Image Affluence: All that Glitters is not Gold

From the previous post – You can be Millionaire and Broke, we can see that having a high net worth does not necessarily translate to being cash rich. You can be asset-rich and cash poor, and may be forced to dispose of your assets at below-market prices when you negotiate from a position of weakness – you need the money. ‘The seller needs the money’ is music to the ears of a buyer. It means he is about to make a purchase at a bargain.

We often negotiate ourselves into a financial cul-de-sac by trying to look affluent. We want to belong to the clique and club of the happening crowd. To truly belong, we need to drive the right car, live in the right neighborhood, wear the right clothes, shop in the right place, send your children to the right school, vacation at the right locations, sport the right wristwatch, use the right phone, the list is endless. By the time it all adds up, tons of money that would have been used to start a new business, save for retirement, or invest is sunk into image laundering, trying to look richer than we really are.

The worst culprit is the automobile. This is a mobile status symbol. When Henry Ford pioneered mass-produced automobiles, what he had in mind was a machine that takes you from point A to point B in safety and comfort. The automobile now represents so many other things, chief among them, your status in society, your financial prowess, your personality, your outlook, etc. Riding the right car is not enough, it has to be the current year model. If the model of your car ends up in a used car dealership, it means it is time to trade in yours for the current model. We end up buying the same thing over and over again without making any progress financially.

You can look rich but be poor. On the outside, you portray an image of affluence but on the inside, you may be groaning under cash flow challenges. All that glitters is not gold. The issue is not how much stuff you have accumulated, but how much cash flow it is generating. Most personal loans are consumer debt – loans taken out to fuel our consumption habits rather than acquire income-generating assets. There is nothing wrong with indulging in the good things that life has to offer for our enjoyment. You want to be sure that you have sufficient cash backing to support that lifestyle. Turn Your Scraps into Cash or Treasure.

When starting out on your journey to financial independence and freedom, your focus should be on cash flow. You need to practice delayed gratification as you build a solid asset base. To accumulate assets, you need to know what an asset is. The main reason the middle-class struggle financially is that they buy liabilities thinking they are assets. They end up converting cash into stuff that eventually ends up in the trash. Money comes in but none returns. The item depreciates and they get a fraction of the cost, if any, and the end of life of the item. They burn cash but have nothing to show for it, apart from image affluence. The cash flow pattern of the typical poor and middle class is one-way traffic – money comes in through earned income and leaves through expenses, never to return.