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Ask just about any money guru out there what's the first step to achieving financial success, and even before they tell you to spend less and save more, they'll tell you to define your goals.
It's easier to achieve any kind of success if you have a clear destination in mind. But money, in particular, can become a hamster wheel of misery if you don't give yourself a concrete finish line. There is, after all, effectively limitless amounts of money and stuff to aspire to own. And unless your last name is Bezos or Gates, there is always someone richer than you to compare yourself to.
So what financial goal should you pick? Some experts suggest settling on a specific number. Others claim the best path is imagining the lifestyle you want to achieve in minute detail and reverse engineering your finances from there. But a third intriguing option comes from VC and author Morgan Housel.
In his book The Psychology of Money, Housel insists on a distinction that first appears to be pure semantics, but ends up carrying a whole lot of wisdom. It's a far better idea, he argues, to aim to be wealthy rather than rich.
What's the difference? Housel explained on the blog of his firm, the Collaborative Fund, that wanting to be rich is all about wanting to buy stuff to impress people. He offers Reggie Vanderbilt, grandson of one-time world's richest person Cornelius Vanerbilt, as the perfect example of the lust to be rich. Having inherited the equivalent of $350 million in today's dollars, Reggie spent his days spending lavishly, avoiding work at all costs, and drinking himself into an early grave.
The point of having money for Reggie and many other Vanderbilt heirs, Housel writes, quoting a contemporary newspaper article, "was not to live a great life. It was to be rich - to be valued 'upon no better basis than the possession of money.' Rather than using money to build a life, their life was built around money; rather than an asset, their inheritance was an insurmountable lifestyle debt, passed to the next generation until there was mercifully nothing left."
Dealing with $350 million inheritance may sound like a nice problem to have to many people. But Housel insists the case of the Vanderbilts is an extreme example of a mindset that contributes to a lot of confusion and unhappiness for everyday people too.
In scientific parlance, people at every income level get stuck on the "hedonic treadmill." They want money to buy stuff they think will make them happy, only to find once they obtain the object of their desire that the thrill is fleeting. They soon just want more, better stuff.
That's being rich. And it's an endless road to nowhere good. What then is being wealthy, and why is it better? If rich people chase money and the status it brings in other people's eyes, wealthy people seek money in order to buy themselves choices and freedom.
"Rich means you have cash to buy stuff. Wealth means you have unspent savings and investments that provide some level of intangible and lasting pleasure -- independence, autonomy, controlling your time, and doing what you want to do, when you want to do it, with whom you want to do it with, for as long as you want to do it for," Housel explains.
As the kids might put it today, wealth is having FU money. Being wealthy is about having enough resources to direct your own life based on your own internal truths and needs -- not what your neighbor has or thinks of you.
Housel ends by advising those who dream of more money to think hard about why they want more money. If you just want more stuff or the esteem of others, you're always going to want more, and that is guaranteed to be exhausting and unfulfilling. But if you want freedom of action to be the truest, highest version of yourself, that's an end point you can actually reach and will actually enjoy.
"The goalpost has to stop moving; the expectations have to remain in check. Otherwise money has a tendency to be a liability masquerading as an asset, controlling you more than you use it to live a better life," Housel concludes. Which is why you should aim to be wealthy rather than rich.
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Why You Should Aim to Be Wealthy, Not Rich (There's a Big Difference)
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14.12.2023
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Ask just about any money guru out there what's the first step to achieving financial success, and even before they tell you to spend less and save more, they'll tell you to define your goals.
It's easier to achieve any kind of success if you have a clear destination in mind. But money, in particular, can become a hamster wheel of misery if you don't give yourself a concrete finish line. There is, after all, effectively limitless amounts of money and stuff to aspire to own. And unless your last name is Bezos or Gates, there is always someone richer than you to compare yourself to.
So what financial goal should you pick? Some experts........
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