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Appearances can be deceptive! Often what looks like wealth - a flashy new car or expensive clothes - are actually expensive status symbols. Take our experts’ advice and learn how to avoid the status trap and build your wealth!
Don’t confuse status with wealth
Status is the perception that you have made it and are successful and wealthy. It is usually based on the appearance of wealth such as designer clothes, expensive jewellery, cars and holidays. The appearance of wealth doesn’t mean a person is wealthy. In fact, if status symbols are bought on credit, they are often deeply in debt.
“Status has nothing to do with your financial position,” says certified financial planner and Director of Imvelo Wealth Palesa Tlholoe. Wealth, on the other hand, is all about your financial position and how much you are actually worth.
“Wealth is an abundance of valuable assets that can be converted into cash if needed,” Palesa says.
It’s not only easy to confuse status and wealth, it’s also easy to choose status over wealth.
“Wealth is largely intangible, you can’t see it,” says certified financial planner Russell Ho. And it takes time to build.
Status, on the other hand, can be acquired instantly (through credit) and is visible – the sneakers, the car – you can see those! And having other people see them brings approval and instant gratification.
What happens when you choose status over wealth?
Status purchases are more likely to grow your debt, than your wealth! Which means you can end up either living paycheck to paycheck, with no savings, or in too much debt! This can cause huge financial stress. And, it won’t leave you any money to invest or buy wealth building assets, such as property, and a small business.
Top tips to help you choose status over wealth
The good news is that choosing wealth is hard at the beginning, not impossible, and it can quickly become a habit! Here are our expert’s tips on how to avoid expensive status traps and choose wealth!
1. Reduce your social media consumption
“Social media creates enormous peer pressure,” says Palesa. Even if you know that what is seen on social media isn’t the entire truth!
Russell’s advice is to reduce your consumption of social media. “If social media is your benchmark, you have to put a stop to it,” he says.
2. Work out the true cost of an item before you buy
Russell says he nearly fell into the status trap in his second year of work. “I was looking at buying a new, expensive Audi or BMW, mainly to impress my peers. I even had a name for the car, like most guys. But I didn’t actually need a new, expensive car, and when the financial planner side of me put pen to paper and worked out just how much I would be spending, I started thinking about what else I could do with that money. I didn’t buy the car.”
The true cost of an item can include the purchase price or repayments plus interest, care and maintenance, repairs, insurance, storage, among others.
3. Set clear goals
Setting goals will help you focus and avoid spending money, and taking on debt, to buy status items that are not part of your goals.
“Set clear goals about what you want, how long it will take you to get it and the steps you need to take to get it,” says Palesa. “Be realistic and ensure that your goals are achievable.” And once your plans are in motion – don’t let anything derail them!”
Wealth building tips from the experts
Invest your money
“As early as you can, as much as you can,” says Palesa. But also have patience when investing - investing gives you long-term satisfaction, not short-term gratification.
“Don’t wait until you have a large amount to invest – start small and get into the habit,” says Russell.
Invest in yourself
Take a course, get a mentor, learn new skills, suggests Russell. “This increases your earning ability - and ensures your skills will still be in demand.” Plus – it can give you the skills and confidence to start a side hustle!
Learn more about money
“Don’t put money into a black box – become more knowledgeable,” says Russell. Read financial blogs and news articles, follow finance experts on social media, take financial courses!
Get help from a professional
“Consult a financial professional and let them help you crystallise and commit to your financial goals,” says Palesa.
Plan for risk
“Risk is part of the game,” says Palesa, “always anticipate all kinds of risks you could face, quantify them and plan your counter strategy.” For example, by taking out life cover, an income earner can ensure their dependants have money to pay expenses and build wealth, should they pass on.
Make peace with the trade-off
The message is clear. Choose to forego status symbols and instead commit to clear financial goals to build your wealth for generations to come. Are you up for the challenge?