- Drivers of expensive cars were wealthy
- Owners of bigger houses or vacation homes were wealthy
- People who had expensive lifestyles (clothes, entertainment, vacations, etc.) were wealthy
Because of this belief, I sometimes considered buying things more than I could afford. One such instance was the purchase of my first car. Since I had graduated as a Chemical Engineer, I had a well paying first job. A number of my peers were driving new cars, and some were driving BMWs and Audis. On the other hand, I was driving the 13 year old family car that my parents gave to me when I started my job. After two years, I decided to buy a new car.
The choice came down to a American sports sedan and a BMW. I liked both cars. The BMW had more wealth appeal, but was 50% more expensive. I did the calculations on the cost. While would make me appear more wealthy, I would actual be less wealthy. The loan payments were higher and maintenance cost was higher. Once I did the calculations, I couldn't justify the additional cost. So I bought the American sports sedan, which I eventually drove for 13 years.
Over time, I learned that the appearance of wealth does not necessary mean one is wealthy. Therefore, I have modified my wealth paradigm. I now believe:
- Wealthy people spend less than they earn. Therefore, they have significant amounts of money in the bank, stocks or bonds.
- Wealthy people use debt sparingly and prudently. They do not use debt to support their life style.
- Wealthy people place priority on acquiring assets that can generate revenue and profits (e.g. non-home real estate or business). Therefore, their assets grow in value, instead of depreciate.
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This is not financial advice. Please consult a professional advisor.
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