Day 59 – Master the Spending Game

When you picture a wealthy person, a millionaire, what images come to mind? Do they drive up in fancy cars, wearing expensive suits, high-priced watches and shoes? Do they expect to be wined and dined with the finest wines and fanciest foods? If this is your image of what a millionaire looks like, you probably aren’t looking at millionaires when you see those things. Dr. Thomas Stanley and Dr. William Danko, authors of “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy,” found a completely different picture of what the average millionaire in America looks and acts like. In regards to our principle for today, here are a few of the findings they uncovered as they describe the portrait of a millionaire:

“We live well below our means. We wear inexpensive suits and drive American-made cars. Only a minority of us drive current-model-year automobiles. Only a minority ever lease our motor vehicles.

On average, our total annual realized income is less than 7 percent of our wealth. In other words, we live on less than 7 percent of our wealth.

On average, we invest nearly 20 percent of our household realized income each year.

I am a tightwad.”

(taken from pages 9-11)

Mastering the spending game is a necessary principle to achieve financial success. Typically, we spend money on more things than we really need. If you were to go through your house and gather all the things that you have bought over the years that you did not touch or use in the last 12 months, how big of a room would you need to put all those items? Do you have clothes in your closet with price tags still on them? Do you have tools you bought for one little project and haven’t touched them for several years? Most of us have spent too much on items that were probably not necessary.

Several years ago, I was a faciliator of the Financial Peace University program that Dave Ramsey put together to help educate people in the area of personal finance. Dave suggests in that program to start paying cash for items you want to purchase. The primary reason (and Jack mentions this too) for doing this is that there is more conscientious buying when using cash rather than credit or debit cards. The visual of actual cash leaving your hands causes you to pause more before purchasing.

If you have been in the habit of spending more than you make and you are like the typical American, you have racked up some credit card debt as a result of your spending habits. First things first, stop borrowing more money!! (Strong emphasis for my own ears to hear.) Second, start paying off those debts so that you free up your most valuable asset, your income.

Once you begin this process of mastering what you spend, you will find yourself making gains on what you are able to save and invest. Most wealthy people are frugal, and they may have gotten to be wealthy by being frugal. Being frugal doesn’t equal stingy. Frugal people look for and expect a bargain. They look for a means to spend less. As you journey toward a life of financial success, you will begin practicing the habit of mastering the spending game.

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(Our daily journey of the last 64 days of 2011 is centered on the principles found in Jack Canfield’s book, “The Success Principles: How to Get from Where You Are to Where You Want to Be.” In his book, he encourages his readers to begin teaching others these principles. I would highly recommend that you buy a copy of the book and join us on a journey to a better you.)