Living Rich vs Being Rich | The Millennial Millionaire

Living the Dream? Maybe not…

Often you see someone with a brand-new Mercedes. You become envious or simply wish you could afford something like that.

People have different utility curves, so maybe that Mercedes makes that person incredibly happy, whereas you’d rather spend that £400 a month on nights out, or on eating at restaurants.

However, in truth, that person, and you too, are likely living month to month, like many millennials do!

According to a 2017 GoBankingRates survey, 39% of millennials have no savings whatsoever. (Including money in stocks and shares, real estate etc.). Thought I should make that clear after my article on Why Savings Make You Poor.

Why live rich?

Financial Security is highly important, you don’t want money to be a constant worry, so why live above your means?

The reality of it is, most of the time people are obsessed with their image, being flashy etc. They see the adverts on TV, Facebook, Instagram and Youtube and immediately think that those products will help them, make them happier or have some other positive impact on their life.

But things can go South...

The unfortunate thing about this way of living is that when a recession hits, you’re fucked.

If you lose your job, you can no longer afford your cost of living for another month. Not only that, your money is not working for you, rather you’re giving it to businesses whom are much wiser with their money.

Let’s look at an example…

Let’s look at someone who I describe as ‘Living Rich’.

Their expenditure:

• £600 a month on the new C Class and insurance

• Visit restaurants twice a week, costing £200 a month

• Rents a flash apartment costing £1200 a month

---

Now let’s compare this to someone who could actually become rich:

• Older car and insurance: £1200 a year = £100 a month

• Cooks their own meals for the roughly 8 meals that the other person ate out, £40 a month

• Rents a basic room costing £500 a month

---

The person that lives rich has a monthly expenditure of £2000.

Whereas, the other individuals expenditure in those same areas totals £640.

The difference of £1360 a month amounts to £16,320 a year. Let’s assume you put this away, and get a rather pessimistic return of 7% per annum, by investing this into an index tracker within the stocks and shares ISA. (I say this as the average return is closer to 10% historically).

Let’s also assume that both of our examples are aged 21, and have no salary progression until retirement, and keep living in this manner.

Assume both retire at 65.

The difference in the net worth of these two people will amount to £4,647,108.75 using an annuity calculator.

Not only this, at retirement, the first person is likely to have far less to live off due to their expensive lifestyle earlier on.

To put this in perspective, if you were to save every £1 you would otherwise spend as a 21-year-old, at retirement this would be worth £19.63.

For more information on smart investing for wealth, you can read my previous blog on 4 Steps to Become a Millionaire.

And if you like the content be sure to subscribe to stay updated when I post.