“When most people say they want to be a millionaire, what they really mean is “I want to spend a million dollars,” which is literally the opposite of being a millionaire.”

-Morgan Housel

A detective approaches the scene of a man who committed suicide. The man is slumped in his desk with his gun in his hand. After a few moments the detective declares the area a crime scene. Why?

Perhaps there was no bullet lodged in the wall when there should have been. Maybe the gun used would have made such a loud noise it should have been heard in the surrounding apartments, but wasn’t.

This line of reasoning is used extensively in detective literature. The gift of Sherlock Holmes was noticing what wasn’t there in addition to what was. To the rest of us, it becomes glaringly obvious once pointed out to us, but it’s very tricky to pick up on the absence of something.

One of my favorite personal finance books is not a finance book at all. It doesn’t teach you how to balance a budget or calculate your networth, it doesn’t even tell you how to invest your money. What it does do is make observations about spending patterns of thousands of families, and correlates it to actual wealth.

What is profound about Thomas Stanley’s The Millionaire Next Door is that you can’t help but shift your perspective on what wealth looks like from the outside. It doesn’t look like a $200k car, a vacation home by the lake, or designer clothes. It’s the absence of these items, when otherwise you might expect them.

The Millionaire next door is always one of the first books I recommend that people read when they are trying to get their spending under control. Unfortunately, through various media exposure throughout our lives, we associate wealth with spending. This is so ingrained, that I get a lot of push back when I suggest that someone’s fancy car is more likely an indicator of debt than wealth. Don’t misinterpret me here, this does not mean spending is bad, but untangling spending that helps us meet our objectives in life and status signal spending are not the same thing.

It’s very simple. Once you spend money, it’s no longer saved. This is the “secret” to wealth and is usually represented as:

Savings = Income – Expenses

But I much prefer Morgan Housel’s version:

Savings = Income – Ego 

So I think it’s worth trying to hone your detective skills, because anyone can observe what is right in front of them. It takes imagination and practice to notice the professional couple who live next to you and don’t take international vacations. How about the guy at work who always stands up for what he thinks is right because he hasn’t needed the income from his job for a decade. Or putting together the link between your manager’s Timex watch and his retirement at 50.

(Side note: It has been brought to my attention that encouraging people to observe others might come across as promoting judgement. In fact, I do believe that people watching is important but mostly as a developmental step in fostering awareness in ourselves. We can observe our neighbours behaviours and then surmise their cause and effect because we are not them and can maintain our objective viewpoint. When we observe our own behaviours, we are completely subjective and our decisions are tied up with our own emotions, needs, and stories. That’s why we are embarrassed for our Mother when she drinks too much eggnog at a Christmas party and starts a monologue in a corner, but don’t realize we do something similar at every wedding we go to. The ultimate purpose of people watching is to take that objective viewpoint and eventually turn it inwards. We’ll get better adoption if we don’t threaten ourselves too much at first.)

From there, we can start observing our own behaviours. How much of this purchase is to show others that I have wealth? Am I comparing myself with the right group of people? Can I attain the same result, with a less costly alternative? If this line of questioning bothers me, why?

Money is easy. It’s our behaviours that are complicated.

It comes down to what you actually want from your money. Do you want to signal to people that you have wealth, or do you want actual wealth? The only thing I know for sure, is that a high expense lifestyle is a sign of a high income, nothing more. It does not necessarily indicate security, freedom, or flexibility. Actual wealth is what you don’t see.