Do you know your spending habits? This month I have been training some clients on their spending habits and trying to get them to understand the psychology of spending.
Errol Flynn is quoted as saying, “My problem lies in reconciling my gross habits with my net income.”
The wealthy or sophisticated investors aren’t necessarily good with money! There are many different types of spenders and all have merit. The key is not what you make, but rather what you can keep!
There are four main categories:
- Sophisticated Investors
Savers – These guys are great – they work hard; they can save a lot, live within their means, and pay off debts. They will retire well off when retirement age comes around. They have always been safe, comfortable, and diligent with their money. They plan ahead and ensure they have enough saved up before they go on holidays or buy anything they need. They see failure as failure and will do everything to avoid it
Spenders – These guys usually spend more than they earn; they always shop for bargains; they will go through cycles of being good with money and then have a blowout. They rely on personal loans and debt in tough times and use their homes as credit cards to provide for holidays, and they are more impulsive with their money. If there is a way to leverage more money and continually borrow, they will. However, they don’t understand the risks of not using borrowed funds to invest and make more. They usually borrow to fuel their current lifestyle and rarely sacrifice hard times to get ahead. They live with an “attitude of entitlement” and rarely educate their children on making good financial decisions, but rather give in to their kids’ wants rather than needs. They see failure as learning – but often won’t grow and evolve or change from the failure.
Investors – This category consists of spenders and savers, but is a combination of those personalities. However, they are financially educated. So if they spend it will be leveraging into investment that in the long-term will create them great wealth. They tend to have multiple properties, some shares, and even good super balances. They take advantage of tax deductibility as well as understand the risks and returns for their investment objectives. This is a formulated get-rich-slow plan, which is effective while still allowing them the indulgence of living their current lifestyle with the comfort of not worrying about their retirement – most of these clients have a financial adviser or finance specialist or expert guiding them. They see failure as part of the process.
The savers in this category are more self-taught, take calculated risks, use experts for education, and think they can do better themselves. They read a lot on investment and building wealth from an array of “questionable” sources – usually from non-credible sources that support their “wants” over needs. These guys can usually do well and retire early, or they start selling assets too early and miss out on better opportunities that may arise through having expert help. Failure is not an option for them either way.
Sophisticated Investors – These are our “got lucky” guys – actually I really disagree with this term because hard work, having the attitude and mindset, and taking massive risks to get ahead is this entrepreneurial type. Most of these people are run businesses, have several investments across all asset classes, get advice, and have a circle of “financial influence and educators” around them to help steer their dreams and passions. Many very wealthy are in this category because while they work very hard in a short time frame, their motivation can be for good and evil. Those who are motivated to help others and give back will keep leveraging their wealth more and more, and often those who become greedy and arrogant will fall fast and hard and lose it all but will very quickly get back up to this level because of their knowledge, learning, and desire to succeed. They see failure as a stepping stone and change to bounce back harder, bigger, and faster.
So which one are you? And more importantly, which would you rather be?