If you want to become rich, you need to look poor. Today, I'm going over five reasons why looking poor is so important and three things you need to start doing today. First, different classes perceive money differently. People who are poor see money as something to use to clear their bills and get by in life.
The middle class see money as something they can use to get a bit of comfort. They take on liabilities like getting a car loan or credit card debt. But the wealthy see money as a tool. They use it to buy assets like stocks and real estate to generate more money. which actually will pay for their liabilities.
Take Warren Buffett for example. He's worth over a hundred billion dollars, but he still lives in the house that he bought in 1958 for $31,500. Then there's Mark Zuckerberg. Most of the time he's just wearing a gray t-shirt and a hoodie. And then there's Jeff Bezos who was still driving a 1997 Honda Accord years after becoming a billionaire saying, and I quote, this is a perfectly good car.
And also, fun fact, 61% of people who earn more than $250,000 a year are more likely to be driving Hondas, Fords, and Toyotas. The truth is, wealthy people don't need to look rich because they have their priorities and they already know what's important to them. They don't need to prove anything to anybody, which is a fantastic mindset to develop if you know you're on your financial journey. Whether that's to pay off your debt, improve your credit score, or build out your emergency fund, then you already know that you're investing in yourself, and you don't need to prove anything to anybody else.
Next, trying to look rich can get very, very expensive. A 2014 Fed report found that the gap between a household's income, relative to its close neighbors, will impact its level of debt. In psychology, they call this keeping up with the Joneses, and once you start doing that, you're gonna have a really bad time. Basically, keeping up with the Joneses is when you use your neighbors as a measuring stick for success. For instance, if you're looking to buy a car so you can drive to work every day, and you're about to pull the trigger on a Toyota Camry for about $20,000 because one, it's going to do the job well, and two, you can actually buy the car outright in cash because you've been saving up that $20,000, but then you see your neighbor with a brand new Tesla Cybertruck.
So in order to keep up with the Joneses, instead of getting the Camry, you decide to get a $100,000 Porsche Cayenne. You don't have the extra $80,000, but you're cool with taking out a car loan. From just the sticker price difference alone, you're expecting to pay an additional $80,000 for the privilege of looking like you're rich.
But then there's going to be hundreds of dollars in monthly interest payments and insurance, thousands in maintenance costs, and 60% depreciation in value. Over time, that $100,000 Porsche Cayenne is going to cost you over $150,000. When everyday people sacrifice their financial goals and take on debt just to buy a luxury product, it's going to be really tough to get out of the debt spiral.
As of 2023, the average American has about $6,000 in credit card debt. So if your credit card bill is $6,000 and your credit card has a 24% interest rate and you only make the minimum payments every month, it's going to take you over 25 years to pay off your debt of $17,332. which is nearly three times the original $6,000 amount thanks to interest.
But paying that off isn't even the worst part. The bigger loss is the opportunity cost. Basically, the money you spend on something is money not spent on something else. So spending $80,000 more on a nicer car means you can't invest that $80,000 in something like the stock market. If you invested that money instead in the S&P 500 with an average rate of return of 10%, you can save up to $10,000.
you'd have over $200,000 in just 10 years. Enough to buy two Porsche Cayennes outright. One to drive and one to keep as a trophy to shove in your neighbor's face.
But succumbing to societal pressures to look wealthy doesn't just lead to a spiral of debt. It can also cost you your most valuable thing. Your peace of mind and your mental health.
A 2023 study found that the bigger the wealth gap in a neighborhood, the worse their mental health is. In psychology, they explain this with the social comparison theory. Basically, people don't necessarily feel bad or sad because of their income, whether they make $30,000 or $150,000 a year. Rather, their feelings of sadness are relative to the income of those around them.
Like you could be earning six figures a year, you have a decent chunk of savings, and you have your own house, but if you associate with or live around multi-millionaires who own multiple vacation homes, chances are you're going to be much more unhappy than if you were a broke college kid living in a shared apartment. with other broke college kids. According to the social comparison theory, it's human nature to always compare ourselves to something else, whether that's strangers, families, or even neighbors. The problem is, constantly comparing yourself with negativity will impact your mental health and your personal happiness, because there will always be someone wealthier than you. And just speaking about mental health, I want to talk about something personal.
Like many of you, I didn't grow up with money. Parents did everything they could to save. They bought my clothes in a bigger size so I can wear it years later.
And I realized that growing up without money, you start to build a lot of financial baggage and trauma that negatively impacts you later in life. But what I think is really helpful is therapy, which can give you the strategies to work through this. That's why I'm excited to talk about today's sponsor, BetterHelp.
BetterHelp's mission is to make therapy more affordable and accessible. Finding a therapist can be tough, especially when you're limited to the options in your area. BetterHelp is a platform that makes finding a therapist easier because it's online, it's remote, and by filling out a few questions, BetterHelp can match you to a professional therapist in as little as a few days. It's easy to sign up and get matched with a therapist. Check out the link below.
