Live the lifestyle you can afford, not the one you aspire to have

A common question I get from clients is “how can they afford it?” referring to other people they see living the life that they want. A lot of people then fall into the trap of pursuing the lifestyle that they want, even if they can’t afford it.

Income, income, income

Unless you inherit wealth young, the biggest determinant of your lifestyle is your income. Having a high regular income will impact on the lifestyle that you can have more than anything else.

There are some jobs and industries that just don’t pay well…unless you own the business! If you have one of these jobs but want a more expensive lifestyle, you need to set your sights a bit lower.

This also applies to those in well paid jobs but want the lifestyle of the affluent. They may be able to stretch to getting a mortgage in the area they want but soon discover that the lifestyle that goes with living in that area is beyond their means. They spend all their money trying to keep up with the Joneses and are not able to save for the future.

High earner versus wealthy

There is a difference between being a high earner and being wealthy. Just because you earn a good income does not mean you have a lot of money, you might spend it all. In fact, a lot of high earners are terrible at managing money because they never have to think about it. There always have enough money in their bank account so they never have to save or budget to make big purchases.

There is of course a big difference between the two. Being a high earner gives your the ability to be wealthy. Being wealthy gives you choices but you do not necessarily have to be a high earner to be wealthy.

Build wealth over the long term

Until internet wealth became a thing, building wealth was a long term achievement. For most people it still is. Our job as financial planner is to build people’s wealth over the long term so they can have a sustainable lifestyle for the rest of their lives, and this includes increasing their spending at some stage of their lives if they aren’t living the life they want now.

 

If you decide to spend money on your lifestyle now before you are actually wealthy, you will never become wealthy.

 

Steven Barrett

29 April 2024