How do you retain and manage the money you have right now without falling into the lifestyle trap? I see it all the time: the minute somebody’s business hits some momentum or they hit a certain milestone, they start looking at your peers who are making the amount they just built up to, and they start comparing your lifestyle to those peers. They think that because someone else in the same income bracket as them can afford those things, they should be able to as well. But there’s a reason I call it a trap, and I’m going to share why with you.
You should not be financing your lifestyle off of your income. You should be financing your lifestyle on your net worth. And building up your net worth takes more time than hitting one milestone for the first time. Growing your business is going to involve spending money before you start making more, and not having that money wrapped up in something you can barely afford is going to offer you the ability to make the moves necessary to keep growing.
The lifestyle trap is easy to fall for because of two big reasons. The first is peer pressure. When you see your peers living a certain lifestyle and you know what they make, you start to think that it’s attainable at that level. What you don’t know is whether or not your peers are doing it wrong, financing everything, or have been at that income level long enough that they’ve built up their net worth.
The second reason people fall for it is they feel like they’ve earned it. You’ve been chasing this carrot, and you’ve told yourself that when you reach a certain level you’re going to treat yourself. But – other than your home – you have not truly earned it unless you can pay cash for it. That doesn’t mean you have to pay cash for it, but you should be able to.
You never want to be living off of tomorrow’s money. If you can control your finances so that you’re living off of old money – money you made a year ago or more – you will always be ahead of the game financially.