Act broke to stay rich. Not only will acting broke keep you rich, it happens to be the best path to becoming rich for those of us who aren’t there yet.
As a financial strategy, acting broke is optimal because it positions us for both wealth building and wealth protection. Rather than growing complacent and sloppy, acting broke keeps us playing both offense and defense with our finances.
I’ll use this post to present real life case studies to show why acting broke to stay rich is a great financial strategy. We’ll take a look at an example of why acting rich is risky and how acting broke is optimal. Then we will discuss ways to act broke to stay rich.
Contents
Case Study: Acting Rich While Going Broke
The internet is littered with stories of rich celebrities who went broke while acting rich. That said, most of us can’t relate to celebrities as well as we relate to normal people. Therefore, I’ll use an example that is at least a bit more relevant.
For this case study we will examine the story of David Lee Edwards – a man from Kentucky who won a $27,000,000 Powerball jackpot in 2001.
“A poor man’s dream” is allegedly how David described his newfound fortune. However, thanks to acting rich, his dream would quickly turn into a nightmare as he was broke and homeless about 5 years later.
This chart breaks down how David spent his money:
| How David Lee Edwards Spent His Powerball Winnings | |
|---|---|
|
Powerball Winnings |
$27,000,000 |
|
First Home |
$1,600,000 |
|
Second Home |
$600,000 |
|
Lamborghini Diablo |
$200,000 |
|
Dodge Viper |
$90,000 |
|
Hummer Golf Cart |
$35,000 |
|
Other Cars |
$710,000 |
|
Private Jet |
$1,900,000 |
|
Plasma TV |
$30,000 |
|
Gold and Diamond Watch |
$78,000 |
|
RIng |
$159,000 |
|
Antique Collection (200 items) |
?? |
|
Investments (racehorses, 2 businesses) |
$4,500,000 |
|
Total Spending |
$9,902,000 |
Acting Rich While Going Broke
Ultimately, the huge sum of money became intoxicating to David. He simply could not resist the urge to spend and increase his lifestyle.
David acted rich by quickly spending more than 1/3 of his windfall on relatively few purchases. And this is the problem with acting rich – it tricks us into spending large amounts frivolously since we think the money has no end.
Further, one of the major things that David likely forgot to factor into his lavish lifestyle was the maintenance costs of owning things. Servicing and fueling a private jet ain’t cheap.
Edwards also could have benefitted from adopting my success stacking principle which would have taught him to lock in his newfound station in life instead of squandering it. His best initial course of action would have been doing close to nothing with the money until he was truly prepared to take things to the next level.
Case Study: Acting Broke To Stay Rich
I have everything in life I want; it's a very simple thing. If there's anything that money could buy that I wanted, I would do it this afternoon without hesitation.
For this example, I will use Warren Buffet, the world’s 5th richest man. With an estimated net worth of $1.21 billion, it is safe to say that Buffet can purchase just about anything that he wants. But he doesn’t.
Instead of acting rich, Buffet acts broke by driving used cars and living in homes that are modest for someone with his level of wealth. For example, Buffet currently drives a 2014 Cadillac XTS, which would have cost around $60,000 brand new.
Comparing car choices between Warren Buffet and David Edwards, Buffet’s car is worth 0.0000046154 of the $13 billion he made that year. Ratio wise, this is equivalent to Edwards buying a car for $1.25 with his $27 million fortune. Yes, you read that right.
In addition to the car being modest, Buffet’s main home follows suit as it was purchased for $31,500 back in 1958 (or $328,990 in today’s dollars). Amazingly, that home has now appreciated in value to $1,400,000, but more impressive is that Buffet still owns it and lives there although he can afford a much grander lifestyle.
While David Edwards was acting rich spending more than 8% of his windfall on housing, Warren Buffet acts poor by living in a home that is 0.000279% of his total net worth.
This is where you can see the difference between acting broke to stay rich versus acting rich, which could very well lead to going broke.
Characteristics Of Acting Broke To Stay Rich
Now that we’ve seen examples of both approaches, let us discuss the characteristics of someone who acts broke to stay rich. In essence, it mostly comes down to focus, motivation, and discipline.
