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. Here are five reasons why I think looking poor is important:
1. 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 get all the respect that comes with owning a supercar. 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 costs 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 5,000 to 20,000. And don’t get me started on certain replacement parts—you might have to wait months for those to come in. 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.
Now, what I just described is actually a psychological phenomenon called the Diderot Effect, named after French philosopher Denis Diderot. In his 1769 essay, he recounts being gifted a beautiful scarlet-red dressing gown that eventually put him into debt. To him, after he received the red gown, everything else he owned paled in comparison. He went on to replace all of his possessions—his chair, his desk, his wardrobe—and that eventually put him into debt. He famously stated:
“The poor man may take his ease without thinking of appearances, but the rich man is always under a strain.”
In other words: More money equals 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 you already have. Oftentimes, if we’re grateful for the stuff we have, the happier we’re going to be.
From a financial perspective, every time you add a recurring cost to your life—say, an expensive car payment—it adds to the day-to-day stress you undergo to ensure you can make that payment. When your month-to-month expenses get too high, this might chain you to the job you have. If you’re not enjoying the job, this could be a bad thing. Your potential opportunities might also be 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 you have enough money to pay all your bills. If you intentionally choose to live a modest life instead, that gives you flexibility and a ton of peace of mind.
2. It’s Cheaper
Looking poor is important because… well, it’s simply cheaper. Because you aren’t worried about buying a new designer shirt, getting a fancier car, or buying the latest iPhone whenever it comes out, you have more money to invest, save, and spend on investing in yourself.
The problem with many Americans is that whenever something new and shiny comes out, they buy it immediately. How many people do you know have a completely adequate iPhone but want to upgrade it because the newest one has a “cool new feature” they learned about in Apple’s latest keynote?
A recent survey showed that 65% of Americans are living paycheck to paycheck. If you want to avoid this situation, having the cheapest lifestyle possible will help mitigate that risk. At a bare minimum, it’s a step in the right direction if you’re tempted by the newest “latest and greatest” item on the market. With those extra savings, you can save for things that really matter in life—for example, an emergency fund worth 3–6 months of living expenses.
3. 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.
I remember a time that I was living in London 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, he was from Los Angeles 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 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 $1000 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 $1000 or whatever it was for that night but my point 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 that want to be your friend for the wrong reasons.
4. Happy With the Stuff You Have
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 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 or being social and having laughs with my friends, then it just comes down to having a purpose with my work, having food, 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. 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.
5. You Can Retire with Less Money
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, 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.
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.
Final Word On 5 Reason Why Looking Poor Is Important
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.
