Why Looking Poor is Important

The journey to True wealth isn't about showing off the possessions that you have, but it's more about embracing the virtues of modesty and humility. We live in a world that often values appearances, especially on social media, but if you're able to stay grounded and keep a low profile, your bank account and your net worth will grow very fast. There are five reasons why I think looking poor is important, and starting with number one today, the fact that it simplifies your life.

To illustrate how Simplicity will actually make you richer, imagine for a second that somebody gifts you a Lamborghini. For a moment, you're really stoked; you now get to show off this amazing car, and you get all the respect that comes with owning a super car. But then, after driving around for, let's say, a month or two, you realize something: the cost to insure a Lamborghini is five times more than it cost to insure your standard car. You need to fill it up with premium gas when you go to the station, and the tires cost a fortune to replace. Every time you get an annual service, it costs you upwards of $1,500 to $2,000, and don't get me started on those certain replacement parts; you might have to wait months for those to come in. And all of these issues arose even though you got the Lamborghini for free—you didn't even actually have to pay for it in the first place, which I will get to in a second.

Now, what I just described is actually a psychological phenomenon called the Dero effect, named after a French philosopher, Dennis Dero. In his 1769 essay, he actually recounts that he was gifted a beautiful Scarlet Red dressing gown that eventually put him into debt. And that's because, to him, after he received the red gown, everything else that he owned kind of paled in comparison. He went on to replace all of his POS possessions—like his chair, his desk, and his wardrobe—and that eventually put him into debt. He famously stated that, quote, "the poor man may take his ease without thinking of appearances, but the rich man is always under a strain." In other words, uh, More Money More Problems. This is why looking poor is important, in my opinion. Not only does it simplify your life, it also allows you to enjoy the possessions that you do have, and often times, if we're grateful with the stuff that we have already, the happier that we are going to be.

From a financial perspective, every time you add on a recurring cost to your life—say, an expensive car payment—that adds on to the day-to-day stress that you undergo to ensure that you can make that payment. When your month-to-month expenses get too high, this might actually chain you to the job that you do have, and if you don't enjoy your job in particular, this could be a bad thing. Your potential opportunities might be also limited; you may never experiment with entrepreneurship, and you might even be too anxious to look for a new job, all because you need to ensure that you have enough money to pay all your bills. If you intentionally choose to live a modest life instead, that gives you a bunch of flexibility and a ton of Peace of Mind.

Reason number two why looking poor is important is that, well, it's simply cheaper. Because you aren't worried about buying a new designer shirt, or getting a fancier car, or buying the latest iPhone whenever it comes out, you have more money to invest, save, and also spend it on investing in yourself. The problem with many Americans is that whenever something new and shiny comes out, they go and buy it immediately. How many people do you know that have a completely adequate iPhone, but they want to upgrade it because the newest one has a cool new feature that they learned about in the most recent keynote by Apple? A recent survey showed that 65% of Americans are living paycheck to paycheck, so if you really want to avoid this situation, having the cheapest lifestyle possible will help you mitigate that risk. It's, at a bare minimum, I think a step in the right direction if you aren't being tempted by the newest or latest and greatest item that comes on the market. And that way, with those extra savings, you can save for the things that really matter in life—for example, the Scotty Cameron putter, Napa California. I'm just kidding, don't do that, it's just a joke. But, for example, the things that really could matter are an emergency fund worth 3 to 6 months of your living expenses saved up. Perhaps you could start a retirement account, or you could spend it on things intentionally that will fulfill you—for example, maybe you save $500 a month by keeping a low profile. After one year, you have $6,000, which now you can use to either invest in yourself—perhaps you enroll yourself into more education, and that eventually makes you way more money later on—or an extra $6,000 every year invested into the S&P 500 can be well worth over $500,000 in 25 years, which could be a huge difference for you and your life if you're willing to forgo some of the material possessions day to day.

