Note: This post was first published in October 2020 and updated in January 2022
A lifetime ago (i.e. back in my teenage days), I had a very short but highly memorable stint working for a moving company.
The set-up was simple.
The owner of the company, who doubled up as the CEO, CFO, CTO, driver, and mover, had offered me a job after having helped our family move to a new house.
He would call me the night before the next job and pick me up the following morning. Depending on the size of the job, there would typically be another one or two guys helping out.
It paid ten bucks an hour (which actually went a long way back in the 90s) and was a decent way to make some extra cash over the summer holiday.
The first few jobs were tiring but uneventful. Then, on a particularly sweltering day, we ended up moving a family that, for some reason, decided to bring their dishwasher, stove, and fridge to the new place.
I was questioning my choice of summer employment by the time we got the appliances out of the apartment and into the truck (almost getting crushed by a massive fridge may or may not have had something to do with it).
But the most, ahem… exciting part was yet to come.
As we were running short on time, we crammed as much furniture and boxes as possible into the lift.
One of the guys (let’s call him Sam) breathed out, squeezed into the lift, and pressed the button.
The doors closed, the lift inched up – and promptly got stuck.
Thankfully, it only took about an hour to get the lift back down and open the doors.
However, it was just enough time for all of us to decide that we weren’t coming back the following day. We finished the move, collected our $100 each, and left.
That very night, we were meeting a group of friends at the only bar that wouldn’t card us.
While I was busy with some mental acrobatics, trying to figure out how to make my money last through the upcoming stint of unemployment, Sam promptly ordered a large round of drinks, handed the pretty waitress his $100, and said:
Suffice it to say that he was the coolest guy in the bar that night.
A Different Level
Over the next two decades, I’ve seen this story play out in many different shapes and variations.
There was one of my analysts, who woke up after a wild night out to find a £5k table service receipt in his pocket.
Cue in a series of embarrassing (and unsuccessful) phone calls to everyone else present that night, trying to get them to foot some of the bill.
The associate who scored an £80k bonus (roughly £40k after taxes) and then took out an additional line of credit to buy a brand-new, top of the line BMW.
Three months later, he was let go in a massive downsizing.
And then, on a totally separate level was the senior MD who let it slip that despite having spent over 20 years in the industry, he was on an interest-only mortgage as he kept running out of money.
What made this revelation particularly ironic tragic is it came over drinks at a fancy ski resort in the French Alps.
I am beyond convinced that the same story will play out after the most recent bonus round. No matter how large the payouts, some folks will spend them all – and then some.
So why is it that some people choose to behave this way – and others don’t?
… a society where everyone makes the same amount of money. Let’s say it’s $50k a year.
Some folks will save a portion of what they earn and spend the rest.
Some others will spend the whole lot.
Yet another group will spend the whole lot, then borrow some more money – and spend that too.
There’s no judgment here. The beauty of living in a free country is that everyone is welcome to do as their heart desires.
However, the challenge for everyone in the first two groups is that they will ALWAYS feel poor.
Humans are social creatures. Whether consciously or not, we compare ourselves to others all the time.
And when others have things that we don’t, it is only natural to feel that they are richer than us.
What exacerbates the situation is the fact that possessions are visible. Ostentatious spending – even more so.
By default, folks who spend a lot of money are signaling wealth. But as Morgan Housel puts it in the Psychology of Money:
Someone driving a $100,000 car might be wealthy. But the only data point you have about their wealth is that they have $100,000 less than they did before they bought the car.
Because, as he goes on to explain, it’s the money NOT spent that actually makes you wealthy:
Wealth is the nice cars not purchased.
The diamonds not bought.
The watches not worn, the clothes forgone, and the first-class upgrade declined.
In my experience, it’s that analyst who maxes out dinner allowance to buy groceries, skips out on fancy but forgettable bottle service, and invests in property instead.
In other words, wealth is what you don’t see. And if you want to be wealthy, that’s what you need to focus on.
As always, thank you for reading – and happy investing!
About Banker On Fire
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Banker On FIRE is a London-based M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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