333 | Looking Rich vs. Building Wealth

Looking successful on the outside doesn’t always indicate financial success.

Many lawyers feel pressure to keep up a particular lifestyle, and it’s costing them the opportunity to build wealth.

In this episode, let’s talk about the gap between outward appearances and inward financial realities and how rethinking what success looks like leads to wealth and freedom.

• • the distinction between looking rich and being wealthy

  • how expensive lifestyles can leave lawyers in debt and stressed and why many are hesitant to cut back

  • when luxury spending works vs. when it becomes problematic

  • a basic guide for building wealth

Benzinga article about looking rich and building wealth

The Millionaire Next Door by Thomas J. Stanley

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You’re listening to Personal Finance for Lawyers. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back.

Today we are talking about looking rich versus being wealthy. I had the idea to talk about this because I read an article recently from a website called Benzinga, and let me just read you the opening paragraphs of this article.

It says, “There is a difference between looking rich and actually being wealthy. One is loud; the other doesn’t need to explain anything. Rich means you earn a lot. You might drive a luxury SUV, own a $10,000 couch, and take three vacations a year, all while living paycheck to paycheck. Wealthy means you own assets that generate income whether you’re working or not. Wealth buys freedom. Rich buys bills.”

Isn’t that so impactful? It reminds me of something that we have talked about a lot here because too many lawyers fall into the trap of looking rich versus actually building wealth. So they have the big house, the fancy car, the luxury clothes and bags, the vacations, the private school for the kids, all while drowning in debt and living paycheck to paycheck with no savings.

They are making a lot of money, and that can allow you to look rich because you can buy a lot of stuff. But it doesn’t necessarily mean that you’re building wealth. And something I’ve found over the years is once people have built up a certain lifestyle, they don’t want to let it go.

I will be on a call with somebody, and they are telling me about what’s happening in their finances and all of the stress that they have and all of that. And it’s clear that getting rid of one of those things would make a huge difference in their finances, but they won’t do it.

For example, they might have a car payment that’s $1,000, and if they got rid of that car payment and got a lesser, like a less expensive car, then they would have more room. Or the house is taking up 50% of their income, and if they had a less expensive house, then they would have more room. But they often are hesitant because it feels like they’ve made it. They have reached this idea of what society tells us that success is, and so if they gave up that car or that house or whatever the thing is, then it feels like they’re taking a step back.

But have you really made it in that situation? Maybe you look like it from the outside because you have those external markers of success, but if your inside is a mess, if you are crying and you’re stressed and you are staying awake at night because you’re worried about all the things, have you really made it?

I love the book The Millionaire Next Door because it shows that what we typically think of as the markers of wealth, like the house and the car and the clothes, are far different from what wealth actually looks like. For many wealthy people, their wealth is quiet, like that article talked about. You can’t tell from the outside that they’re wealthy. They live in a modest neighborhood. They drive an average car. They wear regular clothes. They’re able to build wealth because they have money available to do so, they haven’t spent all their money buying things to look rich.

And to be clear, buying things is not bad. You can buy the big house or the fancy car or the designer clothes and still build wealth. But what’s happening is a lot of people are buying those things at the expense of building wealth, meaning that they are buying all those things, spending all of their money, and they don’t have anything left to build wealth with.

If you spend all your income, you don’t have anything available to build wealth. So, you look rich, you’ve got all of the fancy things, but you don’t have anything to show for all the time you’re putting in at work. Your bank account does not reflect the amount of money that you make.

So that brings us to the question of how do you build wealth, and it’s really simple. We have talked about it so many times before. You spend less than you make, and you use the difference to save, pay off debt, and invest.

Now, spending less than you make means you got to figure out where your money’s going now. You can’t spend less if you don’t know where you’re starting from, right? So, figure out where your money’s going now, and then you have to decide where you want it to go forward. Because if you’re spending everything or almost everything, you’re not magically going to spend less without putting some intention behind it. By spending less, you will free up the money to save, pay off debt, and invest.

Now, why do I say you need to save? Why is that part of building wealth? Because you need to have access to money in case of an emergency without having to pull it from your investments or putting it on a credit card. So that savings is a cushion; it’s a buffer between you and some crazy thing happening.

Why do I say pay off debt? Why is that part of building wealth? Because debt payments increase the amount you spend every month because you have those monthly payments to service the debt. And I’m not one of those people that says you should never have debt and you have to pay everything off as fast as possible, but you do need to be mindful of your debt balances and your minimum payments, especially when you have high interest debt like credit cards because the interest that you’re being charged on credit cards especially, will eat away at any returns that you’re able to get through investing. It is very hard, very uncommon to earn interest on your investments enough to outpace 25 and 30 percent interest from your credit cards. So paying off debt, getting those debt balances down, especially with the high interest debt, is a critical component to being able to build wealth.

And then finally, we talk about investing. I think that’s what people typically think about with respect to building wealth. And you want to be investing because your money will work harder for you than you ever can. It is that compound interest, that magical thing that allows your money to continue to earn more money for you.

I teach my kids that you may have to use your time to make money at first, but you keep putting that money to work to make more money until you no longer have to make money using your time. This is how you build wealth, and that is how you achieve the freedom that that article describes. And by the way, I will put a link to that article as well as a link to the book The Millionaire Next Door in the show notes, which you can find at rhothomas.com/333.

So I want you to be honest with yourself and determine if you’re using your money to look rich or if you’re using your money to build wealth. There are way too many lawyers who look great, who drive the best cars and have the best clothes and go on these great vacations and whatever else, and behind closed doors, they are overdrafting their accounts, and they’ve got tens of thousands of dollars in credit card debt, and they’re stressed and crying and worried. I don’t want that to be you.

If you haven’t gotten to the building wealth part, if you realize, like you know what, I have been using my money to look rich. That’s okay. The first step is recognition. It’s awareness. Learning or realizing that you’re in that position, right? But now that you know that you’re in that position, you’ve got to take the steps to turn that around. And so I just gave you the things that you need to do to start building wealth. Go ahead and start doing those things. Get started on that journey because the sooner you get started, the sooner you’ll be able to achieve your goals.

And if you’d like some guidance on how to implement those steps for your specific finances, apply for a coaching session at rhothomas.com/apply. Please do not be one of the many lawyers who is out here looking rich with no dollars to your name. Use all the money that you’re making, put yourself in a better financial position, and build wealth.

All right, that is it for this week’s episode. Please share this with a friend or two who can use this information. Sharing is how we get the information in the hands of more lawyers, and this one especially is something that I see very often. It’s a very common problem within the legal community, so I really want to bring awareness to it and help people start turning things around. As always, I appreciate your support.

As we close out, friend, I pray that you take the information you learn here, apply it in your life, and open up to the realization that wealth is available to you. As you do that consistently, week after week, you’ll continue to take steps to take back control of your time, build wealth, and live the life of freedom and choice you deserve. Talk to you later.