read time 6 minutes
This Week at a Glance
- Have you ever spent money to show the world you’ve “made it?” Sure, a little splurge now and then won’t hurt. But spending to validate your success can derail your retirement and long-term plans. This week, I cover what you can do to avoid status consumption.
- US markets continued to post all-time highs this week. This positive market optimism comes as economic data, like the recent retail sales release, reflect slowing economic growth, underpinning the Fed’s likely rate cut later on this year.
- ICYMI – When can having too much in a Roth IRA be too much of a good thing? When it limits your options. That’s why last week, I covered the pitfalls of over-optimizing for tax-efficiency and discuss ways to maintain liquidity to help keep your options open.
Status Spending Today Can Steal Your Wealth Tomorrow
Have you ever gone out of your way to impress someone after making a lot of money?
Maybe it was right after you landed your first six-figure job.
Or maybe it was when your startup went public and transformed your seemingly worthless stock options into a life-changing windfall overnight.
If you have, in a way, it’s like proving to the world that you finally “made it,” right?
Well, these moments often remind me of stories about famous people who came from nothing, made a bunch of money and then got themselves in trouble.
Take Mike Tyson, for example.
Now, Tyson is a heavyweight boxer and was one of the highest-paid athletes during the peak of his career.
But, he ended up blowing his newfound wealth almost as quickly as he made it.
In fact, during the height of his spending, he famously purchased over 100 cars, he bought several million-dollar homes and he even bought a few Bengal tigers to go along with it all.
And so, you likely know where the story goes from here, right?
Because despite having earned over $400 million at the height of his career, Tyson ended up losing nearly all of it and went on to file for bankruptcy in 2003.
You know, Tyson’s situation is a tragic rags to riches story.
That’s because he had this desire to show the world that he finally made it, but in the end, he ended up nearly losing it all.
Now, as a first-gen high earner, have you ever felt compelled to show the world that you’ve finally “made it”?
Have you ever splurged on a brand-new luxury car or bought a home that was at the top of your budget?
Whatever your situation might be, it’s crucial to remember that spending to keep up appearances now can derail your plans to leave a legacy for your family and hinder your ability to save for the long-term.
How to Avoid the Temptation to Show the World that You’ve Made It
That’s why, as your windfalls come in, it’s essential to clarify your values, set your priorities straight, and develop a touchstone to help keep your financial goals on track.
Because if you don’t, your retirement plans might fall short, and you may not have much to show for it after all.
So then, here’s what you can do to avoid status consumption when the temptation arises:
Step #1: Define What’s Essential
Defining what’s truly essential in your life is about ensuring your money reflects your values.
This initial step sets the stage for every financial decision you’ll make, ensuring your spending and saving behaviors align with what matters most to you.
Ask: “What are my core values, and how can these guide my financial decisions?”
Spend some time reflecting on moments that brought you the most joy. Write these down and identify the values at the heart of these experiences.
Then use this list as your financial compass.
Step #2: Crystallize Your Long-Term Vision
With your core values defined, it’s time to translate these into a tangible, long-term vision.
By being clear with your vision, you can ensure you’re aligning your money with real goals that lead to lasting results.
Ask: “How do I want to put my money to work in a way that honors what’s essential to me?”
Consider how your core values shape your vision of a fulfilling life.
Then, write down specific long-term financial goals and outline actionable steps for how you’re going to achieve them.
Step #3: Create Your Touchstone
Finally, create a touchstone you can lean on when tempted by conspicuous consumption.
A touchstone is like a financial plan. It acts as a constant reminder and a guide that helps you stay true to your goals and avoid the pitfalls of status spending.
Ask: “Does this purchase support my values and help me achieve my long-term goals?”
When in doubt, consult your touchstone and review it before making important financial decisions.
Then, annually review your touchstone to ensure it still reflects your values and life goals.
What I’m Reading
We’re all busy in the daily rush of things. That’s why I’m sharing a list of articles that I’ve read this week to help you stay on top of your own financial independence journey.
I’ve consolidated all of these links here for your ease of viewing.
- When keeping up with the Joneses costs a fortune
- Spending as Social and Affective Coping
- Choosing Between Making Money and Doing What You Love
- Money and Impressions: A Fool’s Game
- Save yourself the stress of trying to impress
Thanks for taking a look!