Written by Jay Mota, CFP®, CDFA®, WMCP®, ChFC®

Let me start by saying that wealth is a relative term. There is a difference between being wealthy and rich. In my career, I’ve met people who earn a lot of money, have a lot of material possessions, and appear rich. Yet the same people would not be able to sustain their lifestyle if a significant event happened to disrupt their lives or when their income stopped. On the other hand, I’ve met people who’ve earned an honest living, lived modestly, and were financially secure for the rest of their lives.

A person’s financial status comes down to behavior and mentality. Unfortunately, in our society, too many people compare themselves to others instead of focusing on the life they want for themselves. Most people consider their financial status based on how others live their lives or “keeping up with Jones.” For some, a big house, expensive cars, and luxurious vacations may sound like it’s only meant for the rich. Yet a modest home, reliable car, and quaint vacation may seem like it’s not enough. Being rich may mean you can afford to buy things, but being wealthy is being able to maintain the same quality of life for a lifetime or for generations. 

The Behavior

Determine what will make you happy. Stop and think about that word: happy. If you are constantly comparing yourself to what others have, happiness may be hard to find. Understand the lifestyle you can live or are happy with and ensure you can maintain that lifestyle for the rest of your life. The peace of mind this would bring should help with happiness. I am not saying give up on trying to achieve more but be calculated at increasing your lifestyle. The way to accomplish this is to understand consumption smoothing. Consumption smoothing is where you optimize your savings while earning so that when you are not earning, you can maintain the same lifestyle throughout your lifetime. If you reach the point where you have solidified a particular lifestyle for a lifetime, and you can spend/save more, then notch it up a little, but don’t go out and increase your lifestyle so much that you could fail. How do you figure this out? One way to determine this is through a cash flow analysis. A good cash flow analysis will examine your expected lifetime income from all sources, your anticipated lifestyle expenses, and your goals. It will also consider inflation, taxes, and emergencies now and in the future. More simply put, it’s like a test to examine the health of your money coming in and going out over your lifetime. A cash flow analysis should be reviewed and updated at least annually or when a significant event occurs. It is not something you want to set and forget.

The Mentality

When I suffered a major financial setback in 2008, I wasn’t sure how I would ever get back on track. I was in a major financial hole, and I was scrambling to claw my way back to the lifestyle I had. For months, all I thought about was the money I lost, and all that the money bought me when I had it. I drove down streets with beautiful homes and questioned how buying another home would ever be possible.

I stopped comparing my life with the before and after and started to rebuild a lifestyle that would prevent this type of loss again. My first goal was to have $1,000 in my savings account while paying the bills on time. When I reached this goal, this became my brand new zero. I trained myself to believe that even though I had $1,000 in the bank, in my mind, I still had zero. I created my next goal of $5,000, and when I achieved that, this was my brand new zero. Today, just about 15 years later, I am still creating brand new zeros for myself.

This concept is not new. I am sure we all know someone we believe “has money,” yet they don’t spend it or say they are broke. Some people may call them cheap. The reality is they are mastering the brand new zero. They know what their thresholds are and what their zero is. They understand what they need to accrue in their lifetime to preserve their happiness. I am not recommending that we forsake living life and all it offers. It is important to do so in moderation to maintain it for your lifetime.

In my practice, I speak with many clients who suffer from unexpected losses, such as loss of money, family, and life. It may seem hard to pick up the pieces after a significant loss, but starting small by changing how you think and behave can lead to being ahead of where you were in the past. Even if you cannot achieve the same lifestyle you once had, you can at least prepare to avoid financial setbacks in the future.  

Let me start by saying that wealth is a relative term. There is a difference between being wealthy and rich. In my career, I’ve met people who earn a lot of money, have a lot of material possessions, and appear rich. Yet the same people would not be able to sustain their lifestyle if a significant event happened to disrupt their lives or when their income stopped. On the other hand, I’ve met people who’ve earned an honest living, lived modestly, and were financially secure for the rest of their lives.

A person’s financial status comes down to behavior and mentality. Unfortunately, in our society, too many people compare themselves to others instead of focusing on the life they want for themselves. Most people consider their financial status based on how others live their lives or “keeping up with Jones.” For some, a big house, expensive cars, and luxurious vacations may sound like it’s only meant for the rich. Yet a modest home, reliable car, and quaint vacation may seem like it’s not enough. Being rich may mean you can afford to buy things, but being wealthy is being able to maintain the same quality of life for a lifetime or for generations. 

The Behavior

Determine what will make you happy. Stop and think about that word: happy. If you are constantly comparing yourself to what others have, happiness may be hard to find. Understand the lifestyle you can live or are happy with and ensure you can maintain that lifestyle for the rest of your life. The peace of mind this would bring should help with happiness. I am not saying give up on trying to achieve more but be calculated at increasing your lifestyle. The way to accomplish this is to understand consumption smoothing. Consumption smoothing is where you optimize your savings while earning so that when you are not earning, you can maintain the same lifestyle throughout your lifetime. If you reach the point where you have solidified a particular lifestyle for a lifetime, and you can spend/save more, then notch it up a little, but don’t go out and increase your lifestyle so much that you could fail. How do you figure this out? One way to determine this is through a cash flow analysis. A good cash flow analysis will examine your expected lifetime income from all sources, your anticipated lifestyle expenses, and your goals. It will also consider inflation, taxes, and emergencies now and in the future. More simply put, it’s like a test to examine the health of your money coming in and going out over your lifetime. A cash flow analysis should be reviewed and updated at least annually or when a significant event occurs. It is not something you want to set and forget.

The Mentality

When I suffered a major financial setback in 2008, I wasn’t sure how I would ever get back on track. I was in a major financial hole, and I was scrambling to claw my way back to the lifestyle I had. For months, all I thought about was the money I lost, and all that the money bought me when I had it. I drove down streets with beautiful homes and questioned how buying another home would ever be possible.

I stopped comparing my life with the before and after and started to rebuild a lifestyle that would prevent this type of loss again. My first goal was to have $1,000 in my savings account while paying the bills on time. When I reached this goal, this became my brand new zero. I trained myself to believe that even though I had $1,000 in the bank, in my mind, I still had zero. I created my next goal of $5,000, and when I achieved that, this was my brand new zero. Today, just about 15 years later, I am still creating brand new zeros for myself.

This concept is not new. I am sure we all know someone we believe “has money,” yet they don’t spend it or say they are broke. Some people may call them cheap. The reality is they are mastering the brand new zero. They know what their thresholds are and what their zero is. They understand what they need to accrue in their lifetime to preserve their happiness. I am not recommending that we forsake living life and all it offers. It is important to do so in moderation to maintain it for your lifetime.

In my practice, I speak with many clients who suffer from unexpected losses, such as loss of money, family, and life. It may seem hard to pick up the pieces after a significant loss, but starting small by changing how you think and behave can lead to being ahead of where you were in the past. Even if you cannot achieve the same lifestyle you once had, you can at least prepare to avoid financial setbacks in the future.