What should you know?
As humans, we are prone to forming opinions based on what we see. We also tend to care quite a lot about how other people perceive our own circumstances.
This is why the concept of “keeping up appearances” is so prevalent in society today. The pressure to keep pace with those around you can lead to vanity purchases that make little financial sense and severely overstretch affordability.
Why should you care?
Despite creating a perception of wealth, buying things that make you look and feel wealthy doesn’t add to your wealth; it subtracts from it. Wealth is defined by the money you DON’T spend, NOT by the things you buy.
As prominent financial writer Morgan Housel wrote in his New York Times bestselling book, The Psychology of Money, “Someone driving a $100,000 car might be wealthy. But the only data point you have about their wealth is that they have $100,000 less than they did before they bought the car.”
The abundant availability of credit makes it possible to live in a big house and drive a flashy car without actually owning either of them. These things may create perceived wealth, but when you scratch the surface, you may find that there is no real substance behind it.
Overstretching affordability to buy expensive things can create a precarious situation. Something as common as losing your job can bring everything crashing down if your finances are not built on solid foundations.
There is nothing wrong with buying nice things if you can truly afford to do so. Just remember that the purpose of building wealth is not the acquisition of wealth itself, but the choices and peace of mind it can give you.