It's betterhelp.com slash vincent chan. Clicking that link supports the channel, but more importantly, gets you 10% off your first month of BetterHelp. And because finding a therapist is a little like dating, if you don't really fit with that therapist, you can easily switch to a new therapist at no additional cost. without stressing about insurance or who's in your network. If you ever went through or are going through a hard time, consider online therapy with BetterHelp.
Click the link in the description or visit betterhelp.com slash Vincent Chan. Thanks again to BetterHelp for supporting this video. Next, trying to look wealthy will make things more expensive for you.
A 2018 study asked people how much they would charge a potential client for their services. Some people were shown a photo of the potential client who looked really fancy and wealthy, and some were shown the same exact person, but this time just a bit more casually. Overwhelmingly, participants quoted the potential client who looked really wealthy a significantly higher price for the same exact service.
In another study, participants were asked how much they would charge someone with a new Mercedes-Benz versus an old Mitsubishi car for a car wash. And again, participants quoted a significantly higher price for the Mercedes-Benz. So unless you want to pay extra money for the exact same service, then you might not want to dress really fancy. But it's not just that people will charge you more money, you might even have fewer authentic connections and friendships. Many of us want to look wealthy to feel like we've made it and to be accepted in society.
It's like saying, look at me world, I have this fancy watch, a luxury car, I've made it, I'm not a failure, I have value, so let's be friends. But the raw school of business found that having flashy displays of wealth might have the opposite effect of what you're hoping for. In the study, they showed 395 people social media profiles of other people. Some profiles had modest updates about their lives, while other profiles showed off luxury stuff expensive clothes, cars, and holiday vacations. Although people with flashy posts were thought to be wealthier and higher class, participants thought they were status-signaling and believed that these people were more self-interested.
As a result, fewer people were willing to form genuine connections with them. and they were less likely to be invited into social groups. In this case, the cost of appearing wealthy seems to outweigh the benefits in social situations, which defeats the purpose of wanting to look wealthy in the first place.
Next, looking poor will allow you to focus on what really matters. Like for me, that's becoming financially free so I can retire at 35 without a care in the world. If you're not trying to keep up with the latest trends or impress others, like always buying the latest phones, the nicest clothes, or a brand new TV so you can see the hair follicle of Leonardo DiCaprio, then achieving your financial dreams, such as retiring 20 years earlier, becomes much more attainable.
For every 5% of extra income that you save, you can retire multiple years earlier. For instance, if you earn the median income of $65k per year and you save 10% or $6,500, you can be financially free in 51.4 years. But if you could just save 5% more at 15%, you could be financially free in 42.8 years.
For just 5% more effort, you can shave off more than 8 years that you need to work. But it's not just that you're able to save more money, it's the fact that you've transformed your lifestyle so you need less to be comfortable. For instance, if you used to live on $80,000 a year, but you've managed to reduce your expenses to $60,000 a year, you now need significantly less money to retire comfortably. Now, I'm not saying you have to look homeless.
Rather, I want you to find your financial balance. And here are three things that help me a lot with this. First, shift your mindset from wanting to have things to show that you're successful to wanting to achieve your financial dreams.
I want you to make that financial dream that you want. to be your measuring stick for success. Because at that point, if you're working towards your dreams or you're already there, it doesn't really matter what anybody else thinks about it. For instance, like I mentioned earlier, one of my financial dreams is to become financially free.
For me, that's when I know that I've achieved success. I couldn't care less about what anyone else thinks of me because I know at that point, I can help my parents out financially when they need it, I could travel the world whenever I want, and I could attend my future kids'events, like their sporting events or their concerts or theater performances without ever having to say sorry Work out of the way. And it's having access to those opportunities is what defines success for me, even if nobody else knows it.
If you want to achieve your financial dreams, but you're not really sure what you should do next, I created a free five-question quiz that will customize your personalized wealth plan. It's completely free. You can get it with the link down below.
Next, implement the box strategy. A big reason most people want to look wealthy is that they evaluate their own worth based on how they compare themselves to others. If your friend looks wealthy, then you probably also want to look wealthy to show that you're worth it. The problem is, it's a never-ending cycle of comparison. There will always be someone more successful and wealthier than you.
Like Warren Buffett, one of the richest men in the world. He has less money than Bill Gates, and both have less than Jeff Bezos. So instead of this pointless comparison, I want you to use the box strategy. Think about all your past financial accomplishments and put them in a box. Now your objective is to fill up a new box with bigger and better stuff than your old box.
This way, rather than comparing yourself to others, you're comparing yourself to your past self, which is a much healthier and more effective strategy. For me, I used to commute two hours every single day to go into the office and I worked 70 hour weeks. I was completely miserable.
But today I finally achieved the freedom to work on my dream. So sure, I don't have three mansions and six Lamborghinis, but I'm in a much better place than I was a few years ago. And that makes me really happy.
Next, and this leads me to something that you've got to start accepting. Even if you're doing all these steps and you're trying to get better with your finances, sometimes you might still feel like you're not doing it enough. And this might be because you don't know the middle class habits that keep people in the rat race. Click here to find out if you're committing these middle class habits and what you need to do instead.