- Eric Roberge is a certified financial planner and founder of Beyond Your Hammock.
- He tells his 30-something clients the key to building wealth is spending less than you think you can afford.
- Looking rich and acting rich are not the same as being rich, Roberge says.
If you want to be rich, you need to stop trying to look rich.
Here's the trap many 30-somethings fall into: You live in a swanky place in your town because you finally earn enough money to afford some nice digs. You look at your coworker or your neighbor and you see the fancy material things they have, or the lavish vacations they take.
And you believe they're rich because of these things. Because you also want to be rich, you start doing the things they're doing in order to get there.
But guess what? They're probably not rich!
Yes, of course there are people out there who have significant wealth who can buy whatever they want without consequence.
But the vast majority of people who look rich are just that. They look like they have wealth.
If you could look at their bank accounts and financial statements, you'd probably find that they're spending more than they can afford… and this is the person you emulate in an effort to get rich yourself.
You replicate what they're doing and end up in the exact same boat. You spend more than you can truly afford. You act rich, but never actually become rich.
SEE ALSO: Bad spending habits that rich people always avoid
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Looking and acting rich are not the same thing as being rich
The author of The Millionaire Next Door and Stop Acting Rich and Start Living Like a Real Millionaire, Thomas Stanley, called this aspirational spending. And it will kill your ability to build wealth.
Aspirational spending tends to happen when you believe you will be rich one day, and you just need to start acting rich now while you're on your way.
But the very act of acting rich today is what prevents you from ever becoming rich.
Again, most people who spend a lot don't have a lot (unless they came from an extremely wealthy family and have oodles of money that they can dive into like Scrooge McDuck).
But we've all experienced the pressure to keep up with the Joneses that comes from our society and culture. It's really, really tough to ignore what people around you are doing, what your family and friends do, and what advertisers and marketers tell you to do to be happy.
If you give in to that pressure to "keep up" and keep spending, you end up in this never-ending rat race where the only thing at the finish line are a few status symbols and an exhausted, empty bank account.
What happens when you don't overspend, but spend at least as much as you earn
Of course, you may already get this at some level. You're smarter than to spend more than you make in a month.
But what if you bring home $5,000 per month and spend every last dollar of that $5,000? You're not spending more than you earn. Is that okay?
Well, not really.
Spending right at your means, even if you don't go over and spend more than you earn, is like trying to take a race car up to 200 miles an hour with a warped wheel.
If anything goes wrong — you hit a bump, you swerve, whatever — you're done. There's no second option when you're going full throttle in your financial life. There's no safety net.
If anything changes, your financial plan combusts.
The thing is, we know things will change. Everyone has to deal with unexpected expenses when things don't go as planned. But since we know something is going to happen… it's really not so unexpected, is it?
You need to plan for the unexpected, which means you need savings to support you during the times life doesn't go perfectly.
My best piece of advice about money: live below (not just at) your means
If you're spending at your means, you're still spending too much money.
Imagine trying to build a sandcastle and your way of transporting the sand is a sieve.
You go over to scoop up the sand and carry it back to where you want to build your sandcastle, but by the time you get there all the sand is gone.
That's what happens when you live at your means. So the single best piece of financial advice I can give to someone in their 30s -- or anyone trying to build wealth -- is to not just live at your means, but to live as far below your means as you can.
Why? In order to reach financial freedom or any major financial goal, you need to save money.
Think about it. Are you going to work forever? If you're not, how will you pay for your life when you're not working? Where does that income come from?
One day, you'll stop working whether you want to or you're forced to stop (via age, health, other factors). If you haven't built up another source of income, you'll suddenly have no money with which to fund your life.
This means you need to build your own income stream if you want to generate wealth beyond your paycheck. By saving and investing the money you don't spend, you start to build a surplus.
You can grow that pile of money into a new income stream which allows you to supplement or entirely replace your existing income stream (again, your existing income is probably your job).
It's just a fact: We all need money to live. You can get that through your job, large investment accounts that provide return, owning real estate, etc.
(If you want to develop an income stream from something like real estate or a business, then where does that initial investment come from? You have to save for it.)
No matter what you do, that income has to come in. Unless you're independently wealthy, you need to create your own assets that produce income.
For most of us, myself included, the only way to create the assets we need to reach the level of wealth we want is to break off a piece of your current income and save and invest it.
Which means you have to spend significantly less than the net income you make each month. In other words, live well below your means.
See the rest of the story at Business Insider