end up sending your kids to expensive private schools and you’ll be forced to buy them all of the expensive clothes and gadgets the other kids have in the neighborhood.

The reason this happens is because it’s hard to avoid copying what you see every day. You won’t want to look like some schmuck who drives a rusty old car and sends his kids to the public schools in out-of-style clothes from Kmart.

The trick is to live in a nice home in a nice neighborhood that allows you to live below your means. It’s better to be a high earner in an average neighborhood than it is to be a low earner in a high-end neighborhood. Remember the old saying about “buying the worst house on the best street?” Well, as it turns out, this “best street” might actually lead you to the poor house.

Most of the millionaires profiled by Mr. Stanley live on less than 80 percent of their income. They are frugal and focus their attention on investment rather than consumption. Their goal is to convert income into wealth, which is significantly different than people who act rich.

A psychology study by Ryan Howell, which was written about in the book, found that having “things” isn’t what usually makes us happy. If “things” do, it’s short-lived happiness.

Instead, what makes us happy are life experiences. The good news is that life experiences are free.

10 Comments

  • Abby Alphin

    Reply Reply June 17, 2011

    Have you ever thought about publishing an e-book or guest authoring on other websites? I have a blog centered on the same information you discuss and would love to have you share some stories/information. I know my viewers would appreciate your work. If you’re even remotely interested, feel free to shoot me an email.

  • The premise of the book is correct. Now with the market downturn, there is no way out for many that are over extended. It is a lot easier to go down quickly when you have a huge home and the obligations that go with it. Living at 90% instead of 110% is the key. You’ll be a lot happier and a lot less stressed.

  • Heather Peck

    Reply Reply February 1, 2010

    I think this is very wise advice, some we should all pay closer attention to.

  • Pat Guttery

    Reply Reply February 1, 2010

    Excellent article. Goes right along side Dave Ramsey. Excellent information. I am in that big house now and just put it up for sale.

  • James Sanson

    Reply Reply February 1, 2010

    I would agree too. We have been educating our clients to 1st accept the Jones have the same money as they do and maybe worse problems. We are challenging them to actually think. The Jones work for the same company and earn the same money, but have more expensive things, so how is this possible (income – those things = something). Then we are working the mindset of income – savings and charity (forced) = available spending. Then with the available spending we are then focusing on envelope budgeting. This is tough for people. We want them to have financial savings and investing goals. Then we want them to design their lives around that. We also want them getting in at least one healthy vacation a year.

  • John OHare

    Reply Reply February 1, 2010

    Trips are not free…but they don’t HAVE to be expensive. Camping trips are fun, memorable, and inexpensive.

    BTW, “A small house can hold as much love as a big house”.

    • Rob Minton

      Reply Reply February 2, 2010

      John,

      Thanks for your comment. I love the small house can hold as much love as a big house line!

      Rob

  • Mike Holloway

    Reply Reply February 1, 2010

    Ron has a good point, but this underscores even more the need to use restraint when it comes to accumulating “things”. Travel and experiences outside the daily routine can only be afforded if we have disposable income to pay for it. If you buy a house above your means, you better like it, because you are going to spend a lot of time staying home!

  • Ron Borg

    Reply Reply February 1, 2010

    I would agree with everything here except that “life experiences are free”. While its true that most things won’t make you happy in the long run, I can definitely say, that our most memorable experiences have mostly involved trips. And these days, trips are most definitely, not free!

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