Get Out Of Debt: Start Acting Wealthy

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Act wealthy to get out of debt

What?  Act wealthy to get out of debt?  Yes, precisely – and if you’ve misconstrued what I’ve said then you’re probably in debt for a very good reason, so read on.  :)

How will acting wealthy get you out of debt?  Studies and experience in personal finance have learned me a very valuable lesson – if you want to get out of debt, you must put an end to frivolous spending – which is our basic definition of acting wealthy.  Remember, most wealthy people are well-to-do for a very good reason… Acting wealthy = no frivolous spending.

Consider the following example by JD Roth, my friend and author of Your Money:  The Missing Manual

In a recent article JD judges a friend who, despite a recent bankruptcy, continues to swim in the pool of bad financial choices.  Although JD’s frustration toward his friend was spot on, it was actually a side note of the article that caught my attention.

While pointing out the mote in his friends eye, JD does not fail to recognize the beam in his own – and the details of the beam was the inspiration for this article.

Get of out debt by acting like John M.

John M. is JD’s millionaire next door neighbor, and on a recent 10 day cruise to Alaska… well here, JD tells it best:

As I began to silently judge Michael’s choices (JD’s friend,) I thought of my recent trip to Alaska. I spent ten days on the boat with my neighbor, the “real millionaire next door“, and in those ten days I often felt like I was being judged.

  • Before the trip, I bought a $120 backpack at REI. My goal is to use this for much of my travel during the coming years. It fits in an overhead compartment, and is a great way to limit what I carry. John frowned when he saw the new pack and asked, “What’s wrong with a duffel bag from Goodwill?”
  • On the first day, Mac and I tore a paper towel in half, and we each used our half as a napkin for several days. Eventually my napkin became grimy and gross, so I went to tear off another half a paper towel. When John saw me, he scolded me and told me I ought to use a cloth towel instead.
  • Near the end of the trip, I threw a molding orange overboard. “I wish you hadn’t done that,” John said. “I could have cut out the bad part and eaten the rest.”
  • On the last day, I went to the bookstore in Sitka and bought a copy of Bruce Chatwin’s In Patagonia, which I’ve been wanting to read for a long time. (After our trip to France and Italy this year, Kris and I hope to save for a trip to Argentina and Chile in 2012 or 2013.) When John saw I’d bought a new book, he shook his head. “I’ve got a lot of perfectly good books here on board,” he said, indicating his library of old paperbacks.

Throughout the trip, I felt like I was under pressure to, well, be more frugal, to make the same choices John would make. And you know what? That pressure sucked. It felt awful. I didn’t like the feeling of being judged, especially by somebody I look up to.

Get out of debt by curtailing your spending

Can you tell what inspired me?  What did you think of JD’s neighbor?  He’s a millionaire yet he shops at Goodwill and eats the good parts of bad fruit.  That’s why he’s wealthy.  The majority of wealthy people spend far less frivolously than the majority of those enslaved by debt, and John is no exception.  Sure, as JD mentions, too much of a good thing can drive a patient man mad; but regardless, what John preaches is correct – and even if you don’t like it, it makes you think – and thinking is good.

Stop spending, cut your standard of living, start saving

Being wealthy is simple.  All you have to do is spend less than you earn and give generously.  As long as you sail that ship, how much you earn becomes nothing more than a variable in a personal finance equation that always ends up in the black.

Need some help? Follow JD’s lead and surround yourself with people who motivate you to succeed… even if they do annoy you every once in awhile.  :)



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1 Jeff Kosola

So true, I use to have a boss like JD’s neighbor. He was the most frugal and rich person I’ve ever known. I just wish I would have realized it sooner, he should have been my mentor instead of Mr. Visa.

2 myfinancialobjectives

Great story.. What is a bit of a wake up call for me, is that I would have done some of the things you listed as well (orange and paper towel). I defenitely live frugal compared to a lot of my friends. But at the same time, I know I could continue to cut expenses, and make the most of some of my everyday items. Good lesson..

3 Olivia

I had a rich uncle. He was, like you said, frugal. He purchased a comfortable, yet relatively modest, home, drove one very good car that he maintained, and at 92 was still painting his own garage. His wife did her own housekeeping and cooking, until she got older, and then worked along side the cleaning lady. Aunt and Uncle acted as a team. My aunt went to a hairdresser that charged $15 for a cut and knew where the best discount racks were. Family was important to them, and they were generous. A couple things were true of my uncle’s personality, he worked every hard, and took calculated business risks. That combination seems to be true of others I’ve known who have a measure of wealth.

4 Money Smarts Blog

I’ll agree that John got rich in part by being super-frugal, however I don’t think he needs to continue at the same level of frugality to stay there.

5 FB @ FabulouslyBroke.com

I agree to a certain extent.

I’m all for cutting out the bad part of fruit & eating the rest, and basically lowering my expenses of living so that I can live on less, for much longer.

That being said, I think we can fall into the trap of NOT wanting to spend what we’ve earned. There’s always a fine balance and an extreme in either way is bad.

I guess the best advice would be to live as on little as is comfortably possible for you, without compromising things such as vacations just because you think you can make more money working and not taking a break, plus not spending on the actual trip itself.