Act Broke To Stay Rich Characteristics #1: Acting Broke To Stay Rich Means Disciplined Focus On Earning Money
When you are broke, your primary goal is making money however possible. Those who act broke to stay rich are no different.
Whether it’s a set of married six figure earners or a single bachelor fresh out of college, the person acting broke to stay rich will always focus on having an income. This is because those who act broke to stay rich know that earning money is the path to building wealth and having financial independence in life.
They also see earning money as fun. Why do we think Warren Buffet still works at the age of 93? He enjoys waking up, going to work, and being productive. And money happens to be a by-product of his efforts.
Act Broke To Stay Rich Characteristics #2: Prioritizing Wealth Creation Ensures You Stay Rich
It is one thing to simply make money. Those who act broke to stay rich also focus on using the money they’ve earned to build wealth.
Like most people, David Lee Edwards saw his fortune as a means for consumption. Rather than saving and making sound investments, David went on a spending binge that destroyed about all of his wealth. This epitomizes the habits of the masses and they would rather act rich than act broke.
Still, those who act broke to stay rich know they have to take special care of their finances to continuously save and invest so they can continue to create wealth. They do this by starting businesses, investing in retirement accounts and stocks, and by looking for other avenues to put their hard earned money to work.
Act Broke To Stay Rich Characteristics #3: Never Go Broke With A Wealth Protection Mindset
Since we have been talking about Warren Buffet, I’ll use his first 2 rules of investing to kick off this section. Those rules are:
Quote: Rule No 1: never lose money. Rule No 2: never forget rule No 1.
Rule No 1: never lose money. Rule No 2: never forget rule No 1.
Those who act broke to stay rich instinctively know that they must protect the wealth they’ve built because disaster can strike at any time.
Acting broke to stay rich means we seek out and educate ourselves on sound investments that are highly likely to produce returns. Even if these investments are less exciting than riskier options, the person who is acting broke doesn’t give in to investing FOMO or greed.
Those who act broke to stay rich also protect their assets with proper diversification and insurance where necessary. They understand that a bit of due diligence can go a long way to protecting the wealth and assets they have.
Act Broke To Stay Rich Characteristics #4: Acting Broke To Stay Rich Is Like Practicing Stealth Wealth
The Financial Samurai wrote a great guide about practicing stealth wealth that ties nicely into the topic of acting broke to stay rich. Essentially, stealth wealth is the process of concealing how rich you are in an effort to avoid becoming a target of those who have less than you – or the government.
Those who act broke to stay rich practice stealth wealth by living modestly and keeping a low profile. They don’t give into the need to compete with or keep up with others. Instead, they focus on earning, building wealth and living a good life.
In a status driven world, those who act broke to stay rich don’t feed into the temptation to show off because they are secure within themselves. They are already humble enough to remember actually being broke so they no reason to rub their success in the faces of others.
Act Broke To Stay Rich Characteristics #5: Focusing On Living A Good Life
If you’ve ever traveled to poorer parts of the world, you will notice that the people still seem happy. In fact, through my travels I’ve noticed that people in places like Thailand and Jamaica seem much happier while having a standard of living that is a fraction of that seen in the U.S. and other highly developed countries.
Why is this?
The answer is that those who live in poor countries have learned to enjoy life for all of the things money can’t provide. When you have very little money, and low hopes for acquiring it – you turn your focus to all of the other things that can make you happy.
Having connections with friends and family, things to be passionate about, and great health are all things that lend to living a good life. Fortunately, these are all things that can be had for no money at all.
When you act broke to stay rich, you also focus on these things because you don’t have the misconception that money can make you happy. You don’t see money as a status game or competition. Instead, you seek fulfillment in having a good life and enjoying the world authentically because you know that is what life is all about.
Acting Broke To Stay Rich Is Not An Act
It’s not an act. Acting broke to stay rich is a mindset, identity, a lifestyle that puts you on the course of building wealth and keeping it. It can be tempting to get comfortable with our wealth and begin flaunting it, but acting broke provides much more of a guarantee.
What changes can you make in your own life to start acting broke to ensure you get rich and stay rich?
Drop me a comment below to discus.