Signs you are headed for poverty

I wrote an article a while ago and alluded to the fact that many people are “Speeding down the highway of poverty in a luxury vehicle”.  Last weekend we had our Centonomy open day and some of our speakers touched on the very critical subject of how lifestyle has become a problem for many of us.  We are working hard to keep up with a lifestyle.  We are aspiring and admiring people who we perceive to have this lifestyle.  We are getting into debt to fund this lifestyle. Then we cheat ourselves that because we have a great lifestyle we are wealthy.  You may have a flashy lifestyle but be the poorest person in the room. Someone at the event asked me what are the actual signs that someone is actually headed to poverty despite driving this luxury vehicle. Kindly note that “luxury vehicle” is simply a metaphor for lifestyle.  Your luxury vehicle could be where you eat lunch, your entertainment expenses, clothes, shoes where you live etc. Having a great income and lifestyle can prove to cheat you that your financial life is headed in the right direction but in actual fact it is not.  Here are some of the signs to watch out for.  If you are early in your working life this is still important so that you do not get into the trap that many have found themselves in.

1. You cannot live without your salary.  If your salary was delayed for a week you would be rioting in the streets.  We all start out like this and indeed we may be here.   We need our salaries to pay rent, food, entertainment, school fees etc. This is called dependence. However this cannot be our long-term plan. You need to be actively working towards being able to live without your salary. To do that it means portions of your income (the older you are the more the portion) should be going towards savings and investments rather that simply moving to a bigger house, going to a more expensive bar or buying a bigger car.  The bigger car is simply making you more dependent on the salary you earn.
2. Your Flossets exceed your Assets. The value of your cars, personal belongings, spend on holidays etc. exceed actual investments such as property, shares, businesses etc. If that is the case you need to reverse this even if it means selling your flossets.  The reason is simple.  Flossets depreciate in value whilst assets appreciate in value.  Have more of the things that will appreciate in value and less of the things that depreciate in value. An asset can fund a flosset e.g. the investment property you buy can give you income to fund a holiday but the car cannot fund the holiday. Do not sell your assets to fund flossets. A friend of mine who is in real estate told me how she has been finding it odd that her clients with the huge lifestyles and big job titles are the same ones unable to raise deposits for the properties they are buying whilst other people who come across as very simple are able to and many times pay off the properties in a couple of months in cash.
3. You spend to impress.  Many times we spend to impress other people.  We falsely believe that the phone, the, neighborhood, club, car gives us respect or elevates our social status. Usually you find it was not respect you got but short-lived attention. To get the attention again when excitement over what you bought has died down, you will need to buy something else. This becomes a never ending cycle and a prison.  Spending is not necessarily bad if it is line with your personal values and choices.  When you spend to impress, you are spending for other people not you.  There is a difference between buying the car to be seen in that car and buying a car because it is something you decide you want to experience.  In the latter, you would probably do it at the correct stage in your life and definitely not on debt because there is no urgency to impress others.
4. You have a high level of consumer debt.  This means you have taken loans to fund lifestyle.  Consumer debt includes credit cards, salary advance school fees loans, furniture loans, car loans.  Any loan that did not result in money being made is a bad debt and you must keep these kinds of debt to an absolute minimum. At the end of the day these debts usually mean you spent more than you were earning. You bought clothes you couldn’t afford with the credit card, you took your kids to a school you can’t afford through a loan etc.
5. You don’t have a plan for your life.  This is actually the biggest reason that you may be speeding down the highway of poverty. In fact it also may be the reason that you find the points raised above apply. The good book actually says that people without vision perish. I have ended with this point but it should actually be where you start.  I don’t believe anyone can tell you the vision you should have for yourself.  What I know is that the steps you take in life should be taking you towards your vision.  You need to be able to tell how your current job or business is propelling you forward. When you have these goals, you can then see why taking control of your spending is important, why exorbitant spend on lifestyle may be getting you further from the life you actually want and what are the things that have value to you that you would spend on.

Waceke runs a program on personal financial management. Find her at waceke@centonomy.com| 

Twitter @centonomy

Facebook Centonomy