When you are in your twenties, it seems like making more money is the obvious way to advance in life. However, earning money and actually using that income to accumulate wealth are often two different things. In daily life, there are some consumer behaviors that wealthy people rarely engage in, such as buying lottery tickets and coffee. Why is that?
Those repetitive consumption behaviors like “buying coffee every day” slowly chip away at your salary. Therefore, if you want to accumulate wealth bit by bit, it’s time to establish a “wealth mindset.” The wealthy know that one of the best ways to accumulate wealth is to make every penny count, rather than wasting money on common consumption traps.
A user posted on Reddit’s r/wealth community, asking what wealthy individuals wish they had done earlier in life and what advice they would give to people in their twenties.
“The issue is not about making money, but about keeping it,” one commenter wrote. The commenter also mentioned that when they were in their twenties, they were focused on earning as much money as possible, but some of that income was spent on a bigger house, a better car, a private jet, and other upgrades in quality of life. While real estate and business eventually made them wealthy, they still wish they had invested more funds in the stock market initially.
“Whether it’s investing in real estate, individual stocks, or ETFs, the importance lies in consistent investment,” they wrote.
MoneyLion, a digital consumer finance and fintech platform in the United States, interviewed three financial professionals who serve affluent clients, discussing the daily consumer goods that wealthy people avoid buying and the reasons behind their choices. The next time you hesitate about making these purchases, consider how much financial gain you could achieve if you didn’t.
Many people are in the habit of upgrading their smartphones or laptops as soon as the manufacturer releases a new model.
The biggest downside to this consumption pattern is the constant influx of new models. According to IGN, since 2007, Apple has released 27 different models of iPhones. Every fall, Apple releases a new version of the iPhone, and media reports showcase consumers lining up to buy the latest model. However, if you purchase each generation, just to “keep up with the trend,” it could cost you thousands of dollars.
Steve Min, Chief Credit Officer at Credit One Bank, stated that unless smartphones or laptops have severe issues that require replacement, wealthy individuals typically choose to continue with software updates and utilize their existing electronic devices.
Min believes that successful individuals financially avoid expenses that do not provide lasting value to their lives.
Buying lottery tickets may seem like a harmless small expense. They are inexpensive (scratch cards usually cost just $1) and are often given as holiday small gifts due to their playful nature. But if you take buying lottery tickets seriously, you may end up regularly investing significant amounts of money in hopes of winning a huge jackpot.
Beth Stenz, a financial advisor at Edward Jones, pointed out that the cost of purchasing an ordinary lottery ticket or Powerball ticket each week ranges from $5 to $20.
If a person spends $10 a week on lottery tickets, that’s $520 a year just on that. If you continue this for 30 years, you would spend over $15,000 on those (mostly) destined-to-lose lottery tickets.
Due to their understanding of the power of compounding, wealthy people – especially super-rich individuals – typically do not buy lottery tickets. The money saved from this can be invested and yield returns.
There are few daily expenses that spark controversy like buying coffee every day. If your income is lower, cutting back on coffee expenses can indeed be a shortcut to increasing savings. But if you have accumulated enough wealth, paid off debts, and saved enough for retirement, can’t you enjoy this habit again?
Achim von Bodman, Senior Tax Manager and Certified Financial Planner at Watter CPA, pointed out that wealthy individuals do not give up coffee; they just have a different perspective on the cost of coffee.
Take a $6 latte as an example. For those with a “wealth mindset,” the actual cost of this cup of coffee is not $6. Since you have to earn income before taxes, you need to earn $8 to $9 of pre-tax income to have $6 left to pay for this coffee after deducting federal, state, and payroll taxes. Therefore, wealthy people do not ask, “How much does this cost me?” but rather, “How much do I need to earn to afford it?”
As von Bodman said, “If you want to consume like the wealthy, you should no longer measure the price of goods in ‘take-home pay’ (after-tax income) but in ‘earned income’ (pre-tax income).”
This doesn’t mean that wealthy people never spend money; they just think carefully and strategically when consuming. Before buying a new phone, lottery tickets, or that daily latte, they ask themselves a simple question: Is this expense reasonable and necessary within my budget?
Regardless of income level, adopting this mindset is the true first step in accumulating lasting wealth.