Is your flashy lifestyle costing you wealth?

Kariuki is 26 years old and works in the treasury department of a bank. He has done extremely well and moved up the ladder of career fast.

He has recently been paid a bonus of Sh500 000 due to his department’s financial performance. This is more money than Kariuki has ever seen at one go. On the first day that he received the funds Kariuki spent Sh20 000 on a night out.

By the time the weekend was over he had spent Sh50 000. He bought a phone worth Sh70 000, an entertainment system worth Sh150 000, a new stereo and rims for his car for a total of Sh100 000 and the remainder was spent on entertainment and out of town trips. It took a total of four weeks for the funds to be exhausted.

Kariuki has no awareness of the personal opportunity cost of his decision. He works in a treasury department and is aware of different investment avenues but those have always been for other people, not him.

Not yet. He makes money every day for other people but as long as his salary and bonuses maintain his lifestyle, he remains comfortable.

The beginning of the rat race

Kariuki could have grown those funds to Sh1million but his aspiration is not financial security or wealth creation but to continuously enhance his consumer lifestyle.

Whenever any money comes his way, whether through salary, bonus or even access to credit, he immediately thinks how he can spend it, what he can buy.

Many of us can relate with Kariuki and, like him, are trapped in aspiring to enhance our consumer lifestyle. We often confuse high incomes, a lifestyle or even a job title with financial security or being wealthy.

This is the cause of the rat race that many people find themselves in at around Kariuki’s age, it never stops. Usually the higher the income, the deeper the trap because the more expensive the lifestyle.

Kariuki will continue earning more money but will without a doubt start spending more. He cannot yet relate to the fact that one day he may not have a job and will be unable to maintain that lifestyle.

This could be as a result of retirement, inability to work, retrenchment or just the freedom to go and pursue other things. Kariuki will not be able to do this because he chose to spend his increasing income on consumption rather than on building assets; assets that could possibly grow to fund his lifestyle whether he remains in employment or not.

Are you aspiring towards wealth creation or a fancy lifestyle? If you choose to create wealth it can fund your lifestyle comfortably in future, but choosing a consumer driven lifestyle now will not, in some miraculous way, lead to wealth creation.

The author teaches personal financial management. Find her at www.centonomy.com