It's what you don't see that matters.

I spent most of August in the UK with my family.  I always find that when I am away the different perspective and different people make me think about things, well, differently…

This year we once again did a very successful house swap ( I HIGHLY recommend house swaps) and we caught up with way more friends than we normally do.  There was one thing that struck me about everyone that we saw.  And that was THEIR CARS.  They all had REALLY NICE CARS.

Maybe I noticed because we don’t have particularly nice cars.  Our cars are fine, but we have never purchased a new car.  I think the average age, at purchase, of our cars is between 8 and 10 years.

At the same time as admiring everyone’s cars, I happened to listen to a podcast with Morgan Housel, one of my favourite writers.  In it, he said ‘wealth is what you don’t see’. 

Think about that for a minute, it’s really powerful.

If you see someone with a $100,000 car, what do you actually know about their wealth?  Well, as Morgan wisely points out, all you know is that they either have $100,000 less in the bank, or $100,000 more in debt than they did before they bought the car. 

The problem is that as humans we have many biases and shortcuts that our brains make every day (they are called heuristics).  When we see someone with fancy things, we conclude they are ‘rich’.  What we don’t do is think about their bank account (which we can’t see), their investment accounts (which we can’t see) or their pension funds (which we can’t see). 

If you didn’t know Warren Buffet and he invited you around for a cup of tea, you might assume that this 90 year old man had held a mid-level manufacturing job during his career and retired sometime in his 60s.  What you don’t see when entering his house (which is the same house that he has lived in since 1958) is the $85 billion of Berkshire Hathaway stock that he owns.  It’s not parked in the driveway, displayed on the walls (I don’t think) or draped around his body.  But it sure does exist.

The problem for us humans is that getting rich (define that for yourself) and buying nice stuff compete with one another.  And it’s a competition that we face every day. 

Dan Ariely (Professor of Psychology and Behavioural Economics) talks about this as opportunity cost. When we spend money on one thing it is impossible for us to think about all the other things we could have done with that money, both now and in the future, and make a decision based on that analysis. We don’t have a way of seeing what we are giving up when we buy the car, or the boat, or the watch or the shoes, or even just the coffee. And we therefore behave as if there is no opportunity cost.

So my challenge to you is two-fold. One, rethink your view of wealth - what is it? What does it mean to you? Is it really about things or about a number? And two, pause. Spend the next week pausing each time you are about to spend money - either on a big thing or a small thing. Consider for a moment what you could do with that money if you didn’t spend it right now. The opportunity cost is real.

georgie@libertywealth.ky