This is not to say : GO OUT AND SPEND!! LIVE!! .. but more of a plea for others to understand that if you WANT that car for example, you don’t HAVE to drive a beater, but you have to have financial security & have done the math beforehand, to justify its purchase & true cost.

If we all died penniless and poor, it’s a pity, but to be expected given financial choices & decisions.

But if we all died with millions in the bank, I’d call that a real bloody shame that we didn’t enjoy what we worked so hard for.

6 Matt Jabs

@ FB and Money Smarts: I cannot help but agree w/your point. Work hard, watch your spending, but be sure to responsibly enjoy your success. Although I cannot be sure, based on the fact that he was on a 10 day Alaskan cruise with a friend, I think John M. lived from this perspective.

7 Monevator

Agreed. It took me a lot of my 20s to realise what’s obvious in retrospect – that you should judge people by the assets their growing, not what they’re spending or even what their earning.

Shockingly, I think I first ‘got’ this when reading Rich Dad, Poor Dad. The first book was good for that – but you only need to read that one!

8 Money Smarts

Like you talk about here, personal finance has some pretty basic principles that once you’ve grasped, it will make things so much easier. For example – spending less than you make. It seems simple, but so many people just don’t do it.. Or living below your income – so many people live beyond their means, anticipating the next raise or bonus. If we could all live a more frugal and less wasteful life we’d all be much better off.

Of course, as others have mentioned as well – there is a balance that needs to be weighed. A balance between extreme frugality and miserliness – and overspending. Like most things in life it’s better done in moderation.

9 Neil

“John” sounds like a caricature. Having grown up in a wealthy family – I’m still building wealth, but almost all family members of my parents’ and grandparents’ generations are millionaires – I’m definitely aware that this success is due in large part to controlling spending. But controlling spending has meant never buying a new car, using public transit to get to work, and taking adventurous rather than luxurious vacations. And yes, it has meant thrift store shopping and coupon clipping, but only for comparable products…a duffel bag is not a backpack, and for someone with means the substitution is likely not worth it.

Building wealth has never meant eating moldy fruit or settling for inferior products. There’s a difference between spending smart and compulsive penny pinching. Going on an Alaskan cruise and eating a moldy orange is a clear example of being penny wise and pound foolish.

10 Khaleef @ KNS Financial

I think this serves as a good reminder to examine every area of my life to see where I can be more frugal. That being said, I do think that there is a fine line between being frugal and being cheap! Especially when (probably not the case with John M.) people can be frugal with small things but still waste money on their larger purchases (buying/renting too much home, buying new cars, etc).

11 Jenna

There is a difference between being frugal and being cheap. If your on vacation it’s okay to spend a little and enjoy yourself. You shouldn’t feel judged! So what, you bought a book that you’ll enjoy and refer back to and probably pass around with some friends. You could have bought those tacky / rip offs of cruise liner photos with the captain from the gift shop for 4X as much.

12 Jerry

I agree most heartily on spending less than you earn and trying to save as much as possible. Many of the people that I know that have more wealth than me live this way and they are inspiration. They lead me to make better choices. However, I do think there is an extreme. I think you should have balance and enjoy. Accumulating more wealth is not insurance for happiness.

13 Kristine @GreenPath

What a great perspective. Just when I think I am making frugal decisions, I realize other areas where I can do better. I guess the first step to financial freedom is to realize you have a problem and then to start taking steps to reach your goal.

14 Austin @ Foreigner's Finances

It sounds like J.D.’s neighbor is a little close to the cheap side (especially with the book which J.D. wanted to read for future use).

Regardless, I think this brings up a great point about perception which is why having a debt friend may be a good idea. Someone you can confide in and will have your back with support, but can also kick your butt if you come home with a new back massage chair.

I know I spend less since I live with my girlfriend and we don’t even have an agreement or anything.

15 Len Penzo

What’s the point of being wealthy if you are going to spend your life living like a miser? John doesn’t need a couple million bucks in the bank – he looks like he could do just fine on a couple hundred grand! ;-)

Sorry, but life is too short! I’m not sacrificing now so that I can sacrifice later, you know what I mean, Matt?

Best,

Len
Len Penzo dot Com

16 Ace @ aceofwealth.com

What makes acting wealthy difficult is the definition of wealthy. When we’re young we grow up with this over blown notion of what it means to be rich. Rolling up to a club in a Rolls, throwing money everywhere.

But what’s becoming more and more clear, in the end it’s the millionaires next door that are more common. Those are the ones that learn how to save up, cut spending and accumulate wealth.

17 Andy

This line sums it up nicely for me, “surround yourself with people who motivate you to succeed”. That’s very true and even from a work perspective, success breeds success.

18 John

I grew up with not alot of money, as a young adult I just saved my money to pay for a house, my wife and I did not go out to dinner very often. Now we can basicly afford ANYTHING you could want, yet we still do not spend alot of money. Some days I actually force myself to spend my on silly things, old habits are hard to break.

19 Ronald A

Wealth is a state of mind that is why are some poor people happy and some very rich people unhappy.

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