Reason number three that looking poor is important is that it invites the right people into your life. A common problem that affects those that appear rich or portray a certain lifestyle is that the wrong type of person wants to be your friend, or the wrong type of person will have an expectation of you. So I remember a time that I was living in Hong Kong for a few months, and I was 24 years old at this time. I found myself going out one night with a bunch of expats, and one of them in particular—let's call him Tom—was from London, and you could just tell he loved the lavish Lifestyle. On one night out in particular, he really wanted to buy a table at a local Club; he wanted to go to a five-star restaurant before the club, all while flaunting his new gold Rolex. And the worst part was was that he expected all the people in the friend group to actually keep up with him. That means when I was randomly invited to hang out with this group, he expected me to be okay with splitting the cost of the table at the nightclub or the fancy dinner, which would have amounted to well over $500 just for that night. And I'm 24 at this time, I'm unemployed between jobs; it's not like I have a ton of money to spare, so I politely declined. I just went home, and I called it a night so I could avoid all of that. But then I was thinking to myself, what was the point of it all? It's possible that many of the other expats in that group wanted to keep up with Tom, so as a consequence, they all ponied up the $500 or whatever it was for that night. But my point is is that when you seek to show off that you have money, you might get somebody like Tom in your life who encourages you to spend more money. Another situation is that you might attract people that want to get to know you just because they perceive that you have money. This is the wrong crowd, in my opinion, because they don't truly want to get to know you; they just are there because at that exact moment you have what they're looking for. Now, if you were to live humbly and modestly, you might be able to find someone who values you for you and what you are truly about. Not only are you living a more authentic way, you are attracting people that want to be around you for your mind, your energy, and your presence. So looking poor is a really easy way to weed out the people—people that want to be your friend for the wrong reasons.

And that leads me to a bonus reason today; let's call it reason number 3 and A2, or 3.5, which is that you should aim to maintain a low profile because it doesn't make you a Target. Imagine you brag about your cars, your watches, your houses, and your big portfolio on social media. Well, now you are someone who is known to have a lot of money, and it could potentially make you a target for robbery at some point in your life, or even worse, kidnapping. And that's just extra risk I would not rather invite into my life.

Reason number four that keeping a low profile is a good thing is that you will soon realize that you can be happy with the stuff that you already do have. Often times, I think we aren't grateful enough for the basic necessities that we have—for example, a bed to sleep in, access to food, and clean drinking water. There are so many countries out there that lack these basic resources, and by not overindulging, we can simply look at our life and be appreciative of the stuff that we have. Think about all the things that really matter to you at the end of the day. For me, it's my health, connecting with other people and being social and having laughs with my friends, then it just comes down to having a purpose with my work, having food and shelter, and then I'm pretty much ready to go. At the end of your life, you're not going to take any of the money with you, but you will remember all the great experiences life had to offer you, as well as all the connections that you made. And having this appreciation will help us avoid what researchers call the hedonic treadmill—that's the observed tendency of humans to return to a relatively stable level of Happiness despite major positive or negative changes in their life. So famously, in a study in 1978, lottery winners reported being similarly happy before and after winning the lottery. These winners were studied, and the findings actually showed that having a large monetary gain in their life had no effect on their levels of happiness after just a few months. It didn't make them any happier; they just simply got used to having more money, and their happiness level eventually returned to their Baseline. In other words, if you go out and buy that Gucci belt that you've always wanted, sure, it will trigger some dopamine for you in the short term, but over a longer time period, you will just revert to your Baseline level of happiness. I've also noticed personally the same Phenomenon with a new car—so initially, once you get your new car, you are so happy to drive it, but after a few months, the newness or the honeymoon period Fades away, and it's just like driving any other car. What you want to do is break this cycle and not get blinded by the newest hottest items out there; make the conscious choice to keep a low profile, and I think you will have a lot more peace of mind.

Reason number five that being subtle and living within your means is so important is that, well, technically you could retire with less money. If you're able to spend less money as your Baseline, when it comes to retirement, you simply just won't need as much money to retire. According to the 4% rule, which I've talked about on this channel, you can technically call yourself retired when you're able to withdraw 4% from your nest egg every single year and live off of it. So if your lifestyle cost you $50,000 a year, you need a nest egg of $1.25 million, and this will allow you to withdraw $50,000 a year and live off of your Investments. Imagine your lifestyle cost you $100,000 per year, or double that, then you're going to need $2.5 million in order to withdraw at that—that same healthy 4% rate. So living below your means just helps bring down the burden of that Financial stress, and it also means that you can take steps to eliminating debt if you do have debt. And one of the signs that you are going to be doing well financially is that if you're able to effectively manage your debt. The average American has personal debt—so excluding mortgages—of around $23,000, according to a recent study, with a lot of it coming on a credit card. Ideally, if we're living below our means and keeping a low profile, we're going to be able to keep that amount much lower than that when it comes to our own debt. That way, we're able to manage the payments in a way that's not going to cut into the remainder of our lives.

So I think I've effectively shown you all the benefits that a modest life and looking poor can give you today. I think it frees you up in so many ways financially that you will be happier, have more peace of mind, and cherish the things that actually matter. If you enjoyed this video, you'll really like this video right here on these seven major differences between rich and poor people; it's one of my best recent videos, and I think you guys will probably agree with a lot of what's said in there. I'll see you guys in that video; just—just seriously go click it now. And uh, all right, thank you for being here. Peace [Music]