The Separation zone and how PRETENDING to be rich is keeping you from BEING really rich
Today I want to talk about something that is holding most people back financially in America, and how it stems from our relationship with money.
For most Americans, except the extremely wealthy/poor, our relationship with money through our lives is probably pretty uniform:
-Birth through middle school: We are completely dependent on our parents for money. If we wanted that new Xbox game, we were at the mercy of mom and dad.
-High School: Mostly the same, except that some kids have jobs and can afford things. However, that is often offset by the increased cost of the items we are now chasing (first car instead of an Xbox game.) We are still largely dependent on mom and dad.
-College: You can more easily find work slightly above minimum wage, (Here are some of the best college jobs.) Above all, you have some autonomy for the first time. Since many kids move away, their parents might send them an allowance, which on top of student loans, represent more money than before and gives them “options” (ex. I could cut down on this to have more beer money, etc.) Obviously, the leverage is still limited and you can only splurge so far until dad calls you pissed about the credit card bill.
-After college: The game changes. If you played your cards right (right major, good networking, good resume.), you could be looking at a $55k-80k/yr package out of school (Significant upgrade from your typical $10-12/hr college job) At this point you begin stepping into the SEPARATION ZONE.
The Separation Zone
When you are making $55k-80k or more as a single young person, you typically come into a fork in the road:
You are making enough money that when budgeted properly, and If you handled business in college (Low student loan debt, no vices, no unplanned pregnancy, etc.), in most cities, you should have surplus money every month.
Let’s say you have a $600 surplus, after all, is said and done (expenses, taxes, contribution to retirement, etc.). That amount can be invested in many different ways to create more money:
-Job-related certifications/training to increase salary
-Start-up investment for a small E-business (hosting, marketing, etc.)
-Adding more money to your investment portfolio
-Paying off existing debt early
Any of the items above, can significantly increase your take-home pay or reduce your existing expenses, widening that surplus, driving you closer and closer to BECOMING rich:
-That $400 Six Sigma certification could result in a $10k raise earlier on
-That marketing side-business might net you an extra $2k a month
-That small increase to your investment portfolio could mean hundreds of thousands for your retirement when looking at compounding interest (Play around with the numbers and see for yourself: https://www.bankrate.com/calculators/retirement/401-k-retirement-calculator.aspx)
-Paying off that high-interest debt early could free up an extra $400 each month in the future
Next year, the surplus could be $1,800/month, then $3,600/month the year after.
You get the idea. You will exponentially grow your wealth between natural pay raises and other sources of income.
THAT WOULD BE AN IDEAL SCENARIO
Most people are falling on an obscure trap:
They see the same $600 surplus as the person above, and “ball out”. They have more money than ever before and full autonomy, and decide they will “live it up and worry about money later” They are at the stage where they are not rich by any means, but they can “afford” to become credit card millionaires (A.K.A Go into debt.) to, temporarily, pretend they are.
Here is what it may look like:
-Leasing a $450/month lower range Audi/BMW
-Shopping sprees at Neiman Marcus
-Frequent pointless traveling
-Dropping money at clubs to flex
That surplus money gets consumed.
Yes, you will get temporary pleasure and satisfaction, but it fades away quickly
for a couple of reasons:
You won’t get the true enjoyment of a luxurious lifestyle
Luxury goods are enjoyed by rich people because they don’t sweat the little stuff. If you are not rich and buy a luxury car you will be “sweating”. You spent a significant chunk of your balance and any nick or scratch feels like getting punched in the throat. Will you really enjoy the car if you spend the day praying it doesn’t get stolen or damaged? Will you really enjoy when you have to spend half paycheck on repairs if something goes wrong? Didn’t think so.
Compare that to someone making $400k+/year. They will take care of the car, absolutely. But they are not sweating. They can afford valet parking and private parking. They can afford the maintenance and parts. That’s when you can really sit back and enjoy the luxury.
You can only fake it so far
A lot of people will still choose to go the luxury route for “status”, seeking to impress others. That can work if you can afford it, otherwise, your success will only be short-lived.
You load up on debt to lease a Porsche and get nice clothes. You “look” rich. After chatting up Rachel from Equinox (flexing most of the time.) she agrees to go out with you.
Sure enough, you roll around to her apartment to pick her up in your “pimp ride”.
Rachel: Wow, your car really is nice.
You: I know, I love it. Where do you want to go?
Rachel: I love Morton’s Steakhouse, let’s go there.
You: That place is expensive! I was thinking Taco Bell, I am broke after paying rent. Haha
Rachel: (Long pause as she texts her friend to execute the “bad date rescue call”) Ok.
What happened there? The reality set in. YOU ARE NOT RICH YET (But you could be.) You faked it for a minute, but then like Cinderella, that clock hit midnight and back to reality.
People don’t respect phonies
We all know this guy who brags about how much weight he lifts, acts condescending towards others, and touts himself the next Strongman.
Yet, when you see him in the gym and challenge him to lift, he becomes quiet. After enough peer pressure he reluctantly talks about how “he didn’t warm up” or “is recovering from a football injury”. He proceeds to attempt the lift, and not surprisingly, fails. He tries to continue on with his excuses, as he walks away with his tail between his legs. He is now the gym’s laughingstock.
The disrespect doesn’t stem from him not lifting the heavy weights. The disrespect stems from him signing a check he couldn’t cash and making a fool of himself.
The credit card millionaire is the financial equivalent of the guy above, just like the Porsche guy example above.
Then the real storm comes
You remain stagnant, wondering how some people seemingly got rich out of nowhere while you are still stuck in the “Same shit, different day” phase since you left school. Eventually, you begin to realize how fucked you allowed yourself to become and proceed to unfuck yourself.
You gradually pay debt down, maybe you can afford to make that Europe trip later in life, that’s not important now. You are playing catch-up in this retirement game. Hopefully, you retire by 70.
Metaphorically speaking: You are the team who can’t hope for the playoffs but is hoping to avoid a losing season.
Everything seems to be going well until you hit a bad year (Get fired, laid off, hours are cut, etc, another recession.) All of a sudden, you have no money, but A LOT of bills due.
You have no choice but to break your lease (paying a handsome fee.), go back to live with your parents to save on rent, trade in that European car upside down, and scramble to find another job.
While that happens, you stumble onto your friend Nick on Instagram (hired the same day as you years ago with the same salary.):
-He just quit the company a month ago to go full-time on some sort of E-commerce business that he had been working on.
-He just posted a picture of the new car he paid cash for (Same model you had to trade-in.), so he seems to be doing well.
-He constantly spends time in conferences, comments flooding every post, his brand growing by the day.
You can’t help but wonder how that’s possible. Nick never even seemed to have that money before, in fact, he would get teased about his small studio, and him driving his 2010 Ford Focus from college while you had your “pimp ride”. Now he has money. How could that be?
He spent his money on becoming rich and didn’t waste it on pretending to be rich.
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