The Hidden Power of Modesty | Why Looking Poor Leads to True Wealth

[Anderson]

The difference between poor people, the middle class, and the wealthy isn't about how much money they make but rather how they use their money. Poor people spend their money to look good and seem successful to others, even if they're not. Middle-class people use their money similarly but can afford more because they take on more debt to buy expensive cars, clothes, or rent luxurious homes. Their earnings go toward maintaining a lifestyle they can’t truly afford. In contrast, wealthy people view money as a tool to generate more money and don't care much about appearances. They often look less affluent than middle-class individuals or even the poorest people. The biggest irony about wealth is that you don’t need to look rich to be rich.

Most people struggle to understand this because society equates wealth with visible signs like expensive items, big houses, sports cars, and designer clothes. However, real wealth is often invisible. This piece will discuss why it’s important to look modest and why appearing rich can be more costly than actual wealth.

Growing up, I believed wealth meant having a grand house, a cool sports car, expensive clothes, and staying in five-star hotels. This view is reinforced by movies, advertisements, and social media. But as I got older, I realized this isn’t true wealth. The image of a wealthy person is largely fictional. Companies flood us with such content because it grabs attention, and attention translates into influence and profits. Showing modest wealth doesn’t make companies money because it doesn’t attract attention.

Interestingly, poor people try to act rich, but wealthy people don’t behave that way. This means poor people mimic other poor people who pretend to be wealthy. There are indeed rich people who flaunt their wealth on social media, but they are a small minority. Most wealthy people drive regular cars, live in ordinary homes, and have investment accounts that generate income. They look like regular people, and you wouldn’t guess their wealth from their appearance.

Rich people become wealthy because they understand the importance of appearing modest. By modest, I don’t mean wearing dirty clothes or driving a beat-up car, but living a simple life without flaunting money. Real wealth is the money not spent, which keeps them financially free.

Imagine two people: one gets out of a brand-new BMW worth $200,000, dressed in fashionable clothes with a fancy watch. You might think, "Wow, he must be rich." But the only sure thing about him is that he no longer has that $200,000. You can’t know anything more about him. When you see someone get out of an old Toyota in regular clothes, you might think they’re not rich. But you don’t see their bank accounts, stock portfolios, or the properties they own. You don’t see their passive income or know their true financial potential.

Rich people prioritize actual wealth over looking wealthy. They invest their money in assets that grow in value, unlike poor and middle-class people who spend on depreciating items. This brings me to why we should imitate the behavior of the rich. We need two skills: earning money and saving money. Earning requires risk-taking, energy, and dedication, while saving requires modesty and frugality. For example, Mike Tyson earned $400 million but declared bankruptcy, and Nicholas Cage earned $150 million but owed $6 million in taxes. They were great at earning but terrible at saving. On the other hand, an ordinary millionaire earns less but saves well due to their modest lifestyle.

Living below your means is crucial for becoming wealthy. Here are a few reasons why looking modest is better than trying to appear rich:

1. Looking rich is expensive: Maintaining the appearance of wealth is the quickest path to financial ruin. Professional athletes earning millions often end up broke because they spend all their earnings on lavish lifestyles. When their careers end, they have high expenses but no income or savings to cover them. It doesn’t matter how much you earn if you spend everything you make.

2. Appearances create obligations: To look rich, you buy expensive items on credit. This increases your obligations and limits your ability to invest in assets that grow wealth. If you live modestly, you avoid these obligations and can invest more in long-term assets.

3. Survival mode: Trying to look rich keeps you in survival mode, constantly working to pay off debts and maintain a costly lifestyle. Living modestly allows you to save and invest, freeing you from the paycheck-to-paycheck cycle.

4. Different treatment: When you look rich, people might expect financial help from you, or worse, try to exploit you. It’s better to blend in and avoid such pressures.

5. True wealth doesn’t need validation: Real wealth gives you freedom, security, and the ability to do what you want without proving anything to others. The less you care about others’ opinions, the more you can use money to enhance your life.

6. Financial peace: Having real wealth, not just showing it off, lets you sleep peacefully, knowing you’re prepared for any surprise life throws your way. 

Morgen Housel often says, "Wealth is what you don’t see," because it’s the money you haven’t spent. Understanding that looking rich is the opposite of being rich changes how you view money. Use it as a tool to earn more and gain true wealth and freedom.

In conclusion, living modestly won’t show others the attributes of a wealthy person, but you’ll have something more valuable. As Morgen Housel says, "The highest dividends money pays is the ability to control your time, to do what you want when you want, where you want, for as long as you want," providing lasting happiness more than any fashionable item.

Final Thoughts: The idea that real wealth is invisible is a powerful reminder of the importance of financial discipline and long-term thinking. It's easy to get caught up in the need to appear successful, but true financial security comes from saving and investing wisely. By focusing on building real wealth rather than displaying it, we can achieve lasting financial freedom and peace of mind. This approach not only protects us from financial instability but also aligns our financial behaviours with our deeper values and goals.